The stories are dark. The narrators are starkly different from each other. The only common thread that runs through these poignant stories is the 'obsession' to own a home and finances that are stretched beyond repair. After listening to the stories - told by the victims as well as financial advisors - you ask yourself: Is the desire to own a home at any cost causing irreparable damage to individual lives and finances?
Consider these two stories. The first couple, barely making Rs 35,000 a month, bought a house in a far-off place in Navi Mumbai. They bought the house only for sentimental reasons, knowing very well that they can't stay there. "When I met them for the first time, the wife started crying and said that they can barely afford even a meal at a restaurant because they were paying EMI plus rent and the EMI has shot up because of higher interest rates," says a financial planner, who doesn't want to be named.
Another young couple in their thirties also bought a house in a posh locality in a happening suburb in Mumbai. They almost overshot their budget by 75%, and paid around 1.5 crore for it. Then came the interest rate shock and the extra EMI, plus living in a posh apartment also meant shelling out more for services, and opting for bigger cars and brands. "The husband took a foreign assignment to earn some extra bucks. The wife has some health issues, but can't quit her job because of their financial commitments. It is a real sad case," says another financial planner.
"These days, it is not uncommon to come across people who have exhausted their home loan eligibility and taken personal loans and used all their savings to own a house," says Suresh Sadagopan, principal financial planner at Ladder7 Financial Advisories. "Naturally, there is tremendous pressure on their finances because of EMIs. Since most of them have a floating rate loan, they also have to bear the brunt of higher interest rates," he adds.
"Many people are struggling with their home loan EMIs because of the higher real estate prices and interest rates. They also have to face uncertainties on the job front, and also their incomes are not keeping pace with inflation and expenses," says D Sundararajan, investment consultant at Trendy Investments. "Some of them resort to distress sale as the last option, but some still go on carrying the burden," he adds.
His advice to his clients:
It just doesn't make sense to be aggressive when it comes to buying a house now because of the higher real estate prices and interest rates. "You can pay very little - around 2-3% of the capital value - as rent and stay in the same place," he says. Sadagopan also advocates rental accommodation. Mukund Seshadri, proprietor, MSVentures Financial Planners, says people should realise that they have multiple goals to take care of in life and house is just one of them. "If you pay a huge EMI for next 20 years and left with just five years for retirement, you would be in real trouble," he says.
However, for most people buying a house is an emotional decision and it is not easy to reason with them. "Buy a house if you can really afford it, but don't become obsessive and give up all financial prudence," says Sadagopan. Sundararjan also advises individuals to limit all their EMIs to 50% of their income. "If you exceed this limit, you could be in trouble," he says.
Financial experts say most of the arguments in favour of buying a house such as inconvenience of staying on rent, the wastage of money, 'you won't be able to buy a house if you don't buy one now' and so on, just don't hold water. "Sure, property prices have gone up phenomenally in the past five-six years and the prices have once again gone up after a small correction, but prices can't go up by 30% every year. It has to be in single-digit, may be on the higher side, in the long term," says Sadagopan. "If you stay on rent, then you will be paying only a fraction of the amount and you will also save a lot."
Source-The Economic Times