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Ask Leo: Is your home is an asset ?

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@r1s2g3
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Ask Leo: Is your home is an asset ?

I guess answer to this question will be dependent upon the geographic area and location of your place, how the value of real state/houses growing on yearly basis and what amount you have to pay in rent for your house if you are paying rent for the house in which you are living.


Source

I will like to take an example from my country and let me analyze and provide some fact before we can really make our mind if "owning" a home is an asset.

Cost of living in rented house in India.

Let us assume you are living in rented house and paying monthly rent for that house. It depends now that how much you are paying yearly. In my case it comes to typically 3% of the house cost that you pay in yearly rent. When I think about how much your house is appreciating in value per year then reports put the following numbers.

According to the data, during the initial 5-year period between 2010 to Q1 2020, the average property prices increased by 5-7 per cent year-on-year but thereafter it came in the range of 0-2 per cent.

Source

So as per report ,housing property appreciation is now very much limited 2% per year only.

So it look that on average you can get maximum return of 5% per year on a house.

Cost owning the House.

Owning the house is not actually a "free" thing, you have to pay the house tax for it . You also need to perform the maintenance of the house also on regular basis. This will be really take a cut from your 5% of your earnings and overall earning from a house (as an investment) perspective is too low.

Why house start looking liability to me.

In our country, one of the worst form of investment i.e Fixed deposit pays interest >=5% per annum. If you fall in max tax slab of 30% , then still you are earning more then 3.5% yearly. If you went to sell the house, it will be very time consuming process and may be you will not be able to get correct market remuneration if you have to sell it urgently.
So it does not make any sense to have a house for a investment, when even FD can give you more "guaranteed" returns and having all my money liquid. And if you have taken a loan to buy a house then it is really a very bad investment.

Factors that still urge to buy a house in India.

We analyzed that buying a house is not at all good investment but still houses still get sold and I recognize below reason for the house sell.

1. Personal Use: Most of the house get sold for the personal use by family and they are really not looking at house as an "investment" that's why user are also taking a loan to buy the house.

2. Proud feeling : Many buy the expensive houses to make themselves feel proud and "investment" logic is non-existent there.

3. Bring freedom and mental peace: Intangible benefits of having your own house are great as it give you freedom to remodel/construct the house according to your taste, there is no landlord to dictate the terms of usage and most important you do not have hassle to find a new house after every couple of years

Still in my country ,house is considered as an asset though it's ROI looks negative to me.
So ,Is House is really an asset in your country?

Posted Using LeoFinance Beta