Should you buy a house? (And Who Should Not Buy a House)

Note: This particular post is URBAN INDIA specific advice given that I live in Urban India, although I’m quite certain the situation is similar in many other parts of the world.

Over a decade of being in tax/law consulting, this is a question I’ve received hundreds of times from hundreds of people.

The answer is not simple and depends on the person’s situation and income levels. I’ll give you what I usually tell clients depending on the situation.

First let me go over the big reasons why people want to or don’t want to buy a house:

Why Buy a House

There are a few big reasons:

1. You are already paying rent. Might as well pay a housing loan instead.
2. It is a nice investment. Houses tend to preserve their value over time.
3. You have a stable place to live where you can do whatever you want. You don’t need to move out every year or five and don’t have a landlord to deal with.
4. It increases your social standing.
5. Gives your children something to inherit and a platform to build upon (they don’t have to pay rent).

Why Not Buy a House

A few big reasons:

1. It can take forever to pay it off for people with a “normal” income. The housing loan EMIs can be 2-3 times the rent and can absorb all of your disposable income. Basically you will have lower quality of life for the next 15-20 years until you pay off the house.
2. You are tied down to 1 location for the rest of your life (massive loss of freedom).
3. You end up with most of your net worth in 1 asset (that is illiquid and emotionally difficult to sell).
4. Renting is far cheaper than buying given India’s overinflated housing market. You can rent a house that costs ₹2 crore (~$200k) for ₹4-6 lakh a year (~$4-6k) i.e. 2-3% yield which is very low globally.
5. It is possible that house prices in the current city centers will fall over time (after accounting for inflation) because of better connectivity for outer areas (e.g. many people can live outside the city and use metros to travel to work), work from home allowing for people to work from their hometowns rather than move to cities, etc.

Who Should Buy a House

I only recommend buying a house in a few situations:

1. You have a very high income (can afford to buy the house without a loan) AND you are sure you want to live in that location for the next decade (e.g. you have school going children).
2. You will need a housing loan but can pay it off in the next 10 years (e.g. the house is cheap or you already have some investments and savings you can mobilize)
3. You have made some nice gains in your investments (e.g. crypto, stocks, etc.) and want to park your money in a relatively safe asset.

If you do not fit these 3 criteria, you should not buy a house.

Note: The big exception to these rules is if your city is going though a big property price bubble formation phase. In these times it makes sense to buy whatever you can and sell it at a nice profit a few years later.

You might be asking why, and here are the reasons:

First of all, the only reason to buy a house in the current socio-economic environment is just convenience and social respect. The financial incentives are just not there.

1. Housing prices in Indian cities are ultra-inflated. There was a big real estate bubble from 2005 to 2013 that burst and prices have stagnated since then.
2. Rent costs in Indian cities are very low when compared to the market price of the house. Again, annual yield in India is about 2-3%. In fact, the yield is even lower because house owners need to pay for maintenance, property taxes, and income taxes on rent. You are left with very little as a landlord.
3. Real estate price appreciation just isn’t there. Prices are so high that it is already impossible for most young people to buy a house in a city no matter what they do (they can only buy around the extreme outskirts).

Financially, home prices in many cities have not grown much in 10+ years and you are much better off investing your money in the stock market or mutual funds or something else.

Basically the only big reason to buy a house is the convenience factor (you don’t have to move out every few years, you don’t have to deal with a landlord for permission to change things, etc.).

If you have a high income, the convenience factor is worth it. You control your living quarters and can do whatever you want without having to talk to your landlord first.

If you have a high income and want to invest in a house, go for it. You are covered in the scenarios above.

On the other hand, if you are like most people who do not have a high income (you cannot pay off a house in less than 10 years), it makes NO SENSE to purchase a house at current prices.

You can just rent the house you want for absurdly low rates. I mean, it’s ridiculous how cheap rent is here. You are literally paying just 2-3% to stay in the exact same place.

Actually even less than that because if you owned the house, you’d be paying property taxes and home maintenance from your own pocket.

At the time of writing, a ₹2 crore flat will cost ₹120-150k a month housing loan EMI (plus society maintenance and property tax) vs just ₹40-60k a month to rent.

Why would you take a 15, 20, 25, or 30 year loan to buy a house when you can live in it so cheaply? It does not make sense.

Just rent it.

By taking a huge loan on a non-very-high income, you are turning yourself from a free man to a slave.

You go from using your disposable income to live your life to using all of your disposable income to pay back the debt.

Because you have payment obligations and no more disposable income for the next 15, 20, 25, or 30 years you are essentially turned into a slave who must keep working to make payments for the rest of your working life.

You can’t quit. You can’t take risks. You can’t move to a different city for better opportunities.

It sucks. I know plenty of people who do this to themselves and they all regret it.

They are extremely stressed during market downturns because they are afraid of losing their jobs or seeing a decline in business profits.

Because they know that if they don’t make an income, they cannot pay the loans.

People do not understand how long 20 years are.

20 years is almost the entirety of your remaining best/high-energy years.

If you are 30 or 35 today, you will be 50 or 55 in 20 years. You will have lost much of your ability to travel and enjoy life just to be the owner of a house as a senior citizen.

And guess what:

If you are not very high income, you are probably going to end up buying a house in an area your children will not want to live in when they are older.

Most normal income people who buy a house with a loan do so in the outer areas of their city (suburbs and beyond).

They do it because they “don’t want their children to have to struggle to have a house” (I’ve heard this phrase from 100+ clients at this point).

When their children get older, they realize that their children do not end up living there anyway (they live on rent elsewhere).

This hits older people like a truck when it happens.

They spent 20-30 years saving every penny and paying off loans to own a house “for their children” only to later realize their children have better opportunities in a different city (or country) so they’ve moved there to live on rent.

The house they spent their entire life to own just becomes a saleable property for their children once they are dead.

I’ve seen this play out many many times. People will live a miserable miserly life to get a house and some investments in order while their children live elsewhere and don’t give a flying fuck about that house except whatever they can get from selling it.

When the couple dies, the children fly back to their home city for a month and sell the house and all their investments at whatever price they can get and then go back to living their life in their new city/country.

The older couple would have been much better off had they used the money to live a good life for themselves and invested their surplus money in the stock market.

Remember you’ve got 1 life.

It will end the day you die.

Your material possessions will not follow you to the afterlife.

That includes the house you live in.

That’s all for today.

See you next time.

Your man,

Harsh Strongman