I disagree with Author that house is asset as it doesn't generate any values for you. Even though home value gets increased, you are going to sell your home.
Staying on rent is a better option if you have to choose one your own house or rented house. It is meant for those who already staying in their homes :)
Moreover, in no metro cities, you can buy a home in 25 L and rent for flat which costs 35L may be maximum 7-8 K (exceptions are excluded).
RE:House is not an asset
by Ramesh on May 03, 2007 02:18 PM Permalink
sachin,
fail to understand ur logic. if you own a property & it appreciates in value, how is an asset not created. also why is it compulsory to sell the property as stated by you?
get your facts about property prices right. the rates mentioned are perfect in my locality in a western suburb in mumbai (which for your information is a metro)
RE:RE:House is not an asset
by umesh gupta on May 07, 2007 11:24 AM Permalink
but will that property (bought at Rs 25 lacs) fetch a rent of Rs 13500 per month...no way...hence the cost of living on rent would come down drastically...
RE:House is not an asset
by on May 11, 2007 07:17 PM Permalink
you are not going to make any money in ur life..In our country there is only 1 asset..that is real estate
One point that everyone seems to haver missed is that if you self-occupy the house property which you have purchased on loan and for which you are paying substantial EMI, then whatever maybe the property's valuation at any given point of time, it is not fetching you any income unless you move out of it and let it out.Besides,the outstanding loan is a liability which you have to bear till the end of the loan tenure.
Slightly digressing off the topic, I wish to let the users know about certain points of IT Sections 22, 23 and 24. These sections deal with "Income from House Property".
- Under section 22, every owned property classifies under the 'Income from house property' section. - The qualification of owned property means that the construction is complete, the local authority has issued a completion certificate and you are in possession of the property. - However u/s 23, one of the properties amongst the all you own is exempt from 'Income from house property' provided that you are occupying the property for self and not deriving any rent. For example, you may own a property in City A and may be living on rent in City B (maybe in City A itself) but if the first-owned property is not rented out then the exemption applies. - If the property is not self-occupied and is let out on rent then Rental income is taxable under the head 'Income from house property'. - Any second property or subsequent, regardless whether self-occupied, unoccupied/unlet, or let for rent is liable for 'Income from house property'. - Note the phrase "unoccupied and/or unlet". You may not be deriving any real income from the 2nd property but for the purpose of Income Tax, Annual value of property is assessed to tax in the hands of the owner even if he is not in receipt of the income. - Income from subletting is not taxable under section 22. - It is only the owner (or deemed owner) of house property who is liable to tax on income under this head. Owner may be an individual, firm, company, cooperative society or association of persons. - Section 27 of the Income Tax Act provides that, in certain circumstances, persons who are not legal owners are to be treated as deemed owners of house property for the purpose of tax liability under this head. - Ownership must be of the superstructure, i.e., the building or flat in a block of flats. It is not necessary that the assessee is also the owner of the land.
Having said that:
The basis of calculating Income from House property is the 'annual value'. This is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year.
'Annual Value' is taken as the highest of - Rent payable by the tenant (actual rent) - Municipal valuation of the property. - Fair rental value (market value of a similar property in the same area). - Standard rent payable under the Rent Control Act.
From the 'Income from house property', the following deductions are allowed: - Actual Municipal Taxes Paid by the owner: Only for 2nd property onwards. Since the first self-occupied property is exempt for income this is not applicable. - Deductions under Section 24: (a) 30% of the net annual value as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred. (b) Interest on borrowed capital: In case the property is let out, the entire amount of interest accrued during the year is deductible. The borrowals may be for construction/acquisition or repairs/renewals. (For self-occupied first property the interest amount eligible for deduction is limited to Rs. 1,50,000 provided that the loan was taken after 1999 and the property is complete and possession handed over)
Interest attributable to period prior to construction/acquisition: Money may be borrowed prior to the acquisition or construction of the property. In such a case, the period commencing from the date of borrowing and ending on the date of repayment of loan or on March 31 immediately preceeding the date of acquisition or completion of construction, whichever is earlier, is termed as the pre-construction period. The interest paid/payable for the pre-construction period is to be aggregated and claimed as deduction in five equal instalments during five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.
It should be noted that:
a) brokerage paid for any purpose is not allowed for exemption b) Interest on Interest is not allowed
Apart from all these economics and statistics don't you get a peace, happiness when you are in your own house? Most people buy houses not for the seck of investment. They want ownership, feel of achivement, peace of mind. No rented place can give that.
As most of you have mentioned the author's assumptions, examples and conclusion are completely out of date, if not rediculous.
a) Nothing (not even decent) is available for 25L in metros. b) Nothing (decent) is available for 25L in upcoming Tier-II cities. c) Rs 25L worth property is not worth to fetch Rs. 7000 in rent but other circumstances may prevail.
Having said that, the author has admitted that may other external factors such as appreciation, emotional/physical security, etc. have not been considered.
All in all, one need not go by absolute values. Use the worksheet as a template and work out your own calculations and conclusions.
RE:Author's assumptions
by Sujit Bhattacharjee on May 02, 2007 04:21 PM Permalink
Hello, go to Kolkata and you find very good Houses at a very low Price. You are talking of Tier-II Cities. There is full chance of finding a good House at this Price. Update yourself.
RE:Author's assumptions
by Vijay B on May 02, 2007 09:43 PM Permalink
Really? Then I guess you are lucky. In my city (Pune) nothing is available below 30L and that too in the outskirts and fringe areas.
RE:Author's assumptions
by pradeep kumar on May 02, 2007 04:26 PM Permalink
Who wants to stay in socialist world. when everybody is looking for capitalistic world. U know why the rate of culcutta is so low. It will never improve, no appreciation.. then why buy there?
RE:Author's assumptions
by pawan bhutani on May 02, 2007 11:06 PM Permalink
i am staying in south delhi. in 25L you can get a 32 square metres, two room set flat at third floor. if you are earning 45000 rs per month, then you will never buy such property for your living. you will look for a property definitely costing more than 50L. here you can get a 2 bedroom flat easily in 8000. now relook your calculations using this data.
I would like to mention 2 points which writer forgot to add. 1.in option 2 he has to mentioned add the rent which every month he is having if he go for new house. 2.What about the appreciation of house after 20 years.
RE:House Rent and property cose Missing thing
by on May 02, 2007 01:59 PM Permalink
In a modest scenario the property appreciates by 10%. So roughly at the end of 7 years the value is doubled. But then a 7 year old property will never fetch the price of a brand new property.
Also one must remember that if the property in question is the only property one will never sell it unless in extreme and dire conditions. Hence the value is on paper.
But the feeling of having a self owned property is priceless, the security unimaginable.
RE:House Rent and property cose Missing thing
by Nitin Srivastava on May 02, 2007 02:19 PM Permalink
I am not agree with you that old property will never fetch the price of brand new property.Price of property mostly depends upon the location in first priority. and one more thing in the 2nd option rent should be alos negate since now you will be not giving any rent for next 20 years.
In the current scenario, for the short term (say the next two years) it is advisable to stay in a rented accomodation.
But in the longer term, it is a given mandate that you must own a property - even a small 1 bedroom flat would do if one cannot afford a larger abode.
The interest rates are liable to come down again but be sure that the rates may take never go below 7%. Why? Simply because there are a lot of old and retired people who survive on interest out of retirement funds. For borrowing rate interest to touch 7%, means that the banks/FCs cannot offer more than 5.5% on FDs and this is an estimate on the higher side.
Although I said that the rates are liable to come down it may take nearly three years to see the lows of 2004. So stay in rented accomodation till then.
It saddens me to see that many people went in for floating rates at 7%~7.5% in 2004. Most were duped by the bank/HFC executives that going on a floating rate was the best option as rates were going south all the time. Also they added that fixed rates are never really fixed. However if common sense should have prevailed and one really had given a speculation on to how much the rates would fall further, he would have seen the light.
Although fixed rates also get revised, they are done so after a two year period. But my bank (ICICI) has not done so for the past two and half years.
My advice is, wait for six months. If the situation does not seem easing out then:
a) If your interest burden is killing you (going to kill you) sell your property. Depending upon when you purchased it, you would have gained considerable appreciation. If you can bear the burden then keep it and nothing below applies. b) You may loose interest benefit on Rs. 1,50,000 u/s 24 of IT-Act (a tax benefit of Rs. 51,000 approx in the highest tax bracket) but your rent paid is also completely exempt from tax to the tune of 40% of basic DA (50% in the four metros). c) The tax benefit on loan pricipal is clubbed in 80c along with PF, PPF, NSC, LIC, etc. Assuming that you have PF, PPF, LIC and using Rs. 50K plus, then the saving on principal is not of great significance. d) There is a penalty for pre-payment of loan. Every bank had their own rules. Check them out. For example, my loan agreement says that I can pre-pay only three times during a year. However my loan executive told me a loophole - he said that to avoid foreclosure charges, I could pay upto 99% of the outstanding payment without attracting any penalty. I checked in the loan agreement and there is no mention on how much I could pre-pay. It only mentions charges on full closure. e) If you are lucky to sell your property at good appreciated rate and also escape with a relatively small penalty, then use the amount that you would have paid as principal amount and invest in SIPs or PPF. PPF pays 8% and you can have PPF accounts in the name of all your family members (make sure that you don't open two PPF accounts in your own name).
Selling the property may sound defeatist at the moment but this is a short term measure only. Re-think the buying option in two/three years time. The downside is that the property prices usually never come down.
p/s. I do not claim subject expertise in any matter. I am just a commoner like most of you all. What suits to one may not sound sensible to the other.
