Should i buy a property/flat on installments?


Suppose, a real estate firm approaches you to pitch for the sale of  its upcoming “tower” apartments. The rates quoted by them for a 3-BHK is as follows:

Payment Plan
Plan-A 1140 sqft (126 sq.yards)
Price: 27.50 Lacs
Booking amount Rs. 7.5 Lacs
S. No.
Instalments
Amount (Rs)
1
60 months × 30 thousand
1800000
2
1 Jan 2023
100000
3
1 Feb 2023
100000

Total
2000000


They are repeatedly stressing on the Price: 27.5 Lakhs and peripherals including the park, gym, cafeteria, community hall, prayer hall along with imaginary photos of the future facilities to distract you from the actual price. And of course, the friendly payment schedule. The question one must ask is “is the price of the flat really 27.5 Lakhs?” (the actual money you will pay them including the booking amount of 7.5 lakh, 60 installments of ₹30000 each and two in-betweeners of ₹100000). Or in other words, will that flat cost me 27.5 Lakhs? The answer is a big NO. And that is because of the lost opportunity to earn profits on the amount you would pay the builder.
Suppose you invest the same amount in a mutual fund or in Shariah compliant stocks portfolio in the same payment schedule. Assuming a rate of 15% return. The initial investment of ₹750000 will turn into   ₹ 15,08,517.89 in 5 years. And the monthly SIPs of ₹30000 for 60 months along with two in-betweeners of ₹ 100000 at the end of the 4th year will compound to ₹ 29,21,168.55. In other words, if you invest your money in a mutual fund using the same payment schedule as the builder is asking you will end up will an amount of ₹ 46,29,686.44 or 46.29 Lakhs at the end of 5th year.
Alternatively, the flat is going to cost you 46.29 Lakhs (which is approx. 70% more than the quoted price)instead of 27.5 Lakhs quoted by the builder. Now, if you think that is an appropriate price of the property you may go for it or alternatively go for aggressive investing.  

Comments

  1. UnknownFebruary 28, 2019 at 3:46 AM

    Thanks Dr. Tariq Aziz for sharing your logical calculations. This will be very useful for new flat buyers and a pinch to builders..

    ReplyDelete

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