Buying Property – At what age to start?

Everyone wants a home of their own! It is a basic human need and although many
Indians still cannot afford to own their own homes, for those that can, it is a matter of
great pride and accomplishment.

People buy property for many reasons. First and foremost, for self-use. Secondly for
investment purposes and thirdly to leave a legacy for their children. For most people,
finances are the main consideration when buying property. They may find their
dream home, but that is just the beginning. Property investment involves intensive
financial planning and risk assessment.

Buyers must consider their earning capacity, savings, their liabilities (dependent
parents etc.) & their financial credibility with their bank since loans are now how most homes are financed.

While property investment has always been an important asset creation tool, in the
past it was mostly older, wealthy individuals and businessmen who dominated the
real estate markets. With the rise in incomes over the years however, the
increasingly affluent Indian middle-class population is also keen to invest in property
which they see as a lucrative, lasting asset. As buyers become younger, it is
important to consider whether age matters in property investment and how. What
age is ideal to begin investing? Should people near retirement consider buying a
property? Do the young have an advantage over the old in property investment?
These are some the questions we will consider.

Buying Young (Before 40)

As the average salaries in India have increased, so has the buying power of its
people. Even young professionals in their 20’s can now seriously consider investing
in property if they have good solid saving and investment plans. Double-Income-No-
Kids couples have an advantage in this regard as they can save more before they
have to take on children’s expenses. They are also the most favourably viewed
demographic by banks for home-loans, since their youth makes them relatively low
risk customers with long careers and an assured income ahead of them.
If your financial status allows, the earlier you start investing in property, the better
returns you will get, as profits from property will compound with time. You may not be
able to invest in your dream home right away, but you can always upgrade as your
financial status improves.

However, here are some important guidelines from the experts to keep in mind if you are planning to invest or buy a property at a young age.

  • Plan to save an emergency fund that will meet your monthly expenses and EMIs for at least a year before you go ahead. This will be a safeguard against unexpected job loss and other emergencies.
  • Keep in mind that EMI should NOT be more than 30% of your monthly income.
  • Try to save an amount equal to expected EMI from your monthly income. This can be invested in a longterm financial asset (e.g. mutual funds) so that a corpus is built up that can be used to pre-pay your loan if you wish.
  • Life Insurance is a good safety net to have in case of unforeseen emergencies. If you are unmarried you should have a Term plan for at least 125% of your loan amount. If you are married the plan should be at least 200% of the loan amount. In case of a tragedy, this amount will ensure repayment of the home loan and take care of future family expenses for a while.
  • Most home loans come with tax benefits. If you are keen on pre-payment check the pros and cons with your bank at the time of taking the loan. Sometimes banks levy penalties on pre-payment to make up for their loss in interest.

Buying Later (After 40)

Older buyers often have a financial advantage over younger ones in the form of
savings and investments which can finance a down payment on property.
Experts opine that having 30-40% for the down payment of property is ideal.

However, although banks today are more open to granting home loans to older
customers, the repayment tenures are often shorter, 15-20 years instead of the
average 25-30 years. This leads to higher EMIs and can put a strain on day-to-day
finances especially since these families often have to budget for children’s
educations and marriages. Also, post-50 most people start planning for their
retirement and property-investment may not be their first priority. However, if they
are staying in rented accommodation, it would be beneficial to own their own home
and pay EMIs instead of rent so as to build an asset that can then be passed on to
their children.

Ideal Age for Buying (30-35 years)

Experts opine that individuals in their early to mid-30’s are in the ideal situation to
invest in property given their average incomes, career length and loan-repayment
capability. Buying a home in their 30’s means most people can aim to be free from
mortgage by the time they are ready to retire. Double-income families and individuals
in Metros have the added advantage of earning high incomes.

Although buying property for investment purposes might be easier for younger
customers, age is by no means the only factor that affects investment decisions.
Buying property for self-use is by no means age-dependent – old and young buyers
who have lived in rented properties might prefer to invest in their own homes and save on rent while creating an invaluable asset for their future. Property can be used
to raise funds in emergencies and is a valuable asset that can be passed through
generations.

Given the premium on space in India, property will always remain a valuable & safe investment that will yield good returns at every age!

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