REALTY VS EQUITY: IS A SECOND HOUSE, AN INVESTMENT?

For decades, investment in real estate was considered a surefire way to wealth. But does that still hold true today? With rising costs, low yields, and better alternatives, the case for a second property as an investment needs a hard look.

- MRIN AGARWAL

First, the math! While many believe that real estate gives easy double-digit returns, the reality shown by the all-India house price index is that residential price increases have varied from 2-8% per annum (depending upon the city) in the last decade. Rental yields in most cities average 2-4%.

To evaluate returns, one must remember to add various costs like registration, interior design, maintenance, and repairs and renovation. Taking all this into account, property typically returns 7-8% p.a. Most property investments are funded through loans, which lowers the effective return.

For example, Mr X buys a house worth ₹1 crore with a ₹20 lakh down payment and an ₹80 lakh loan at 8% interest. His EMI works out to about ₹66,000. Over 20 years, he ends up paying roughly ₹1.58 crore in EMIs, of which about half is interest, so the total cost of ownership becomes around ₹1.78 crore.