To buy or to rent, that is the question for many young millennials trying to maximise their long-term wealth. If you’re pondering your options, let this article be your guiding light.
The quintessential rent-versus-buy dilemma is rooted in a time-served debate: short-term savings or long-term wealth maximisation? Research shows that buyers who purchase their first homes before the age of 35 are more financially secure by the time they retire by 60.
In India, millennial aspirations with regard to property have undergone a metamorphosis in recent years. No longer is a home considered just a capital-boosting asset; it has become a canvas of self-expression, inspired by thoughtful considerations. Today, hopeful homeowners are young, savvy and self-assured. They are bolstered to buy property thanks to rising incomes, increased purchasing power and easier access to credit.
Wealth As a Lifestyle Enabler
Wealth eclipses income as a lifestyle enabler in one’s autumn years, and buying a home young can go a long way in planning for one’s retirement. The motivation to invest young ought to be seeded in the prospect of long-term capital gains. Of course, with luxe urban properties pegged at astronomical price tags, taking the property plunge entails significant consideration for young Indians. Yet, homebuyers are willing to stretch their savings to make it happen. With banks only letting out loans at 80-85% of the total property value, buyers are compelled to fork out the balance via their personal savings in the way of down payment. One study by ET Wealth showed that one in three Indians dipped into as much as 50% of their life savings to provision for their down payment.
The Importance of Building Wealth Young
We all know the importance of garnering wealth, but there are specific benefits to being asset-rich that can move the needle for millennials with a rental mindset. An asset-rich portfolio can provide lifetime benefits for an individual. While income is often absorbed into working capital in the way of rent, groceries, transportation and daily expenses, wealth – defined as the difference between one’s assets and debt – serves as a layer of financial security against income fluctuations, financial crises and unplanned expenses. It can change the economic ecosystem for a family and transcend generations. Studies show a child born into an affluent family is six times as likely to become an affluent adult than a child who grows up in poverty.
The Home Ownership Equation
Home ownership is the central cog in the wealth maximisation engine. In America, Federal Reserve statistics show that in 2015, the average net worth of an American homeowner was $195,400, versus just $5,400 for a renter. A similar analogy would hold true for India. If you’re still contemplating the merits of buying a home young, here are some points to tip you over the edge.
It Is a Valuable Investment
Property can stand the test of time, weathering the seasons and serving as a robust long-term investment. With property rates in India growing at an annual average of 8.1%, you can rest assured your investment will result in good home equity and increased net worth in the long term.
It Leverages Debt
Debt isn’t all bad. As your home appreciates over time, equity will start to accumulate on the total value of your home, including your debt component. That means, if you bought a home for Rs. 50 Lakh with a Rs. 10 Lakh down payment, and earned 5% appreciation, you would build equity on the entire value of the home, as if you had put down all the money yourself. Effectively, that means you would have leveraged your Rs. 10 Lakh into a Rs. 50 Lakh investment.
It Forces You to Save
Squeezing your savings and taking a loan forces you to build a savings’ system geared towards equity. And when you’ve paid off your loan entirely, you have a shining prize to show for it – a house you can call your own.
India is witnessing a sea change in property buying trends among young millennials. With homebuyers more inclined towards investing young, a long-term capital building mechanism is starting to take shape – one that will set the stage for a sound urban retirement ecosystem decades from now.