If you have been following my blog, you may have seen more articles about ‘renting vs. buying’ here is the next instalment.
“If I buy a house, I get a tax break.”
Business men also get tax breaks when they make losses or incur expenses! As do share buyers, – all are bad deals! The interest on loans for houses (mortgages) and shares (margin balances) is tax-deductible. Interest on monies borrowed to do business (even a loss making business) is tax-deductible. But the rates are almost always too high. A house loan presently costs 12.5% interest (forget what SBI has done – reducing rates to 8%!) while a shares loan costs about 15%. The nominal returns of 3% for houses and 10% for stocks aren’t high enough to justify those rates. The tax breaks aren’t really breaks at all. Most people forget that if they do earn a HRA and pay rent that rent is also tax deductible. So where is the fun?
“Do you understand the EQ of a house? Or The pride of home ownership?”
I do not. Sorry, but I do not. I also do not know why people buy. Among my clients who buy many houses – some of them have been thrown out. Some of them come from very insecure backgrounds. One was asked to go out of the house in the middle of the night. One had to take refuge in his in-law’s house.
However none of them were thrown out of a rented house. If a landlord throws you out, you should find another landlord that is all. So home ownership pride is not for me. I define ownership as no longer having to pay for something and being able to do as I please with it. I own my car. House owners must pay taxes each year even when their mortgage payments are over – of course I pay my car insurance! In certain houses they can’t even make changes to the houses they’ve paid for without seeking the approval of others. Then they must attend ‘society’ meetings. Personally, I feel the pride of ownership for shares of businesses (in which I am dripping in red in the current market), and I’m proud to occupy a nice place while leaving the burden of poor returns and maintenance to someone else.
“You are anti-subsidy, but they’ve helped many people afford homes.”
I completely agree. So will Karl Marx. However, I am a product of the capital market. Capital Market players laugh. The ‘own your house mafia (sorry had to use that word for want of a better option)’ along with the government has effectively raised prices to the point where the middle class can’t afford houses, or buries itself in debt to own them. The con game is stunning. You go and book a house in a God forsaken place about 40 Km from civilization. The local population hates you. In a place called Kharghar (75 km from Mumbai) they not only hate you – they kill policemen, bus drivers, infrastructure providers with alarming regularity. It is not livable – if you hit somebody with your car, YOU ARE DEAD – beaten / burned to death. Then there is no electricity for 5 hours a day.
In this place you book a house at Rs. 3000 psf (per square foot). By the time you have finished your documentation the builder says now the price is Rs. 3500 psf. There are smiles all around. I am too busy watching shares to care about house prices. While politicians tout the social benefits of homeownership none mentions its tax benefits to the government. I pay no taxes on the overall value of my stock portfolio, none on my cashed-in gains and collected tax free dividends. And to think that these dividends come from companies making steel, cement and home mortgage profits, I occasionally feel wicked.
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