For a minute forget all the math of buying or renting. It makes sense to buy rather than rent. Yes I know that this is against all the ‘renting is better than buying’ gyan that I have dispensed with!
Why? What happened suddenly?
Was the math wrong? No.
What went wrong was the human attitude towards some payments. When a guy (or a girl especially the wife!) make a SIP payment or make an EMI payment – the attitude is completely different.
When I say ‘rent’ and use the amount saved to buy equities, the person does not maintain the SAME discipline. When they are making the EMI payment, they are worried that the lending company will take away the flat, or they will be thrown out, …etc.
However when it is a SIP – they have the following questions:
– the market is going down should we stop the SIP?
– the market is going up should we stop the SIP?
– it is my sister’s marriage, can we stop the SIP for 4 months?
– my father is not well, can I stop the SIP?
———a million questions where they actually want to hear YES.
So is all this theory? No. Not really. For many of these people who I met their networth of X is made up of their HOME. The value of their home is say Rs. 3 crores, and their networth is Rs. 3.4 crores – or say Rs. 5 crores.
For most of these people, their one home is clearly MORE THAN 50% of their net worth, and obviously this has happened by inflation.
So suddenly if you tell them that their net-worth has gone up by inflation (and not by their savings growing in any asset class) they do not like it too much. However this is obvious – and when they sit with their LESSER EARNING COLLEAGUES or cousins, it hurts and hurts like mad! Simply because the net worth is a function of how much their houses appreciated, NOT how much they contributed to the SIP.
So based on a nice half baked survey that I have done, for most (most is not all) people buying a house has made more sense.
This is not because of any mathematical reason, just the fact that people are not as committed to SIP as they are to EMI.
Sad, but , true…
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