Planning to buy a house for your children? Wait! You may regret later - Here is why
Indians are somehow obsessed with buying a home - for their parents, for themselves and even for their children. But should you?
Indians are somehow obsessed with buying a home - for their parents, for themselves and even for their children. On one hand properties serve as a way to experience your unfulfilled desires, at the same time they emerge as a tool to secure future. The obsession is so high that Indian parents have now started to buy properties in London. Knight Frank in its Wealth Report released last year in September, revealed that Indians have emerged as the fourth-largest group of overseas buyers of property in London, after China, Russia and the US.
The report said that this has led to 2 billion pounds of investment over the past year. Knight Frank stated that the buying has been inspired by Indian parents' desire to educate their children at leading British schools. The parents also looked at these properties as a boarding option during holidays.
Certified Financial Planner, Poonam Rungta believes that property is not a good investment option in the current scenario for any goal. "You can consider buying property for your child in the long term. But, I won't recommend it even if the goal is of 10 years," she told Zee Business Online.
Rungta said that properties are not a smart investment option because they are becoming unrealistically expensive. "First of all, the investor should have enough money to buy a property. If you are taking loan, it doesn't make any sense because anyway you will end up paying very high rate of interest," she added.
Another problem with properties is their poor liquidity. Let's assume that you are able to own a property worth Rs 5 crore over the next 15 years. What if your child decides to go abroad for higher education and you require money for the same? It would take you at least three to four months from initiating the sale of the property till getting the money.
"Even if you need just Rs 1 crore, you will have to sell the entire house. You can't just liquidate one room," Rungta explained. She said that investors can still consider buying a house for retirement purpose, but it doesn't make much sense to buy it for child goals.
The uncertain nature of children goals has to be considered as well before making any purchase. Rungta said that you can still be sure about higher education that money would be required 15 years from now. "But, if you look at the current scenario, it won't be easy to sell the property. So, I personally don't recommend properties," she added.
Watch Zee Business video -
— Zee Business (@ZeeBusiness) February 6, 2019
Registered Investment Advisor, Harsh Roongta, on the other hand, believes that no investment is bad as long as it is in accordance with your needs.
"If the investor has 100 crore rupees and Rs 2 cr or Rs 5 cr are invested in real estate, then it is not a bad investment. But, if the investor has just Rs 2 core and a property of Rs 1.5 crore is purchased, it is obviously a bad option. It is a matter of proportion. There is no prescribed rule that real estate is good or bad. No investment is bad as long as it is in accordance with your needs," he said.
What is the other option?
Rungta believes that SIP or Systematic Investment Plan is the best possible route for any parent to create wealth for their children. "SIP is the best route for wealth creation. In India, there are two or three children goals: Education after class 10, higher education and then, marriage. All these goals have different horizons: 15 years, 20 years and 25 years. So, the investors can mark all the goals and start SIPs accordingly," she explained.
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.