Real Estate Financial Facts in Jaipur

Investment in Tier II cities of India, like Jaipur, is a more profitable proposition and is growing at a breakneck pace.

Overall, the long-term returns say that for around 10 years or so, real estate has compounded almost 15-16% annually. These types of returns are difficult to find in any other asset class.

At present the interest rates have begun to soften, which will improve the ability of buyers to make house purchases. But it can push property prices from the current level, which is already considered high. Therefore, if you want to buy a house for personal or investment purpose, experts say it is not advisable to wait for prices to correct. It will be better to go for a long-term investment if you want to invest in real estate in Jaipur.

Rents in Jaipur rose sharply in the past two years. If you take into account the rental income, the investment income realized by you to purchase the home is much less. For example, if you buy a house for Rs 1 crore, your EMI at the current rate of interest- around 10% over the repayment period of 20 years, will be Rs 96,502. Of this amount, Rs 83,333 will be adjusted against the interest of the capital for the first month and the remaining Rs 13,169 will be used to offset the principal amount. So for the next month, the capital will be reduced to Rs 99,86,831 against Rs 1 crore at the starting of the loan. Therefore, the interest for the next month will be reduced to Rs 83,224. And, therefore, only Rs 83,224 will be used from EMI to pay interest and rest Rs 13,279 will be adjusted on the principal.

In this way, the interest expense will continue to reduce, allowing much EMI to be charged on the principal amount. At the end of the fifth year, you pay only around Rs 10 lakh directly. But it will lower your payment from your interest in the EMI to Rs 75,014 against Rs 83,333 at the beginning of the repayment period. This will help increase the return of capital to Rs 21,488 by the end of the fifth year.

Flats in Jaipur

Annual rent of an apartment in Jaipur increased to about 3% of the value of the capital, against 2.5% of the capital value a couple of years ago. This means that a flat worth Rs 1 crore fetches around Rs 25,000 per month or Rs 3 lakh per year in rentals. This will reduce your interest costs substantially. In the first year, 10% of your interest charge on a loan of Rs 1 crore amounts to Rs 9,92,552. If you set the rental income, the net outflow of interest payments will only be Rs 6,92,552. This will reduce the effective interest rate to 6.92%

Rentals normally grow 10% per year, but even if you take an escalation of 5% per annum, the interest expense will continue to decline.

At the end of 14 years, rents will be more than the interest share of your EMI. At the end of the 14th year, the interest share of your annual EMI of Rs 11,58,024 will be Rs 5,54,115. And against this your annual rental for the present year will be Rs 5,65,690.

Villas in Jaipur

Not only that, if you buy a ready-to-move-in home, in the first year itself, the effectiveness of EMI on a home worth Rs 1 crore will come down to Rs 71,500 from Rs 96,502. By the fifth year it will become more affordable to Rs 66,114, which will further reduce to Rs 55,780 by the end of the 10th year. At the end of the 15th year the same will be reduced to Rs 47,000 only. Therefore, the actual cost of your investment will be significantly reduced during the period of the loan itself.

If property prices increased by 10% compounded annually, which is very conservative as the property rates have an appreciation of the order of 17-25% per annum compounded annually for the last 20 years in Jaipur, the value of your investment will be about Rs 6.75 crore.

If you calculate your return from the rental income in the account, it will be in the range of 15 to 16 percent, compounded annually.

If you want to invest in a house under construction, the return will be much better. However, you will not get any rental income in the early years, but the cost of house under construction is usually less than a completed one.

But, if you are investing in a house under construction, you must take care of some things like the history of the builder or property owner. Timely delivery is very important to keep your finances in good condition as the burden of maintenance after the completion of the house will be lower if the builder provides quality products. As well as, you should take care of the connectivity of the project. Better connectivity to a project will always give you a better price and yields better quality.