My spouse (31 years old) and I (33 years old) have a combined monthly income of Rs 500,000 working in the IT industry. We currently reside in Bangalore on a rental basis, paying Rs 55,000 per month. Additionally, we have a house in Hyderabad with a monthly EMI of Rs 125,000 on a home loan amounting to Rs 1.35 crore, where my parents currently live. Our savings amount to Rs 7.5 million, with an average monthly saving of Rs 250,000.
My spouse is considering purchasing an independent house in the older areas of Bangalore due to her strong emotional connection with the city, as she is originally from Bangalore. We are contemplating whether it is financially feasible for us to make this investment. We are seeking practical advice on this matter.
Expert advice by Animesh Hardia, Senior Vice President, Quantitative Research at 1 Finance
The escalating rental prices in Bengaluru have led to a notable shift in the housing market trends. Bengaluru now tops the list of Indian cities with the fastest-growing residential rental rates. Recent reports have revealed a staggering 90% increase in house rents in the Bagalur area over the past four years. Additionally, other sought-after areas like Whitefield and Sarjapur Road have also experienced substantial spikes in rent prices over the last five years, ranking third and fourth respectively in terms of rent escalation. Rental costs in these areas have surged by 80-85%. In 2019, the average price of residential properties in Bengaluru stood at Rs 4,300 per sq ft, with expectations that this figure will soar to Rs 8,151 per sq ft by the end of 2024.
As dual-income IT professionals in Bangalore with substantial savings and existing property investment, you exemplify the mindful approach to wealth creation that characterizes many well-educated professionals today. Your goal of owning an independent house in old Bangalore while maintaining financial stability requires careful consideration of both opportunities and constraints.
Let’s look at each factor one by one.
Your Current Financial Position:
Monthly Finances Amount(Rs)
Net Income* 5,00,000
Existing EMI 1,25,000
Rent 55,000
Monthly Savings 2,50,000
Other Expenses 70,000
*I assume Rs 500,000 is your collective per month post-tax income(or net income).
Understanding Your Borrowing Capacity
Your Debt-to-Income(DTI) ratio, which measures your monthly debt payments against your income, currently stands at 25% – because of the monthly EMI you pay for your parents’ house in Hyderabad.
Financial experts recommend keeping your DTI ratio below 40-45% for sustainable debt management.
For you, this means:
• Total EMI capacity:Rs 2,00,000-2,25,000
• Additional EMI capacity: Rs 75,000-1,00,000
This will ensure you have enough monthly savings to build financial assets for the future and do not over allocate your income towards the repayment of loans. Taking the upper end of ₹100,000 as the new EMI, based on affordability checks, lenders might estimate the following for you:
• Maximum new loan possible: Rs 11.1 million(9%interest, 20-yeartenure)
• Maximum property value: Rs 13.9 million(with80%bankfunding)
• Required down payment: Rs 2.8 million
Banks can only lend up to 80% of the value of the property as a home loan. So, the independent house in the older areas of Bangalore that you could afford is around
(Rs 11.1million/80%) i.e., Rs 13.9 million.
The difference of Rs 2.8 million (Rs 13.9 million minus Rs 11.1 million) will have to be the downpayment out of the Rs 7.5 million savings you currently have.
Old Bangalore Real Estate Market Analysis
Now that we have established the upper end of the home price you could afford (i.e., Rs 13.9 million), let’s look at prices in old Bangalore areas like Jayanagar, Malleswaram, Basavanagudi, Shivajinagar, etc. It seems per square feet prices (/sq. ft) of independent houses here range from Rs 15,000 to Rs 35,000 depending on plot area, age and condition of the house.
Assuming a Rs 20,000/sq. ft rate and 2000 sq. ft plot area, the price of the independent house will be nearly Rs 40 million. Registration and stamp duty charges might be separate from this price.
Strategic Approach to Property Investment
Based on your focus on improving your lifestyle while building a reasonable corpus, let’s explore a balanced approach to property investment that aligns with your financial behavior and aspirations. Here’s a strategic framework that considers both your emotional connection to old Bangalore and the need for financial prudence.
Immediate Steps
Continue your strong savings pattern while building your corpus.
Research extensively (visit a minimum of 15-20 properties) to understand:
• Price variations across different areas
• Property conditions and renovation needs
• Future development plans in each locality
Look for value opportunities in emerging areas adjacent to old Bangalore.
Consider slightly smaller plot sizes (1200-1500 sq ft) to bring property values closer to your budget.
Market Reality and Options
The current price gap between your affordable range (Rs 13.9 million) and market prices (Rs 40 million) presents three potential approaches:
Wait and Build Corpus
• Continue current savings rate while monitoring market trends.
• Allow your income to grow through career progression.
• Let your investments appreciate over time.
• Target property purchase in 3-5 years when financial capacity aligns better with market prices.
Adjust Expectations
• Consider properties in upcoming areas near old Bangalore
• Look at smaller plot sizes or older properties requiring renovation
• Research areas like KR Puram or Yelahanka that offer a similar community feel at lower prices
Phase Your Purchase
• Start with a smaller property now
• Build equity through property appreciation
• Upgrade to your dream home in old Bangalore later.
Path Forward
While the current market price of Rs 40 million for an independent house in old Bangalore appears beyond your immediate reach, achieving this goal is possible with proper planning. Consider these next steps:
Continue building your corpus while monitoring market opportunities.
Explore emerging areas that might offer better value.
Consider a phased approach to property ownership.
Maintain investment discipline while working toward your goal.
Remember, real estate investment should enhance, not strain, your financial well-being. Take time to find the right property that balances your emotional connection to old Bangalore with your financial prudence.
Consider consulting a financial advisor to create a comprehensive plan that accounts for this significant investment while maintaining your other financial objectives.