Many people view buying a house or flat as a solid investment, but is it truly as profitable as it seems? Whether it’s for personal use or income generation, it’s worth evaluating if property ownership is genuinely the best option for growing wealth.

Owning a home is often seen as a valuable asset, even if purchased with a loan. But just how wise is it to invest in a property? Many factors we consider when buying a first home for living or rental income also apply to purchasing a second property purely as an investment. In my view, it’s crucial to exercise even greater caution when taking on a significant loan.

Here’s a scenario: if you purchase a flat for ₹20 lakh and sell it for ₹21 lakh five years later, is that really a profit? Instead, consider how much more that money could have earned in a bank or mutual fund over the same period.

Let’s analyse this with some sample tables, using these assumptions:

• Property values increase annually by 6-8%, based on recent trends.
• Monthly maintenance is 2.5% of the property price.
• Annual taxes are 10% of the property price.
• Home loan interest rate is 8.45 – 9.90%.
• Rental income per square foot is ₹10.

We’ll explore the returns on ₹30 lakh and ₹50 lakh investments in flats over 20 years, comparing them to returns from mutual funds or similar investments.

Case 1: Buy a House without a Home Loan

Case 2: Buy a House with a Home Loan

Case 3: Buy a House with Home Loan & Rental Income

Key Insights

1. Without a Loan: Returns are decent (above 10%), but factoring in monthly expenses reveals lower profitability.
2. With a Loan: Borrowing ₹30–50 lakh to buy a property results in average annual returns of just 4.4%–4.37% over 20 years. In comparison, mutual fund investments could yield around 26% returns. Even typical bank interest rates might be more attractive.
3. Renting the Property: Renting out for 20 years and then selling it provides only modest returns, regardless of the flat’s price.
4. Rising Rent: Rent may increase over time, but our calculations kept it constant for simplicity. Even with rental increases, returns might reach only 19–20%, leaving the fundamental investment return unchanged.
5. High-Priced Properties: More expensive flats tend to generate lower returns than more affordable ones, challenging common expectations.

While some properties yield high returns over specific periods, it’s not the standard. Real estate may not always be the most profitable option for building wealth. Equity Mutual funds, on the other hand, tend to outperform real estate consistently, making them a competitive choice for long-term growth.