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How to buy luxury property in India from salary income?

Posted on 21 Feb 2024
Author: Sayan Sircar

Tags: House Purchase

10 mins read
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This article helps you figure out how to purchase real estate priced over ₹1.5 crore.

How to buy luxury property in India from salary income?

This article is a part of our detailed article series on the concept of buying luxury properties. Ensure you have read the other parts here:

What should be your income to buy a luxury property in India?

This article shows the minimum income needed to buy a luxury property in India.

How to buy a second house which is a luxury property?

This article gives you some points to think about if you are buying a second house which is a luxury property.

📚 Topics covered:

What is a luxury property?
Which builders should you choose for your new house?
Where to get money to buy a house?
Option 1: Ready-to-move house
Option 2: Under-construction house
Expenses of a luxury property
- Large loan EMI
- High maintenance charges

What is a luxury property?

Luxury Homes Priced Rs 4 Cr & Above Saw More than 75% MORE Sales Last Year In Top 7 Cities: CBRE

This and others similar to it were in the headlines on 14th Feb, 2024 in many newspapers. The question that arises is: What makes a house (villa or apartment) a luxury property? A luxury property:

is expensive, generally over ₹1.5 crore or above, generally inside a gated community or housing complex
has amenities like a clubhouse with gym and pool, multi-tier security, play/walk / recreation areas and nowadays even restaurants

The price tag of ₹1.5 crore is a general guideline, as you will seen in news articles, since if you go to say Mumbai, you cannot buy much at that price.

Which builders should you choose for your new house?

We need to check for these things for the builder who is offering the property:

Reputation in the market for timely deliveries
Active RERA registration for the respective state
No active court cases or disputes regarding the promoters or executives
The builder should preferably be listed on the stock exchange to promote complete transparency on financials

Such properties will be predictably more expensive than those without all these checks being true.

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Where to get money to buy a house?

You can buy a house via a mix of your own funds and a home loan. We have covered this topic in more detail here:

how to know if you can afford the house vs. your other goals: Goal-based investing: how to purchase your dream home
how to fund the house purchase: Should you sell your mutual funds to buy a house?

If the house has a loan component, then the maximum value of the house is capped by the amount of loan the bank will sanction. In this article, we will consider a house that costs ₹1.6 crore, for easy calculation, and look at various ways of buying it.

We will now cover the case where you currently stay on rent or with your parents. You are now planning to buy your first house as a luxury purchase. We will consider two cases:

Also read
TDS on Property Purchase: A Step-by-Step Guide

Option 1: Ready-to-move house

You have to pay the entire amount at one go for a ready-to-move house. A bank will give you no more than 75-80% as a home loan. This calculation means you need to pay at least 20-25% to the seller from your pocket. So, you need to arrange for 25% of ₹1.6 crore, which is ₹40 lakhs today.

There are many ways of getting to this ₹40 lakhs:

you have already been saving for the down payment for some time and mostly have the money saved: SMART goals: investing step-by-step for buying your dream home
you have some money from selling another property: How Section 54EC helps you save tax when you sell property
you have shares and mutual funds that you can sell. You don’t have to pay long-term capital gains tax if you use that money to buy a house: Sec 54F: a hack that can save lakhs in taxes when you buy a house
you can borrow from friends or family or take a personal/gold loan: EMI Calculator: know your EMI per lakh to easily know how much total EMI you have to pay

For the remaining ₹1.2 crore, you have to take a home loan. If you take a 15-year loan at 9% interest, you will pay ₹1.2 lakhs/month as EMI (as per this article)

There will be tax benefits as well on both principal and interest that we recap here:

Home loan tax benefits are of two types depending on the construction status of the house.

If the house is ready to move, then

under Section 80C, up to ₹1.5 lakhs can be claimed for the principal paid on the loan. This deduction will be reversed if the property is sold within 5 year of registration
under Section 24B, up to ₹2 lakhs can be claimed as a deduction.
under Section 80C, stamp duty can also be claimed, in the year of registration, up to the ₹1.5 lakhs limit of 80C

If the house is under-construction, then

Section 80C deductions on principal and stamp duty, will be applicable in the financial year when registration happens
Section 24B deduction has the same rule. However, the interest paid on a home loan until 31-March of the financial year preceding the year of registration may be claimed in 5 equal instalments once registration happens. In any case, the limit of ₹2 lakhs for Section 24B applies.
If the house is rented out, there is no limit on the deduction allowed under Section 24B
Tax deductions are applicable only if the construction completes within five years of taking the home loan

None of these deductions are applicable in the new tax regime. Section 24B is available in new tax regime only if the property is let out and not self occupied.

As a home owners should always check first if you will save more tax in the new tax regime in this case: Which is the best tax regime to choose from April?

Option 2: Under-construction house

An under-construction house allows you to space out the payments over multiple years. This is a good thing since

the price of the house does not increase after you book
you don’t need a home loan immediately if you have enough cash in the beginning which saves you interest
if you don’t have any savings or just a small amount, you can still buy if you can pay around 1% of the house price per month for the next 8-10 years

To understand how to plan such a house purchase:

The last case is interesting. If you have 10 lakhs of cash with you for paying the booking amount, then a ₹1.6 crore luxury under-construction apartment can be yours if you can spend ₹1.6 lakhs a month like this:

Payments before possession

We have covered this case in detail here: How to Buy Your Dream Home Without Any Savings: A Step-by-Step Guide

Of course, here also you are paying ₹40 lakhs out of your pocket and the rest ₹1.2 crores comes from home loan. It is just that you can manage to pay the down-payment over time as well as get the benefit of lower EMI in the moratorium period.

If you change your mind at any point regarding this purchase, you can always calculate your returns and exit if needed: How to correctly calculate returns from an under construction flat?

Expenses of a luxury property

Buying a luxury property requires two things that you must take care of going forward:

Large loan EMI

Here you need to plan very carefully regarding the home loan you are taking:

longer the loan duration, higher the interest, lower the EMI
shorter the loan duration, lower the interest, higher the EMI

You should always take the highest possible loan in terms of duration to get the maximum flexibility in payment terms and least upfront interest cost. You always have the option of prepaying as per your convenience as salaries increase. Nowadays most banks offer home loans without prepayment charges.

High maintenance charges

Apart from EMI of the home loan, your monthly expenses will have to include maintenance costs which is always on the high side (rate per square foot) for luxury properties. Paying maintenance supports the infrastructure of the luxury property (like clubhouse, security, building maintenance) and supports the price of the property.

Maintenance rates of ₹4/sq ft or higher is typical and should be added to the monthly budget.

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