Real estate returns in India (written in 2017)

I invest 50 lakh in an apartment that fetches me 2 lakh rent in the first year. I expect the rent grows approx. 5 percent a year . I want to sell the apartment after 20 years. What should be the apartment price after 20 years to make a 15% compounded return on my investment? We will use compound interest formula P(1+r)^n = 5000000(1+0.15)^20 =8.18 crores. Its 16.37 times the initial investment. Now we will calculate the rental return we could have got . Rental increase form a geometric series. We use geometric series summation formula to get 20 years rental accumulation. Say initial year interest is R. For 20 years, the sum of rental returns is R+ (1.05)R + (1.05)^2 R + ...(1.05)^19 R = R(( 1.05)^20-1)/(1.05-1) if we fix 200000 as the initial year return this gives us 6613190 Rs for 20 years. See that this rental amount also could have been saved every month, say at 8 percent interest. For simplicity if we assume savings are made at end of the year. The total amount we have in the bank at the end of 20 years will be R(1.08)^19 + R(1.05)(1.08)^18 + R(1.05)^2(1.08)^17.........+R(1.08)^0(1.05)^19 If we write a program to calculate this. package com.srini.rent; public class AccumulatedRentWithInterest { public static void main(String s[]){ //first argument initial rent double rent = Double.valueOf(s[0]); //second expected rent growth rate ex. 0.05 double rentGrowthRate = Double.valueOf(s[1]); //third interest rate for FD ex. 0.08 Double interest = Double.valueOf(s[2]); //fourth noOfYears int noOfYears = Integer.valueOf(s[3]); caculateTotalAmount(rent,rentGrowthRate,interest,noOfYears); } private static void caculateTotalAmount(double rent, double rentGrowthRate, double interest, int noOfYears) { double sum = 0d; System.out.println("rent:"+rent+ "rent growth:"+rentGrowthRate+"interest:"+interest+ "noOfYears:"+noOfYears); for ( int i=0; i< noOfYears; i++ ){ sum = sum+ ( rent* Math.pow(1+rentGrowthRate,i)*(Math.pow(1+interest, noOfYears-(i+1)))); } System.out.println("accumulated rent with interest:"+ sum); } } It gives 1.34 Cr. So apartment should fetch 6.84 cr in 20 years to give 15 percent return. I haven't included Govt exemption in calculation, the maintenance amount , local taxes etc. Will apartments fetch this much value in 20 years? or rentals will increase fast in future? Or will they flip when there is a rise within few years ?Or people will settle for single digit returns? People purchase flats even far above 50 lakhs... Or Should I include one more important factor into picture, which could change the calculation dramatically?

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