Bombay Shaving Company founder Shantanu Deshpande in a recent podcast explained the reason he does not own a house. Speaking to Hyderabad-based real estate entrepreneur Ajitesh Korupulu, Deshpande said that he lived in a prime location in Gurgaon for which he paid a monthly rent of over Rs 1.5 lakh.
Deshpande was responding to Korupulu’s point that paying the EMI instead of rent eventually leads to asset creation.
Korupulu said: “As an entrepreneur what's happening is your asset is being built by a company. For somebody who's a working professional, the real estate becomes the asset. Let's say you're paying a rent of maybe you know Rs 1 lakh. You pay another Rs 50,000-60,000 more you get a home. Even if you pay this rent for 10 years, you're not creating any asset. Whereas you pay the EMI, you're going to create an asset.”
Deshpande responded: “The math doesn't work for me that way. For example, and maybe this is a very Gurgaon thing, so maybe Hyderabad is different. Gurgaon, I'm paying Rs 1.5 lakh in rent including maintenance [Rs] 1.6,1.65 [lakh] on Golf Course, premium place etc. The apartment I live in is roughly worth Rs 7.5-8 crore. If I were to buy that apartment and I have to leverage let's say 70% of it, Rs 6 crore loan would be Rs 6-7 lakh per month of EMI, which is like four times my rental cost. So, I'm living in a house which is like at 1/4th the EMI cost. So it makes no sense to buy.”
He further emphasised that he’d rather invest the money in public market where the liquidity is better. “I would rather take that six lakh if I have it, if I'm earning it, I might as well put it into public markets and kind of build asset there as opposed to building a fixed asset where liquidity is very difficult. That's the way I think about it unless I want to live there with my children and my parents are there and it's a nice five bedroom, etc. and then you're like okay fine now this is not an asset building activity, it is a cost.”
Deshpande also mentioned that there was a certain degree of freedom renting the house and not owning it. “I always feel like the rental freedom is much higher. It takes 15 days to move into a home even if you're upsizing. Let's say you have kids, two bedrooms to three bedrooms, three bedrooms to four bedrooms, it takes 15 days to move. Moving is so easy. You are asset light, which is probably not your preference, but I don't have interest to pay. I have rent. But that's my thinking.”