GandiBaat
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Price of commodities is discovered by the market. Usually through demand and supply.It's a bit of both,
On one hand, if you look fundamentally at the "cost" of housing, how much of it goes to the cost of land, materials, and labor, and the rest to profit? given that the market is inflated due to the lack of supply, sellers have pretty much free rein to drive the cost up and maximize profits, and I don't blame them, I'd do the same - but at the same time for a buyer's perspective, most of my money goes not to the house, or the quality of home I'm getting, but to the seller's profits. Given that I don't see a house as an investment, but as a necessity. I find it difficult to justify paying extremely high profit margins.
On the other hand, yes it is a mismatch and I understand that by "lowering my standard" or desired "quality of life" I might be able to fit the budget, which is why I'm trying to do something about it.
So lets see...But if that's the case then the quality of life isn't the same. If you're willing to buy a townhouse or a condo temporarily while you save up for a detached house, why not rent a townhouse or condo instead?
On downpayment part?
EFT : Gain = Gain from downpayment in EFT - Capital Gain Tax
Condo : Gain = Gain from downpayment after sale
Typically Capital Gain Tax offset all the additional growth from EFT. Not to mention you are betting on one market against another. Mostly housing market for all types of houses go in sync, but not always with equity market.
On monthly payment?
You spend 3000 in rent. Thats all gone. You invest remaining (from after tax income of 7000) 4000 in EFT (say). When you cash out EFT to buy house, you also pay capital gain tax on EFT too. Then you buy house.
So my total saving for downpayment is 4000 * months invested in my EFT + gain from EFT - capital gain tax on EFT.
You buy a condo. You spend 3500 on mortgage installment. You invest remaining 3500 whatever way you want to do, (say in EFT). You sell condo. Your gain from condo are : remaining principal - condo sale price - early loan closing penalty. If you were a bit crafty, you will try to give the closing date of sale on renewal date of your mortgage. This way you pay no penalty. If I am not too unlucky, I can make money over what I have put into the condo and much more. Best part? Any gains are completely tax free! Because it is my primary residence.
So my total saving = Net gain from selling my Condo + 3500 * months invested in my EFT + gain from EFT - capital gain tax on EFT.
Mostly Net gain from selling my Condo (even after interest and carrying cost) is more than after capital gain tax on 500 not invested in EFT.
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