The concept of property laddering, though common, but relatively unknown, involves investing in a small home in a Tier-2 or Tier-3 city.
No pleasure surpasses the happiness of having a roof over your head. For many, the dream of owning a spacious home is ever-present. Rising property prices, high home loan interest rates and other financial challenges can make even dreaming of such a goal out of reach. However, this dream doesn’t need to be abandoned or indefinitely deferred. Even the most ambitious goals, like that of buying a big house in a metro or a spacious cottage in your choice of city, can be met through consistent, smaller actions, such as using strategies like “property laddering”.
What Is Property Laddering?
The concept of property laddering, though common, but relatively unknown, involves investing in a small home in a Tier-2 or Tier-3 city. Unlike remote or slow-developing towns where property prices remain stagnant for years until a major government project spurs growth, fast-emerging regions near metropolitan cities or commercial zones in their neighbourhood tend to offer far greater potential for appreciation. Take, for example, regions like Ludhiana, Ambala, Greater Noida, Powai, Rajkot or Vadodara, whose high-growth markets have translated to increasing property valuation, delivering strong returns for real estate investors.
According to Atul Monga, CEO & Co-Founder, BASIC Home Loan, the idea is simple – take small, strategic steps today to enable a significant leap tomorrow.
“Start by purchasing a small property in a small and emerging area. Hold on to it for a few years, allow the market to appreciate, and then sell it at a profit. The proceeds can then be reinvested to purchase a larger, more valuable property. Several families adopt this approach, building their wealth gradually by combining property investments with other high-return assets such as mutual funds, gold or stocks,” Monga said.
“With a growing population pushing demand into emerging cities, property values in these areas often double within just a few years. A house bought for Rs 35 lakhs, for instance, might fetch somewhere around Rs 60-65 lakhs after a few years, offering a solid return even after accounting for capital gains tax. Property laddering is a subtle yet effective way to enter the real estate market early. Over time, the equity built from these initial investments becomes the foundation for trading up to much larger properties,” he added.
Decoding Maths Behind Property Laddering
Consider this – you own a property in an emerging city that is expected to deliver a healthy return. You book a new property worth Rs 1 crore in a metropolitan area. Since banks typically cover 75-80 per cent of a property’s value, you opt for a 75 per cent loan-to-value ratio. This means you make a down payment of Rs 25 lakhs and borrow the remaining Rs 75 lakhs, which you begin to repay over time. Once you have paid off around 20 per cent of the loan – approximately Rs 15 lakhs – you can then sell your smaller property for, say, Rs 65-70 lakhs, prepay your loan and still be left with a Rs 5-10 lakhs profit.
Alternatively, you could choose to sell your previous property and reinvest the amount directly into your new ₹1 crore home. In this scenario, you supplement the purchase with Rs 25 lakhs from your savings and take a smaller loan of just Rs 15 lakhs. This significantly reduces your debt burden and allows you to repay the loan much faster.
Claim LTCG
“Also, under Section 54 of the Income Tax Act, 1961, you can claim exemption on long-term capital gains (LTCG) earned from the sale of a residential property—provided the gains are reinvested in the purchase or construction of another home within the stipulated timeline. This tax benefit makes the transition between properties even more financially efficient,” Monga said.
Doing It Right Every Time
Focus on “buying right” – whether it is your first or second property. Doing so will have a much greater impact on your financial well-being than investing big in one go.