After marriage, like most young couples, Manas and Charu had dreams of having a home they could call their â€˜ownâ€™. Manas had just changed jobs and Charu had started her design firm recently. They couldnâ€™t afford to buy a home right away. So renting a property was the first thing that crossed their mind. After all, buying a house is a lot more expensive. Isnâ€™t it? At least, thatâ€™s the most common and widespread belief.
When high costs prevent people from buying a house, the only best choice is renting. But renting a property isnâ€™t that cheap in bigger cities. This sparks the age-old debate: Should you rent a house or buy one?
The latest edition of Artha Yantraâ€™s annual buy vs. rent report puts the debate in perspective, comparing the economics of homeownership and renting a property in 12 Indian metros and tier II cities. The research includes data from multiple real estate agents, aggregators, and the National Housing Board.
Let us take a closer look at some of the cities.
Buy or Rent? What Study Shows
Mumbai – The score for Mumbai is not surprising. The nationâ€™s financial capital and the home of Bollywood is the most expensive city to buy or rent a property. Rents have increased by 13.07 percent, and property prices by 49.9 percent, in the last three years – the highest among Indian cities. Renting is cheaper in Mumbai, but a new trend for buying is visible in recent times.
Delhi and National Capital Region – Rentals in the national capital region have heightened by 29.05 percent in the last three years. The region ranks seventh in renting. To rent a house in Delhi is cheaper, as property rates in the national capital region are the second highest after Mumbai.
Chennai – Property prices in Chennai declined in the past three years, but rentals in the city increased by 10 percent. The southern city ranks sixth in terms of affordability. People with above Rs 20 lakh income, looking for a home, can give buying a shot.
Kolkata – Rentals in Kolkata have slipped by 8.5 percent, and property prices by 2.7 percent, in the last three years. Kolkata is now the third affordable city in the country, scoring fifth in renting. There is a buy recommendation for people with Rs. 15 lakh and above income. However, itâ€™s better to hurry as the Kolkata realty is reviving and bouncing fast.
Bengaluru – The silicon valley of India saw a higher upsurge in rents as compared to property prices. Average rentals shot up by 37.51 percent, but prices of property escalated 12.64 percent over the past three years. The city stands fourth in rental affordability. Buying recommended for people earning Rs 15 lakh or more per year.
Hyderabad – Indiaâ€™s Pearl City is the most affordable city to buy a property, as housing prices declined 5 percent since 2012. Rentals saw a modest increase by 1.93 percent. Hyderabad offers excellent investment opportunities for people with Rs. 8 lakh and above annual income.
Pune – Maharashtra’s second biggest city, Pune, observed a rise of 38.9 percent in property prices over the last three years. The city ranks fifth in affordability to buy. Rentals saw an upswing of 21.2 percent. The ninth most populous city in the country stands fourth in affordability to rent. People earning below Rs. 15 lakh per year should opt for renting.
Ahmedabad – The textile hub of India, Ahmedabad, is an emerging real estate destination. The former capital of Gujarat ranks second in the country in affordability to buy. It is the cheapest Indian city too, in rental affordability. Buying recommended for people having an annual income of Rs.12 lakh or more.
Factors to Consider: The Financial Side
Buying vs renting is plain mathematics. If home loan EMIs are way too high than the rentals you have to pay every month, it makes sense to live in a rented property.
For instance, two bedroom flats in the Delhi-NCR region cost around Rs.75-80 lakh. EMIs for such properties will be anywhere between Rs.75000 to Rs.80000 for a 20-year term, assuming home loan rates @ 10 percent. Plus, consider a down payment of Rs.15 lakh to Rs.16 lakh.
Renting is a better choice in this scenario since these flats are available for rentals at Rs.30000-40000. In cities where rentals are equal or higher than EMIs, go for the kill and buy your sweet home.
In a nutshell, buying a property involves down payment for the loan, EMIs, property taxes and the regular maintenance and repair costs.
The picture, when it comes to renting a property, isnâ€™t all that clear right away. Hereâ€™s why. Renting a property would simply mean the monthly payment of rent along with the maintenance cost and the security deposit. But there are other things that people often forget to take into account when comparing renting with buying.
Brokerâ€™s fees. One of the most painful aspects of renting a home is the brokerage fees. Often amounting to 1-2 monthsâ€™ rent, the brokerâ€™s fee has to be paid upfront. Sure, there are broker-free classified sites and online platforms where landlords directly put up ads for potential tenants. But these days, even on these platforms, youâ€™ll find brokerage firms and individual brokers themselves putting up the ads. You could filter out such ads, but that just means narrowing down your options further.
Plus, even today many homeowners in India donâ€™t â€˜trustâ€™ the Internet or find the process of online listings complicated and time-consuming. They would rather give the local broker a call and leave all the hassles to them.
So ultimately, brokerâ€™s fee is one expense you have to make almost every time you change homes.
Rental values year-on-year. After your 11 monthsâ€™ contract with the owner comes to an end, the power mostly lies in their hands to decide if they want you as a tenant or not. If they do, theyâ€™ll increase the rent. The increment could be between 8-10%, depending on the city.
Repeat expenses. If, however, youâ€™re not on the same page with the homeowner after your 11 monthâ€™s tenure is up, youâ€™ll have to shift. Also, because rental laws donâ€™t adequately protect the rights and interests of the landlords, in most states, homeowners tend to limit the number of years that a tenant can occupy their rented space. This means, youâ€™ll have to endure the home hunting hassles â€” and expenses â€” all over again, every few years!
Factors to Consider: The Non-Financial Side
Even when you look at home buying vs. renting from a non-financial point of view, buying has some serious advantages.
Mental peace. Owning a house gives a sense of satisfaction and pride. When you are in your own home, no one can threaten you to vacate the property at the end of a rental agreement. This is a huge security non-existent in rental properties.
A sense of satisfaction. Home is not just a financial decision; itâ€™s an emotional decision as well. Many studies have found homeownership to have a positive impact on peopleâ€™s physical and psychological health. Research done by Habitat for Humanity shows people who own homes are happier than those who donâ€™t. Home owning definitely boosts peopleâ€™s self-esteem and makes them feel like they are in control.
Home is an asset. The real estate market swings from time to time. But property is a unique asset class, which offers unmatched returns in the long run. If you ever need cash, you can sell the property, rent it out, or take a mortgage loan to meet your needs.
Of course, owning a home comes with a lot of responsibility as well â€” there will be bills to pay, repairs to make, and general maintenance to take care of. But when you think about expenses and downsides of renting, home ownership seems like a worthwhile investment.