Should you rent or buy a home in 2014?

India’s current economic uncertainty combined with the inflated real estate prices makes the buy or rent decision tougher for a common man. Zero or negative growth in incomes, higher interest rates and a shrinking carpet area for the same money make a strong case for a personal finance drive.

Is it financially prudent to buy a house?

Can there be an advantage to renting a place to live?

Will there be any lifestyle changes that one needs to accommodate?

These are some of the questions that come up when one is in search of the best decision for buying a house.

Below are some of the most important factors one should consider while arriving at a merit-based decision:

While buying a house

Amount of down-payment for house loan (20 per cent of cost)
Time to save for down payment (No. of years)
EMI on house loan
Monthly property maintenance charges
Annual repairs
Annual property tax
Income tax savings under sections 80C and 24B.
While renting a house

Security deposit
Monthly rent
Yearly increase in rent
Monthly property maintenance charges
Income tax savings under HRA exemptions
The three factors that are pivotal when deciding on buying a house are: current property price, which determines the EMI to be paid; current monthly rental value, and the current gross income.

Monthly rent or the EMI being paid should not consume most of one’s salary which in turn is likely to affect the current lifestyle or future goals. Also, it is not a good financial decision to buy if the rental value is low compared to the EMI to be paid when owning a property. However, one cannot only rely on the rent-to-buy ratio and make the decision to buy without assessing his affordability. Similarly, a decision to buy a house just because one can afford the EMI is not advisable.

Buying or renting in top Indian cities

Hyderabad and Ahmadabad are the most affordable markets to buy a house, according to a recent study by ArthaYantra. Delhi and Mumbai clearly stand out as the cities where buying or even renting a house has become incrementally tougher over the years and has gone beyond the reach of the common man.

The minimum salary range to be able to afford a house across all 8 cities has also increased compared to 2012. Similarly, the area for the same amount of money has shrunk. This has led to increasing number of people opting to rent a house rather than buying one.

Hyderabad continues to be the most economical choice for both renting and buying across all salary levels. However, in Pune, Bengaluru, Ahmadabad and Kolkata, the salary threshold to buy a house starts after one starts earning more than Rs. 12 Lakhs per annum. These cities today offer a good buying alternative to professionals working in Mumbai or Delhi.

ArthaYantra/Press Releases