Buying a property is an important milestone in everyone’s lives. It holds emotional and financial significance and people work through their life to realise this dream. With evolving work cultures and businesses spreading to tier II and tier III cities, Indians can opt between buying and renting a property in the city of their choice.
While owning a property has its own significance, renting is soon developing as an attractive alternative to buying one. For urban compact families, renting a property offers the flexibility, and caters to the needs of people with transferable jobs or assignments.
There are two major factors that can influence the decision of buying a property against renting one.
Individual cash flow is an important aspect that needs to be considered before making a huge financial commitment. Buying incurs costs like down payment, instalments of the home loan, property taxes, maintenance and repair costs, etc. Renting, on the other hand, attracts monthly rent, security deposit, etc. One needs to calculate the net savings after these payments are made to choose between buying and renting a property.
This is an important aspect of any financial decision.
For home buyers – Section 24 B or Section 80C also determine the reduction in net payment toward the EMI’s for home loans.
For renters – Section 10 saves your taxes as rent paid can be claimed as HRA.
Let’s look at two cities, Bangalore and Pune to understand this a little better. According to the annual report published by ArthaYantra regarding the feasibility of buying versus renting of a property in India for the year 2017, the following observations are worth mentioning:
“Bangalore’s property rental and prices have seen a decline yet for households of an annual income of up to 12 Lakhs, renting is preferred.
Pune’s prices are comparable to those of Bangalore albeit slightly higher. It is recommended for households with annual incomes up to 14 Lakhs to rent a house.”
The report further states that the time taken to save the down payment amount required to purchase a house can take up to 5-6 years in Bangalore and Pune; provided you save 25% of your annual income. On the other hand, the time taken to save the security deposit amount required to rent a house can take up to six months in Pune and ten months in Bangalore.
The flats for sale in Bangalore experienced a growth in prices by 4.35% year on year while the rent fell by 2.11% for the same period. In the central areas like Lavelle Road, MG Road and Vittal Mallya Road, the houses for sale experienced a drop in prices 2.48% while rent fell by 8.03% year on year. According to the report, families having an annual income of minimum 17 lakhs should consider buying a house in Bangalore.
The prices for houses in Pune experienced a growth of 9.66% year on year while the rent fell by 0.94% for the same period. The house prices are the most affordable in Hinjewadi followed by Hadapsar in the South and Pimpri-Chinchwad. House rents are the most affordable in Pimpri-Chinchwad followed by Kondhwa in the South and Chinchwad. According to the report, families having an annual income of minimum 18 lakhs should consider buying a house in Pune.
The government is taking steps to ensure that real estate prices get affordable. Buying or renting a house without understanding the financial implications can be detrimental to your economic health. Be sure that you understand the pros and cons of both the options before taking the decision.