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Know whether to rent or buy a house in your city written by Nitin Vyakaranam, published in The Economic Times. December 12, 2014

Property prices in most cities are still out of reach for many and the high interest rates on home loans only add to the misery of the common middle-class Indian. Though owning a home is a dream for many, the financially-stretched individual is caught in a perpetual dilemma of whether to keep paying the rent or sign up for an EMI.

 

The average age of a real-estate buyer in India is close to 30 years, the youngest across various developing markets. The society, as a whole, favours buying property and believes that the buy decision is the best to make irrespective of the ground reality. Combining this with a backdrop of expensive real estate and high interest rates, any misstep in a buy versus rent decision can wreak havoc on the personal finances of the individual and their families in the foreseeable future.

 

Multiple aspects need to be evaluated before you can determine which is more practical between buying and renting property. Important factors such as the average monthly take-home salary, existing loan payments, expected EMI from the desired property and expected rent for the same property (can be identified with the nature of rentals in similar location), need to be taken into account.

 

Also, you need to consider the benefits that can be availed by buying through tax savings. Having a right amount of liquidity after the payment of EMI should be a key point before deciding to buy a home. All this, together, can be difficult to grapple with may make decision-making difficult.

 

To help you out a little, we did a research across eight major cities in India and evaluated them on three important aspects/ratios affordability to buy (compares the income with expected EMI), affordability to rent (compares the income with expected rent) and rent to ownership ratio (to compares the rental cost with expected EMIs). Here is the city-wise analysis:

 

Bengaluru: The rise in the rental values from 2012 by 37.51 per cent is more significant than the buying values which are at 12.64 per cent. This shows that Bengaluru is the most-preferred place to rent. Being the most opportunistic place, immigrants prefer to rent a home. There was an increase in NHB index of the city by 7 per cent from 2007. For professionals with less than 20 lakh annual income, renting a home is more optimal than buying. Mysore Road and Old Madras Road are the most affordable places to rent or buy a home.

 

Chennai: Chennai recorded the highest growth in the NHB index amongst all the major cities in India by 249 per cent over the past 7 years but the trends changed since the last 3 years as the property prices went down by 3 per cent while rental values increased by 10.75 per cent. Professionals above the annual salary of 20 lakhs can afford to  to buy a property in Chennai. Sholinganallur and Kolathur are the most affordable places to rent or buy a home.

 

Delhi: Delhi is the second-most expensive city to buy a home. The average increase in the rental values since past 3 years was 29.05 per cent where the property price was increased by only 2.59 per cent. This can be understood as the city have majority of immigrant population where renting is more preferred. Recommended to rent a property irrespective of how  much they earn. However outer areas in the National Capital Region (NCR) region like Greater Noida Expressway and Indirapuram may provide some opportunities to afford a home but that will result in increased travel time which would also add to the cost.