Know whether to rent or buy a house in your city

Date : Dec 9, 2014

By Nitin Vyakaranam

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 market 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 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 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 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.
 

Hyderabad: The city with the most-affordable property prices among the major cities in India. Hyderabad experienced a steep fall in the NHB growth as it recorded -5 per cent from the year 2007. The rental values increased by 1.93 per cent whereas the property prices have decreased by 11.35 per cent over the past 3 years. Hyderabad is the second-most affordable city to rent. Professionals with annual income more than ten lakhs per annum can easily afford to own a home. Areas like Uppal and Rajendra Nagar are the most affordable places to buy or rent a property.

Kolkata:Kolkata showed a negative trend in real estate prices as well as rentals since 2012. Rental and buying prices have slipped by 8.55 per cent and 2.69 per cent respectively but the NHB index of the city has a growth of 106 per cent from 2007. Professionals with annual salary of 13 lakhs or more should prefer owning a home. Areas like Howrah and Jadavpur are the most-affordable places to rent or buy a property for individuals of lower income, but they are on the outskirts of the city.

Mumbai:As usual the most expensive place to afford to own or buy a property, but in contrast people prefer to own a property rather than renting. For the past three years, rentals have increased by 13.07 per cent while the property prices increased by 49.87 per cent. The NHB index of the city has grown by 129 per cent. Buying a home in the city is not feasible irrespective of any salary level but some areas like Mira Road and Kalyan can be affordable for some income levels. but some areas like Mira Road and Kalyan can be affordable for some income levels.

Pune:Pune remained a buyer's market with an increase in real estate prices by 38.91 per cent over the past 3 years. This increase is largely due to an improved job market in the city. Also proximity to Mumbai and having comparatively lower real estate prices, it is more preferred location to buy a home. The rentals also increased by 21.21 per cent indicating the comfort level this city has to live for the professionals. The NHB index grew by 132 per cent from 2007. Professionals with an annual income level greater than 12 lakhs could easily own a home. Areas like Vastral and Vejalpur are the most-affordable places either to rent or buy a home

The emotional premium that we pay to say that we own a home is almost never measured. Remember that buying or renting a property is at the end a financial decision. And it is time we take well-calculated financial decisions to avoid financial pitfalls.

(The author is the founder and Chief Executive Officer of ArthaYantra.com)

Source And Courtsey By :- http://economictimes.indiatimes.com/wealth/real-estate/realty-trends/know-whether-to-rent-or-buy-a-house-in-your-city/articleshow/45430646.cms?curpg=2