Owning a property makes more sense than staying on rent - The Economic Times

Whether to buy aproperty or rent one is an age-old debate and it is unlikely to be settled in a hurry. One can do very sophisticated calculations to show that renting is a smart option. Some equally valid and complicated calculations will show that buying makes more sense. A lot of calculators are available that will assist you in taking this decision.

The more sophisticated among them will take into account the possible appreciation in the property if you buy it, maintenance costs, the potential increase in rent if you rent it out, etc.

Unfortunately, the decision is rarely so straight forward. Firstly, most calculators don't tell you that this is rarely a one-time decision and it is only as good as the assumptions made. If the assumptions change, your decision should change, too. Unfortunately, while you may put in a lot of research and effort in doing the calculations the first time around, most people are unable to devote the same amount of time on a regular basis to check if their initial assumptions still hold true. More importantly, what most calculators also miss are the intangible benefits of owning your own house.

In a house of your own, you can make personalised changes. Then owning your own house (even with a loan on it) imparts a sense of security to the household. Whilst it is difficult to put a dollar value to such intangible benefits, these are clearly significant.

Take this quick test. Conduct a straw poll in your office or among your friends or your family circle. You are unlikely to find many people who regret having bought a home.

I am sure you will definitely find a few who will talk wistfully of the opportunities missed to buy their own home when it was still affordable and within their reach. In fact, I know of some extremely smart and publicly well-regarded professionals who passed on an opportunity to buy homes being sold by their own employer (after doing some very fancy calculations on paper since it was the pre-computer era). Their other less gifted colleagues did not have the ability to do such calculations and, hence, bought the houses and within just 5-7 years their decision was proven right.

The point I am making is that it is not advisable to do a lot of complicated calculations to decide whether to buy or rent your home. As long as you have made a reasonably long-term commitment (at least 5 years) to the city you reside in and have the necessary down payment amount and your income can afford the EMIs, you should go ahead and buy your home. But before I am accused of being an agent for thereal estate industry (disclosure: most largehome loan lenders advertise on Apnapaisa as also some large realtors, and both together constitute a significant portion of our income), let me quickly add some caveats.

First, this whole logic applies only if you are buying a property to stay since the intangible benefits only accrue if you stay in your home. In other words, you need to do a more thorough analysis if you are buying to rent out a property or use it as a business asset. Secondly, if it were me, I would put in a little more effort and hunt around to buy a ready-to-move-in home rather than take the risk of buying an under-construction property, which come with attendant risks of delays, hidden costs and quality issues.

Thirdly, you need to watch out for artificially inflated real estate prices. If the real estate rates look artificially inflated, maybe you can wait for the market to cool before you go ahead and buy.

But how do you judge whether the real estate prices are artificially inflated?

A rough and ready measure is the rent-to-value ratio. Check around in the area where you are looking to buy a property. In these days of high interest rates, if the annual rent of a house similar to the one you intend to buy is less than 3% of the cost you will need to pay, the prices are clearly inflated.
The rental market is telling you that the capital prices may not stick. By this measure, most properties in Mumbai (as also in most parts of Delhi) are clearly overpriced.

This does not mean you shouldn't buy a property. It only means you have to wait a little to see if the property prices correct.

And if you think you don't have the resources to either keep track of the movements in rental or property prices, then it is better to buy (even at the "inflated" prices) rather than be sorry later.
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  • Owning a property makes more sense than staying on rent - The Economic Times

    I know why there is a confusion :

    Owning a property makes more sense to those who are not going to pay the EMI.

    For those paying EMIs for lifetime, for potentially disputed and overpriced properties at 11% ROI, staying on rent is a better option.

    But do you think you could convince your Srimatiji?
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  • Originally Posted by saurabh2011
    In these days of high interest rates, if the annual rent of a house similar to the one you intend to buy is less than 3% of the cost you will need to pay, the prices are clearly inflated.



    I have purchased a small 2BHK in Rajnagar Extension for 19 lac.
    Ongoing rent in similar RTM apartments is about 7 k.

    So,
    7 * 12= 84 k

    Total cost of flat (including registery) ~ 20 l

    3% of total cost of flat = 60 k.

    Now 84 k >> 60 k.

    So i have made a good decision of investing in Rajnagar Extension. :)
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  • yaar good times mai khareed lo property - agar bura din aaya to sar chupane ke jagah to rahegi


    rohit
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  • Originally Posted by rohit_warren
    yaar good times mai khareed lo property - agar bura din aaya to sar chupane ke jagah to rahegi


    rohit


    Agreed , good appreciation or less appreciation in flat rates is a different issue but in BAD days own home always give us a big moral support. For end user purpose and for own living I always recommended to buy own flat ASAP, that is no necessary that only purchase very big apartment beyond the income limit, if income is less then better to take smaller flat at affordable locations in NCR in such a way so that flat can be loan free in 7-8 years.
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  • Originally Posted by rohit_warren
    yaar good times mai khareed lo property - agar bura din aaya to sar chupane ke jagah to rahegi


    rohit


    Bure din mein EMI kaun dega?

    Moreover at the current ratio if price to rent ratio, I should have not bought my House :(
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  • Originally Posted by MrTony
    Bure din mein EMI kaun dega?

    Moreover at the current ratio if price to rent ratio, I should have not bought my House :(


    CASE STUDY

    my current rent = Rs 15000 per month .. current location - sec 28 noida just walking distance from metro, GIP etc etc ... 3bhk

    EMI required to buy a house on outskirts of noida .. around 25000 per month plus some 10-15 lakhs my entire savings !

    the choice is clear for me ! :)
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  • Few months back, Magicbrick (most probably) came up with some empirical formula based on cost, average rental and few more factor...

    According to that formula, it does not make economic sense to buy property in Mumbai.
    It makes neutral sense to buy property in NCR and there were many places where it makes sense to buy.

    Fact is, this is pure play of numbers ... what expert markets as modeling!!

    Suno sab expert se ... lekin akhir mein apni akal lagao ... akal bacha bacha ke kya falooda banaoge?
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  • But how do you judge whether the real estate prices are artificially inflated?

    A rough and ready measure is the rent-to-value ratio. Check around in the area where you are looking to buy a property. In these days of high interest rates, if the annual rent of a house similar to the one you intend to buy is less than 3% of the cost you will need to pay, the prices are clearly inflated.
    The rental market is telling you that the capital prices may not stick. By this measure, most properties in Mumbai (as also in most parts of Delhi) are clearly overpriced.

    Good Write up Sourabh...only disconnect i see is around 3% assumption...to me, more realistic number would be 5-6%.
    One quick eg - Ongoing rent in Purvanchal Silver city-I for 3BHK is round 25 grand per month or 3L per year. With 3% assumption, property price of 1Cr is reasonable,which is not correct...as ongoing price at the market is around 70L, if i'm not wrong.

    Yes, intangible benefits are actually the main factors to tilt the decision towards buying...else, renting may work out better only from pure financial consideration.
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  • Any RE theory that treats INVESTORS and END USERS equally, same way is just rubbish.

    You want to confuse other then mix both together ... otherwise consider them on their own merits and unique preferences.

    For investment the key is identifying potential. That's all. No rent ratio, interest can explain that. Think of Manesar now, what rent you get there? 10 years back we used to pay 2200 in Gurgaon sector 4.

    For end user the key is your unique requirements, you don't care too much about return, you want a HOME for your family.

    So, before you get confused by all these so called experts, understand what you are... are you an investor or end user? OK, mix... which one is pre-dominant?

    Decide based on that. Is not it as simple as this is?
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  • I like this thread. Last comment in July 2011, almost 11 months. In these 11 months many new user like me must have joined IREF who are trying to buy a house in Delhi NCR.
    May be like me staying on Rent in nice locality but searching to buy house because there's panic every where to buy a house as prices are increasing every day.

    Would I be buying ready to move house - No as I would be continuing on rent and would like to buy a house whose emi I can pay comfortably.

    Seeing the scenario in all region under construction houses where almost 90% of payment is complete still it will take 1-1.5 years before possession starts. Is it not large inventory? I have visited Noida, Expressway , Greater Noida , Crossing Republik , Faridabad neharpar , Indirapuram etc.

    Buying house and that too 20% cash and 80% loan means more than double to be paid to bank in term of interest and then over head of per month maintainence (in society) fees if I'm not renting my dream home.

    Should I buy a house as everyone is saying so?
    And then there is part of brain which says we can wait for some more time as RE prices for some regions may stablized (No RE bubble , burst , boom , blast etc) but because of unstable economy. Hence at that time we can buy the house; even so if prices has increased at the same rate it has been increased in an year.

    The big question remains is it right time to enter in RE or continue staying on rent for some more time?
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