Rent or Buy a House
Rent v/s Buy – Which is a rather appropriate
Rent or Buy a house decision is a dilemma that majority face while buying first home.It is one of the tough decisions of life. Which is better, first self-occupied home or home that is put on rent? To rent is to pay money regularly for the use of land, a house or a building and to purchase/buy in legal terms is:
A) The acquiring of real property by any means other than descent or inheritance.
B) The acquiring of an interest in property especially in exchange for valuable consideration.
While owning a home is typically the dream of every Indian, sky-rocketing property prices especially in metros have led people to opt for renting rather than buying. The biggest myth about renting is that you’re “throwing away money” every month. This is not true. Renting means you can move without penalty each time your lease ends. However, it also means you could have to move suddenly if your landlord decides to sell the property or they could just double the rent to more than you can afford.
Home ownership brings a sense of stability and pride of ownership. The overall cost of home ownership tends to be higher than the overall cost of renting. That is true even if the monthly mortgage payment is similar to (or lower than) the monthly rent. In some cities of India, residential property has become so expensive that some people decide to continue living on a rented apartment. They just cannot afford to buy a decent home. New homeowners must pay many new expenses which include your monthly mortgage payment, property taxes and house insurance, and the cost of any home repairs and improvements.You are responsible for maintaining your own house.
Renting gives the impression of less responsibility. In metro cities, a house worth ₹80 lakh can be rented for just ₹20,000-25,000 per month. In addition to that, if you buy a home for the same price, you would have to pay an EMI(equated monthly installment) somewhere between ₹30,000 and ₹50,000. Purchasing power growth rate will never match the property-price-growth-rate. If after five years salaries get double, in the mean time property price appreciation will appreciate by 3 times. Although this is just an exemplification, but history also proves that property price has always beaten the purchasing power. To calculate the capital needed to buy a ready-to-move-in flat in a metro city residential project assuming the market price is Rs 50 lakh. The down-payment and associated transaction costs have to be taken care of.
It is amply clear from the example that renting turns out to be a better option. However, this may not be true in all market conditions. Indian real estate market is going through a period of slump with all major metros and Tier-Icities showing softness in property prices.
The choice between renting and owning is a tough one. For home buyers who are interested in owning a house, it is recommended that unless they are buying a house for primary residence, investment in real estate at this point does not make sense. The return or efficacy of owning vs renting is largely dependent on market conditions. In rapidly-rising real estate markets, owning makes more sense. On the other hand, when there is not much room for property price appreciation, renting is perhaps a better option.