For most, homeownership has always been a dream. However, the growing trend these days is that a person can fulfill this dream with the help of home loans. But have you ever thought about the possibility that renting would serve you better than buying?
This may sound absurd to you; however, concerning housing, the very old question remains: Should you go for buying a home or keep renting? The answer varies from person to person since it depends on your financial status, career intentions, life outlooks, and plans. So if you’re confused about this issue, this article is meant for you.
Real-Life Examples: To Buy or Not to Buy?
Take, for example, Rajesh, a 48-year-old senior vice president in an education solutions company. He had come to Mumbai from Bangalore in 2014. For a while, he felt that renting was the way to go. However, after spending ₹35,000 on monthly rent, he ultimately decided to purchase a flat worth ₹60 lakh in Mumbai. He is now investing around ₹60,000 as an EMI every month.
Rishi Arya, on the other hand, is a 38-year-old professional working with a multinational company in Vadodara. He has spent the last ten years of his life renting. He says, “Owning a home now would mean tying up a good part of my salary for EMIs. Right now, paying ₹18,000 as rent appears to be more practical.”
So which is better? Let us analyze.
Expert Insights: Buying vs. Renting
According to Ravi Shankar Singh, managing director of residential transaction services at Colliers India, understanding the long-term impact of buying versus renting is essential. The home loan interest rate may fluctuate and so may your EMI outgo.
Rental yields in India vary somewhere between 2.5% to 4.5%, whereas home loan interest rates are very likely to be 8.1% or higher. Buying a home provides long-term stability, while rental provides mobility.
Advantages and Disadvantages of Buying a Home
Advantages of Buying a Home
- Stability and Security: Apart from offering a feeling of permanence, a home is secure.
- Appreciating Investment: Property values increase, usually.
- No Worries about Rent: You will have a rock-solid peace of mind against increasing rents in the future.
Disadvantages
- High Set-up Costs: Down payments and EMIs will be hurting financially.
- Maintenance Expenses: The expense of repairs and maintenance is borne by the homeowner.
- Limited Flexibility: Relocation to another city becomes difficult.
Advantages and Disadvantages of Renting:
Benefits:
- Lower Expenses: Spending less compared to buying since there is no need for a hefty down payment, mortgage EMI, etc.
- Flexibility: Moving is easier when it comes to the same for jobs or personal reasons.
- Opportunity for Investment: The money that you’ve saved could go somewhere else for investment for greater returns.
Disadvantages
- Increased Rent: It’s common for most landlords to have a built-in rent increment in their contracts, perhaps annually.
- No Ownership: You would not build equity into the property.
- Lack of Stability: You might feel, at times temporary and uncertain.
What Do Property Experts Say?
Anuj Kesarwani, one of the founders of Zenith Finserv, gives this interesting example- Raj bought a house worth ₹43lakhs in 2016 with an 8.5% interest rate on a loan for 20 years. The amount that would have to be repaid, including interest, is nearly ₹80 lakhs. In comparison, Vijay occupied that same property for a monthly rent of ₹25,000, while he invested the rest of the ado with mutual funds SIP having an annual return of 12%.
The results? After 13 years and 5 months, the whole amount to be saved up could buy a house, while Raj was still going on with paying his EMIs.
Buy or Rent: What’s the Right Choice for You?
If it’s your circumstance, the decision is usually whether to buy or rent:
If you would be living in a city completely and can pay the necessary EMI affluently, then it is going to be a good idea to buy a home.
If you have changes in employment or will be moving from one city to another, renting could be a better option for you, as well as preferring some flexibility with your finances.
The basic issues will affect your choice between purchase and rent-your own specifications, individual career aspirations, and economic situation. Consider your analysis well, ask the experts, and make a choice that is rightly your own for the long run.