Is buying a house a better idea or is renting more cost-effective?
Did you know that single women make up 9% of home buyers in India? Or that 60% of women home buyers are below 40 years of age. Likely the most interesting statistic is that for 70% of women, real estate is their first investment. Even the government wants more women to buy homes – women have to pay less registration fee than men.
While women have made strides to own their dreams, the real estate industry seems far behind in catering to the need of women real estate investors. This reflects in the situation where over 84% of women feel that developers do not understand the needs of women buyers.
Shortcomings of the industry notwithstanding, home is a basic need. But in an economy where everything from furniture to an evening gown can be rented, buying is no longer the default way to fulfil the need. The big debate is whether to buy or rent.
The emotional cache attached to owning your own home is always emphasised. But financially, does it make sense to put together a heavy down payment and commit to paying EMIs for as long as 15 to 20 years? Especially when you compare the economics of property rates appreciating versus investing in the equity market and watching your money grow?
The biggest plus in favour of owning a house is that you do not pay rent. But this is only if you have bought your home outright and do not have a hefty EMI to pay. Or at least have enough savings where so you can put down a sizeable downpayment and structure a loan that will not pinch your income badly. You will never have to listen to pesky landlords or worry about sudden rent hikes or being asked to vacate at short notice. But you will be responsible for the upkeep of your property and the recurring costs of wear and tear.
But a house as an investment from which you expect returns is a different ball game. The value of a property will appreciate at a certain rate. But the value is notional if you are living in your home and becomes an asset only when you decide to sell it. The value of the property is not liquid, meaning easy to convert to cash. Finding a good price for your home may take time depending on many factors that are not in your control.
Long and short of it: Go in for buying a home if you have most of the down payment readily available. Take a home loan to save income tax. Pick a property keeping both the long-term and short-term changes in mind. Location, expanding family, growing expenses, changing your job and city, prospects of renting it out – are all factors to keep in mind before you take the plunge.
When it comes to renting, the reason most people do it is that they may not have enough money to buy a home. So should you take the plunge and pool in all your assets and take a loan and buy? Not if you do the long term calculations.
Say for a home worth Rs 60 lakh you take a home loan of Rs 40 lakh, you will be paying an approximate EMI of Rs 40,000 per month. A similar home will be available to you for a rent of Rs 20,000 per month. You are already saving half the amount you would have been paying as EMI. Not just that, when you claim a tax rebate on the HRA component of your salary, combine it with a similar rebate on your husband’s salary, most likely the rent you pay will be very little.
Chances are that if you have the capacity to pay EMIs of Rs 40,000, you also have the capacity to save that Rs 40,000. Even if say that you save Rs 30,000 per month in equity funds or mutual funds, over a period of 20 years you will have created a corpus or almost Rs 4 crore at an estimated cumulative interest rate of 15%. So that cancels out the argument that the value of a property is inflation proof.
Long and short of it: Renting makes sense if you don’t want to get tied down to the hassles of property management – maintenance issues do require some involvement. Also, you need to be smart with your money – if you are not investing in property, do invest elsewhere to ensure that your money works for you. Rent till you find the perfect place for yourself and you are financially sound enough to not end up working just to keep the EMIs going.
Making the move
The final decision is yours. If you want the emotional satisfaction of being a homeowner, go for it. Your property will be yours forever. But renting also makes a lot of sense if you are able to invest your liquid assets wisely for maximum returns. India is not a social state, so your old age is your responsibility. Invest wisely.