Making the Housing Decision: Renting vs. Purchasing - Pros and Cons Renting or buying a home is a common dilemma for many people in India's real estate market. The market trends can be confusing, making the decision even more difficult. Renting offers financial flexibility and various advantages, while buying a home is often seen as a significant milestone in life and is driven by emotions.
With the influence of social media and the overwhelming amount of information available, it's common for people to feel unsure and struggle to make a definitive decision.
The followings are the advantages and disadvantages of staying in rent vs purchasing a house in the present real estate market of India:
Buying a home has a big advantage of building a long-term asset. Instead of paying rent, investing in real estate allows you to steadily create equity and increase the property's value over time. Home values in India are estimated to increase by around 8-10% per year, but this can vary based on different factors.
When you choose a fixed liability and tenure plan for your monthly mortgage payments (EMI), the initial payment amount may be high. However, considering inflation and annual income increments, your EMI burden should gradually become manageable and remain consistent until the end of the fixed tenure.
After the fixed tenure period, you'll only have regular maintenance or planned renovation expenses. Over time, your EMI burden will become less bothersome, and you will feel comfortable with your payments.
There are tax advantages to buying a home. You can get tax deductions on the interest paid (up to Rs 2 lakh) under Section 24 and on the principal amount (up to Rs 1.5 lakh) under Section 80C.
The interest deduction is limited to Rs 2 lakh and the principal deduction is limited to Rs 1.5 lakh. These tax benefits significantly reduce the financial burden and interest rate when borrowing money from a bank.
Taking advantage of the low-interest rates offered by banks is a good reason to buy a home in India. Home loan interest rates are typically between 8 and 10 percent, which, when adjusted for inflation and income increases, can effectively acquire a loan at a rate of only 2 to 3 percent or even 0 percent when considering tax advantages.
Owning a home brings emotional upliftment, security, and stability. It provides a sense of pride and stability, particularly for Indians. You have complete control over the design of your property, can establish roots in a neighborhood, and enjoy the financial and emotional rewards that come with homeownership.
Owning property is a tangible and enjoyable asset, especially if it's your first home, bringing daily joy and meeting your societal esteem needs. Owning property is unlike other asset classes like stocks or gold, which may not be enjoyed daily.
The Pradhan Mantri Awas Yojana (PMAY) is a government program to provide housing for all. It offers subsidized home loans to low-income and middle-income individuals. If you qualify for the PMAY program, you may be eligible for an interest rate subsidy of up to Rs. 2.67 lahks on your home loan, provided you meet certain eligibility criteria.
Buying a home requires a large initial financial commitment from the majority of us. Extra expenses include making a sizeable down payment, paying registration fees, and paying stamp duty. Individuals who have little access to financial resources may find that these expenses present a big obstacle for them.
Just like any other asset used often, it requires regular maintenance, which can range anywhere from Rs 3 to Rs 5 per square foot per month or more. Therefore, house owners have to pay recurring bills for a long time in their life. With time, a house owner may find that the cost of repairs, renovations, and regular maintenance has increased, further stressing their budget.
Once you buy a property, you'll want to make it appear nice and customize it according to your style, both of which will come at a cost depending on how much you want to spend on the beautification of the house. Either you may do this slowly, or you can hire an interior decorator for you as part of prepaid or post-paid packages.
For this reason, houses are categorised as illiquid assets. When we consider the recurring cycles of the economy, the process of selling a home may be time-consuming and complicated.
Now that you probably have a good sense of what you'd gain or lose by purchasing a property, let's talk about the advantages and disadvantages of renting:
One of the primary advantages of staying in rent is the lower overall cost. Individuals can live in desirable places without making a big financial commitment because many times monthly rents are often lower than an EMI.
Renting a property involves a lesser upfront investment in the form of a security deposit as opposed to purchasing, which is often compared to two or three months' worth of rent. Renting has a significant advantage over buying. It allows financial flexibility, which is especially helpful for those just starting their jobs and who want to travel but don't want to settle down too soon.
You don't have to worry about selling a house or being tethered to a certain area if you don't want to since you have the flexibility to move around as needed to accommodate any changes in your life.
An increase in investments; because monthly outgoings are more manageable than an EMI, the extra money that would have gone towards an EMI can instead be invested in other high-performing assets that generate more aggressive returns over the long term.
The biggest disadvantage of staying in rent is the absence of ownership, which in turn restricts the amount of autonomy one has. Renters have limited influence over the property and must abide by the rules and restrictions set out by the landlord and housing society.
In line with inflation rates, the amount you pay in rent will climb by at least 5-8% each year as time goes on. To put things into perspective, the amount of money you pay monthly for rent on the property you currently rent will approximately double every ten years.
This means that rent payments will still need to be made even after retirement and a decline in income. It is when payments can become a concern, knowing that many people will have financial and health responsibilities in their later years.
If the property owner decides to sell the home or end your rental agreement, they will control where you live, meaning you might have to move more often than expected. It means you'll have to adjust to new places and communities regularly and pay for moving costs.
Conclusion:
Whether you choose to live in rent or purchase a home will be determined by the conditions in your life right now, as well as the things that are very important to you. In normal, although owning a property gives long-term benefits such as the construction of an asset and a sense of security, staying in rent provides financial choices and opportunities from the obligations of property care.
Renting can be a smart option for the short term until you have established a reliable income or have found your footing in your profession or life, which might be well into your twenties.
However, after you reach your 30s, you should start thinking about purchasing your first house if you can put a portion of your monthly wage, ideally between 30 and 40 percent, towards an EMI.
Given the emotional, financial, and social benefits and downsides that are associated with either choice, potential homebuyers in India's real estate market are frequently faced with the confusion of deciding whether to stay in rent or buy a house.
Whether you should rent or buy depends on your current situation, priorities, income, long-term objectives, and personal requirements.