Should you buy or rent a house?
A study tells you where
buying a house is a better option and where renting makes sense
Till a few years ago,
living in a rented house was not an intel ligent move. You could buy the house
and pay the EMI in stead. But this is no longer true. The latest ArthaYantra
Buy or Rent report shows that except for Hyderabad, Ahmedabad and Kolkata,
renting a house will be a more cost-effective option than buying it. The 2016
edition of the study takes into account the prevailing rentals and real estate
prices across eight major cities and then examines how affordable is a 1,000 sq
ft residential property for different income levels. Based on these parameters
and the assumption that the buyer will borrow 80% of the price of the property,
the study assigns an ArthaYantra Buy or Rent Score (ABRS) to each income level
in these eight cities. The higher the ABRS, the greater is the affordability at
that income level.
In Mumbai, for instance,
high property prices and high rentals have led to a low ABRS score of 55 for
all income groups. The average price of a 1,000 sq ft house is `1.9 crore,
while the average rent for a 1,000 sq ft house is `33,000 a month. The low
score indicates that though rentals are high, the astronomical property prices
in India's financial capital rule out the buying option.
In the National Capital
Region (NCR), property prices are lower, but a `1.19 crore apartment is still
out of reach of the average buyer. Even if someone earns `8 lakh a year (more
than `66,000 a month) and saves 25% of his income, he will have to wait for
more than 10 years to accumulate the 20% down payment for a flat in Delhi. “Our
research says that in the current situation, it is preferable to rent a home
than buy one,“ says Nitin Vyakaranam, CEO of ArthaYantra. Hyderabad remains the
most affordable metro for home buyers, followed by Ahmedabad and Kolkata, ac
cording to the study. In Hyderabad, the ABRS score for those earning over `8 lakh
a year is 90, which indicates that buying is a better option. Property prices
have declined 10.5% in the past four years, while rents in the city have moved
up marginally by 1%.
The other city with a high
ABRS score is Ahmedabad, where property prices have declined 20% in the past
four years. Rentals too have slipped 4%, but the steep drop in property prices
has made buying a compelling option in the city that Narendra Modi left behind.
The City of Joy is at third
rank, with a high ABRS score of 90 for those earning `15 lakh and above. Even
those with an annual income of `12 lakh can consider buying. Below that,
renting is a better option.
In Bengaluru, a buoyant job
market has boosted demand for homes on rent despite a 2.6% drop in property
prices.It is an affordable buy destination for people with an annual income of
`16 lakh or above.
Interestingly, Pune has
become more unaffordable than even Bengaluru. While the ABRS score for those
earning `15 lakh a year is 77.5 in Bengaluru (neutral), in Pune it is 67.5
(renting is recommended). The city, an educational hub and job destination for
engineering and IT professionals, has witnessed hectic demand from both home
buyers and tenants in recent years. The average price of a 1,000 sq ft
apartment in Pune is `64 lakh, compared with `60 lakh in Bengaluru.In Kolkata,
you can buy a similar property for `55 lakh, while in Hyderabad it will cost
just `34 lakh. In Ahmedabad, it will cost `39 lakh.
Babar Zaidi
|
TOI14DEC15
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