Table of Contents
1. Introduction 5
2. Methodology 6
3. Assumptions 7
4.1 Historical data of Real estate prices 8
4.2 Property Cost vs Rental Value 9
4.3 Down Payment 11
4.4 Area 12
4.5 Rent to Buy Ratio 13
4.6 Break Even Horizon 14
4.7 Comparision with 2012 15
5 ArthaYantra Buy vs. Rent Score (ABRS) 23
6. Conclusion 26
7. Limitations 27
8. Appendix 28
The current edition of Buy vs Rent research covers 8 major cities across India.
Ahmedabad: Ahmedabad is the 2nd most affordable city to buy a home among the 8 cities. However, on the scale of affordability to rent, the city is ranked 5th signifying higher rental value of the city. As per the current average property prices and average rental value of the city, individuals earning 8-12 Lakh p.a are recommended to rent. Buying a home is a better option for individuals with annual income of more than 12 Lakhs.
Bengaluru: Over the last year, Bengaluru has seen relatively higher growth in the rental rates compared to the property prices. Bengaluru is ranked 4th on affordability to buy and 3rd on affordability to rent. Individuals earning up to Rs 15 Lakhs are advised to rent the home whereas Individuals with annual income of 15 – 19 Lakhs are in the ABRS neutral zone (can buy or rent). Individuals earning more than 10 lakhs are advised to buy a home.
Chennai: Rental value in Chennai has increased by 14% whereas the property prices have increased by 6%. Chennai is ranked 5th on affordability to buy and 4th on affordability to rent. Individuals with annual income of less than 20 Lakhs cannot afford buying a home and are advised to opt for rent. Individuals with annual income of Rs 20 – 24 Lakhs are in ABRS neutral zone whereas individuals earning more than 24 Lakhs are in affordable zone to buy a home.
Delhi NCR: Delhi stands as the second costliest real estate market in India. However, the higher property prices did not translate to high rental prices of the city. Due to its relatively lower rental value compared to Kolkata and Mumbai, Delhi is the 6th affordable place to rent. The ABRS score for individuals within the salary range of 8 – 25 Lakhs remains at 55, making Delhi a place to rent.
Hyderabad: Hyderabad continues to be the most affordable (ranked 1) city both in terms of buying and renting a home. Only people earning less than 8 Lakhs p.a are advised to rent. Individuals in 8-10 Lakhs p.a bracket fall in ABRS neutral zone i.e they can buy or rent. Those earning more than 10 Lakhs are advised to buy home in Hyderabad.
Kolkata: Real estate in Kolkata scored substantially both in terms of property prices and rental prices. The average rental value and property value of the place has increased by
24% over the last year. The report ranks Kolkata 5th on affordability to buy and 7th on affordability to rent highlighting high rentals in Kolkata. Individuals with annual income of less than 14 Lakhs are advised to rent whereas individuals earning more than 14 Lakhs are advised to buy a home.
Mumbai: Mumbai remains the most costly real estate market in India. It is ranked as the least affordable city both in terms of renting and buying a home. The ABRS score of 55 for individuals earning 8 – 25 Lakhs also conﬁrms the fact that one can afford to rent but cannot afford to buy a home in Mumbai.
Pune: Pune remains as the second most affordable place to rent. When it comes to owning a home, it is ranked 3rd among the eight cities. While the individuals with annual income up to 15 Lakhs are advised to rent, individuals in the salary range of 15 – 19 Lakhs can chose
A decision to buy a home depends on both ﬁnancial and more importantly emotional factors. Factors such as social standing, secure environment for children and a comfortable place where people can grow old are some of the emotional factors that inﬂuence the buying of a home. When considering these emotional factors people tend to ignore the ﬁnancial implications that need to be considered before making an important decision like buying a home.
Buying a home is also looked at as a means for ﬁnancial security, creation of wealth and appreciation of property rates. Renting on the other hand is treated as an expense and not always looked upon as an advantage. But in reality renting a space can prove advantageous for ﬂexible lifestyle, give options of higher mobility and is easy on pocket when compared to the EMI that need to be paid when owning a home.
Choosing between buying a home as opposed to renting one can prove to be a daunting a task especially from the perspective of personal ﬁnance. Is it ﬁnancially prudent to buy a house? Can there be an advantage to renting a place to live? Will there be any lifestyle changes that one needs to accommodate? These are some of the questions that come up when arriving at a decision to buy a home. This annual research report attempts to answer some of these questions . As part of this research we aim to objectively address the major factors which impact the decision of buying versus renting.
There is a common assumption that the residential property rates always appreciate and hence investing in them always gives good returns. However this is not always true as the returns offered from real estate are not always consistent and also the appreciation of a residential property is dependent on several factors. It is not easy for individuals to determine the rate at which the residential property is going to appreciate or depreciate. There is a school of thought that supports the argument that real estate market’s returns are similar to equity markets when it comes to predictability. They are simply not predictable.
Tax saving is another reason that is considered when buying a home. If one avails a loan to buy a home, then the principal payment of home loan is deductible from taxable income under section 80C. However it is imperative to note that during the ﬁrst few years of the loan the interest component of an EMI is higher than the principal component. Thus a home loan is not always the best option to enjoy major tax beneﬁt under section 80C. Besides the HRA allowance when renting a place can offset the beneﬁt received under section 24B for interest payments made towards home loan. Hence tax beneﬁts are not always a good reason on which the decision of buying a house can be based
The three factors that are pivotal when deciding to buy a house are: current property price which determines the EMI to be paid, current monthly Rental value and the current gross income. Monthly rent or the EMI being paid should not consume most of the salary which in turn will affect the current lifestyle or future goals. Also, it is not a good ﬁnancial decision to buy if the rental value is low compared to the EMI to be paid when owning a property.
As a part of our study, we analyzed the costs associated with owning a house and renting a house across Delhi NCR, Kolkata, Ahmedabad, Pune, Mumbai, Hyderabad,
Bengaluru and Chennai. The research report for 2013-2014 has added Ahmedabad to the list of existing major cities.
Property price and rental prices of various residential properties were collected from multiple data sources to generate the primary and secondary data for the analysis. The public data sources including the data by National Housing Board (NHB) of India, data from various real estate reports and data from major real estate aggregators is collated. The primary research has been performed by collating information from over 100 real estate agents across the localities considered.
The methodology used for arriving at the results considers various key parameters derived from the initial data collected: Price of the residential property and their rental value. Various important factors like the years of saving required for a professional to accumulate the corpus for down payment and the number of square feet per INR 1 lakh are derived from the average property price.
The main idea behind this research is to quantify the buy vs. rent decision from a personal ﬁnance perspective. The main factors which drive the decision are: How much more money does a professional need to shell out for buying a home compared to renting it? Can the professional afford this additional amount? ArthaYantra’s Buy vs. Rent Score tries to address these questions and come up with a comprehensive scoring system. The scoring system not only tells whether it’s better to buy or rent but also tells whether it’s affordable to buy or rent.
- The sale price and rental values are calculated for 1000 sq ft area ready to occupy residential property.
- 20% of the cost of the house is considered as the required down payment to buy a house.
- The loan tenure is 15 years.
- The lending rate for the loan is 10.50%.
- Average savings rate is 25%.
- The minimum gross income required to buy a house is calculated by considering 50%of monthly take home salary= Monthly EMI to be paid.
- The gross income of the professional increases 10% annually.
- 1.5% of the property value is considered as the property tax to be paid.
- 10% annual increase in rent is considered.
- Property appreciation is not considered.
4.1 Historical data of Real estate prices
National Housing Board India’s Residential Index (NHB Residex) tracks the movement of prices in the residential housing segment across India. Figure 2 shows the historical NHB Residex values since its inception in 2007.
As per NHB Residex values during Apr – Jun 2013, Delhi, Mumbai, Ahmedabad and Pune have recorded increase in the index value over the last year. Hyderabad, Chennai and Kolkata has shown decline in the index value. Delhi recorded a highest raise in the index value by 27 base points compared to the same period last year. While Mumbai posted an increase of 24 base points compared to same period last year, Pune is at 219 base points which has increased by 19 points during the period. Ahmedabad recoded an increase of
12 base points. Hyderabad’s index value has decreased from the base year value by 16%. Chennai and Kolkata’s index values have receded from the last year’s values negatively.
Given the current scenario of real estate prices, this research report aims to take forward the thought process of ﬁnding most affordable place for middle income professionals. In the further sections, we examine the on ground situation in these cities and provide more insights on various aspects that would aid the readers in making well informed decisions.
4.2 Property cost Vs. Rental Value
A comparison of the property prices and rental value of 1000 sq ft ready to occupy house across eight major cities of India is shown in Figure 3. While the bar graph shows the average property prices in the city, the line graph depicts the average rental value in the city.
As per the NHB residex, Pune and Mumbai have grown at a similar pace since 2007. However, the average property price of Mumbai is nearly two and half times higher than that of Pune. Mumbai remains the costliest real estate market followed by Delhi. Though the index value of Delhi property prices has recorded the highest increase amongst the 8 cities, the actual property price in Delhi is lower than that of Mumbai. Though Chennai remains as the city which recorded highest growth in Residex value since 2007, property prices in Chennai have seen a relatively sluggish growth. Kolkata’s real estate market experienced a substantial growth in the prices recording a near 27% growth over the past year.
The disparity in prices not only exists in property prices but is also evident in the rental rates across the cities. The cities with higher property prices are not necessarily the cities with higher rent. Between Bengaluru and Kolkata the properties are priced in similar ranges. However, rental value for Kolkata is higher than Bengaluru by nearly 44%. Similarly, though the real estate market of Ahmedabad is cheaper for buyers compared to Pune, its rental rates are 28% costlier than that of Pune. When it comes to rental prices, Delhi also fails to translate its higher property prices. Delhi, which is nearly 83% costlier than Kolkata in terms of buying a home attracts lesser rental value. Similarly, though Delhi and Mumbai have identical property prices, Mumbai is nearly 48% costlier to rent. These anomalies in rental and property prices are largely driven by the micro structures of the markets.
With the introduction of Ahmedabad into the ranking, most of the cities have slipped down their affordability ranks both in buying and renting. However, Hyderabad remains the most affordable place to rent as well as buy. Mumbai stands out as the least affordable place in both scenarios. In terms of affordability to rent, Hyderabad is followed by Pune, Bengaluru, Chennai and Ahmedabad. These are the places where one can rent a 1000 sq.ft place for below twenty thousand per month. Delhi, Kolkata and Mumbai are rated lower on the scale of affordability to rent.
On the scale of affordability to buy, Hyderabad is followed by Ahmedabad, Pune and
Bengaluru. Kolkata, which has seen a relatively rapid increase in property prices among the
8 cities, is now ranked as ﬁfth most affordable city to own a home. It is followed by Chennai, Delhi and Mumbai.
The Table 2 shows the ranking of all cities on both affordability to buy and affordability rent.
4.3 Down payment
Majority of the middle income households in India opt for home loan to fulﬁll their dream of owning a home. Generally, ﬁnancial institutions have a mandate for the home loan applicants to pay at least 20% of the property price using their self-funding. Provided the applicant meets the eligibility criteria, remaining 80% can be availed as a loan. Assuming a 20% of property price as the down payment and saving rate of 25% for a professional with a gross income of 8 lakhs, based on the current average property prices, the time required to save the corpus determines how sooner one can afford to buy a home.
The average property prices translate to the number of years professionals need to save for the required corpus for down payment. This metric has increased in all cities over the last year. Based on the above stated assumption and average property prices a professional can afford the down payment required in Hyderabad, Ahmedabad and Pune in 5 years. In Kolkata and Bengaluru it takes 6 years and in Chennai it takes 7 years. In Mumbai and Delhi a professional has to save for at least 10-11 years to afford the down payment amount required. An individual from Hyderabad and Pune needs to save two fold to buy a house in Mumbai and Delhi. Compared to the last year, this metric increased for all the cities. The highest difference can be seen in Delhi and Mumbai, which are the costliest cities to buy a home. Figure 4 is in line with the assigned affordability ranks for ownership. It also shows the changes when compared to last year.
The area of residential occupancy is an important aspect of life style. It determines the size of the home that is provided for the family. Figure 5 compares the average number of sq ft that can be bought for 1 lakh rupees across the eight cities.
Mumbai, being the costliest city to own a home among of the eight cities considered, offers the least space of 7.50 sq ft per INR 1 lakh. Delhi is the second costliest city offering a residential space of 8.55 sq ft per INR 1 lakh, which is 1.06 sq ft more than Mumbai. Hyderabad, being the cheapest city to buy a home among the eight cities considered, offers the largest residential area of 23.95 sq ft per INR 1 lakh. This means that a professional who wants to own a home in Mumbai and Delhi has to spend 3 times more than what he spends in Hyderabad for the same no of sq ft. Ahmedabad is next cheapest city to buy a home in. It provides a residential space of 20.18 sq ft per INR 1 lakh. Pune provides a living space of 18.55 sq ft per INR 1 lakh. A professional from Mumbai and Delhi will get 2 and a half times more area in Pune for INR 1 lakh. This is followed by Bengaluru that offers 16.01 sq ft Kolkata which offers 15.69 sq ft per INR 1 lakh. Chennai offers less space than all other cities except Mumbai and Delhi at 13.15. In all the cities the metric has recorded lower value compared to the last year’s values. The highest drop is observed in Kolkata and Pune because of the relatively faster pace in increase of property prices.
4.5 Rent to Buy Ratio
The rent to buy ratio explains the additional monthly payments to be paid in case of ownership compared to renting. The ratio also helps in understanding whether the property prices are being translated to the rental value or not. The ratio is calculated based on the average monthly cost of renting i.e. monthly rental value + monthly maintenance and average monthly cost of ownership i.e. monthly EMI being paid in case of owning the house + monthly Maintenance charges.
Delhi has the least rent to buy ratio value, which means that the monthly cost of renting is nearly 80% cheaper compared to buying a house. Kolkata and Ahmedabad score highest at 41%, making the decision to buy easier once in a position to afford the EMI payments and required down payment. With a ret to buy ratio of 37%, Hyderabad ranks 3rd on the scale of urgency to buy. It is followed by Pune and Bengaluru with a urgency to buy ratio of 30% and 29% respectively.
4.6 Break Even Horizon
Ignoring the price appreciation of the home bought, the main aspect that is to be analyzed is the cost of owning and renting a house. The factors that are to be analyzed in case of owning a home are: EMIs being paid towards the home loan, annual maintenance, repair charges and the average amount that can be saved under tax. The factors involved in case of renting a place includes: the rental payments, annual maintenance charges and the tax savings.
Tax savings is always an integral part of all our ﬁnancial decisions. Especially considering the tax beneﬁts one can claim under section 80C and 24B, buying a home remains the most preferred tax saving avenue. The payments made towards the principal amount of the home loan are deducted under section 80C. The payments made towards interest on home loan are deducted under section 24B. In case of renting one can claim tax beneﬁts under house rent allowance.
Though the tax beneﬁts in case of ownership are higher during the initial years, renting the same place gives better tax beneﬁts over the next few years. The beneﬁts of renting are higher especially in the regions where the costs of ownership and renting don’t match up during the average loan tenure of 15 years. The breakeven year i.e the year at which the annual cost of owning house is equal to the annual cost of renting the same place is calculated over the average loan tenure i.e 15 years. The break even horizon of various areas is shown in Figure 6. The cost of ownership and renting matchup in Kolkata and Ahmedabd is attained after 11 years. The costs matchup approximately after 15 years in Pune, 14th year in Hyderabad. The costs don’t matchup in the case of Delhi, Mumbai, Bengaluru and Chennai during the 15 year timeframe. The planned length of stay in the house becomes an important aspect in deciding whether to buy or rent especially for a ﬁrst time home buyer.
4.7.1 Comparison with Previous Year – Bengaluru
Bengaluru: Over the last year, Bengaluru has seen relatively higher growth in the rental rates compared to the property prices. Rental values in the area increased by 26% compared to 15% increase in the property prices. The NHB Residex value for the Apr – Jun
2013 quarter is recorded at 108, which is 8 base points higher than the index value recorded during the same quarter of last year. Among the 8 cities, Bengaluru is ranked as third most affordable place to rent and fourth affordable place to buy a property. The years of saving required to afford buying a property in Bengaluru has increased to 6. Based on the previous year prices, a middle professional needed to save for 5 years. A new home buyer in Bengaluru, now gets 13% lesser carpet area compared to the previous year. The ABRS values of Bengaluru recorded during this year are same as the values recorded
4.7.2 Comparison with Previous Year – Chennai
Chennai: The NHB Residex value for the Apr – Jun 2013 quarter is recorded at 309, which is 6 base points lesser than the index value recorded during the same quarter of last year. Rental value of the areas has increased by 14% whereas the property prices have increased by 6%. Among the 8 areas, Chennai is ranked as 4th affordable place to rent and 6th place to buy. With respect to affordability of renting or buying, Chennai stands at same spot compared to the previous year. The years of saving required to afford buying a property in Chennai has increased to 7. Based on the previous year prices, a middle professional needed to save for 6 years. A new home buyer in Chennai, now gets 6% this year are same as the values recorded during the previous year. A new home buyer in Chennai, now gets 6% lesser carpet area compared to the previous year. The ABRS values of Chennai recorded during this year are same as the values recorded during the previous year.
4.7.3 Comparison with Previous Year – Delhi
Delhi NCR: Delhi continues to be second most expensive city to own a home in India. The NHB Residex value for the Apr – Jun 2013 quarter is recorded at 199, which is 27 base points higher than the index value recorded during the same quarter of last year. The average rental value of Delhi has increased by 17% during the year when the average property prices increased by 7%. Due to its relatively lower rental value compared to Kolkata and Mumbai, Delhi is the 6th affordable place to rent. The years of savings required by a middle income professional to afford the down payment has increased to 10 compared to 8 years in 2012. A new home buyer in Delhi, now gets 7% lesser carpet area compared to the previous year. The ABRS score for individuals with a salary range of 8 – 25 lakhs remains at 55 making it a place to rent for majority of such individuals.
4.7.4 Comparison with Previous Year – Hyderabad
Hyderabad: Hyderabad continues to be the most affordable real estate market among the major cities of India. The NHB Residex value for the Apr – Jun 2013 quarter is recorded at 84, which is 1 base point lesser than the index value recorded during the same quarter of last year. Rental values in the area increased by 15% compared to 11% increase in the property prices. Among the 8 cities, Hyderabad retains its spot as the most affordable place to buy or rent a home. The years of saving required to afford buying a property in Hyderabad has increased to 5. Based on the previous year prices, a middle professional needed to save for 4 years. A new home buyer in Hyderabad, now gets 10% lesser carpet area compared to the previous year. The ABRS score for professionals remain the same as recorded in the previous year, making Hyderabad the most affordable place to buy or rent a property among the eight places studied.
4.7.5 Comparison with Previous Year – Kolkata
Kolkata: Real estate in Kolkata scored substantially both in terms of property prices and rental prices. The average rental value and property value of the place has increased by 24% over the last year. However, the NHB Residex value for the Apr – Jun 2013 quarter is recorded at 189, which is 7 base points lesser than the index value recorded during the same quarter of last year. Among the 8 cities, Kolkata is ranked as 7th affordable place to rent due to its high rental rates and 5th affordable place to buy a property. The years of saving required to afford buying a property in Kolkata has increased to 6. Based on the previous year prices, a middle professional needed to save for 5 years. A new home buyer in Kolkata, now gets 20% lesser carpet area compared to the previous year. The ABRS score of 75 for a salary range of 8-12 lakhs signiﬁes the fact the rental value is critically high but the professional in the salary range can’t afford to buy. The professional whose salary range is between 13 – 25 lakhs is better off owning a home than renting it. These values remain in sync with the values recorded in the previous year.
4.7.6 Comparison with Previous Year – Mumbai
Mumbai: Mumbai still remains the costliest real estate market in India. The NHB Residex value for the Apr – Jun 2013 quarter is recorded at 221, which is 24 base points higher than the index value recorded during the same quarter of last year. While the rental prices have increased by 9% over the last year, the property prices have increased by 22%. Among the 8 cities, Mumbai stands as least affordable place in case of both renting and owning a house. The years of saving required to afford buying a property in Mumbai has increased to 11. Based on the previous year prices, a middle professional needed to save for 8 years. A new home buyer in Mumbai, now gets 18% lesser carpet area compared to the previous year. The ABRS score for individuals with a salary range of 8 – 25 lakhs is recorded at 55 compared to the previous year’s value of 65. This is largely due to higher increase in the property value compared to increase in rental value.
4.7.7 Comparison with Previous Year – Pune
Pune: Pune still largely remains a buyer’s market with the property prices increasing at a higher rate than rental rates. The rental prices in the area have increased by 12% during the year when the property prices have increased by 26%. The NHB Residex value for the Apr – Jun 2013 quarter is recorded at 219, which is 19 base points higher than the index value recorded during the same quarter of last year. Among the 8 cities, Pune is the second most affordable place to rent while it stand third in terms of affordability to buy. The years of saving required to afford buying a property in Pune has increased to 5. Based on the previous year prices, a middle professional needed to save for 4 years. A new home buyer in Pune, now gets 21% lesser carpet area compared to the previous year. During the current year, ABRS score of 90 is recorded for individuals earning more than 20 lakhs per annum as opposed to 90 for professionals earning more than 15 lakhs during the last year.
4.7.8 Ahmedabad ( included ﬁrst time)
Ahmedabad: Ahmedabad is the new addition in this year’s buy vs rent report by ArthaYantra. The NHB Resiidex increased by 86 points since 2007 and recorded a 6 basis points increase over the last year. This is in sync with the increasing demand in the city. Among the 8 cities, Ahmedabad is the second most affordable place to own a house. However, due to higher rental rates, it is the ﬁfth place on the scale of affordability to rent. A middle income individual needs to save for at least ﬁve years to afford the down payment for the house. The city also offer good value for buyer’s money who can get around 20.18 sq.ft for every 1 lakh spent. The ABRS value of 87.5 and higher for individuals who earn more than 12 lakhs per annum signiﬁes that such individuals should opt for buying a property over renting in Ahmedabad.
5. ArthaYantra Buy VS. Rent Score (ABRS)
The property price and rental value of the place speaks volumes about why one should rent or buy the place. They have an impact on the amount of money being spent on the house (be it rent or EMI), the tax savings being received and many other important things. But one can’t only rely on the rent to buy ratio and make the decision to buy without assessing his affordability. Similarly a decision to buy a house just because one can afford the EMI is not advisable. ArthaYantra came up with a unique scoring system called ArthaYantra Buy vs. Rent Score (ABRS) which is an effort to seamlessly integrate the above two aspects. We even added another layer of parameter, the rental value. So given a locality, based on the income of the professional ABRS describes a suitable action from wide range of options spanning from why one can’t rent to why one has to rent though he/she can afford to buy to why one should buy.
As a part of this research report we have considered the average property prices and rental values of the localities and calculated the ABRS score across different salary ranges. In this research, the scope of the scoring system is conﬁned to rental value and price of the corresponding property of the same region. It can be extended to compare the rental value of one region and property prices of a different region. This makes ABRS a powerful tool to logically gauze the pros and cons of renting and buying a house.
Ahmedabad: The ABRS score of 75 for a salary range of 8-10 lakhs signiﬁes the fact that rental value is critically high but the professional in the salary range can’t afford to buy. The professional whose salary range is more than 12 lakhs per annum should consider owning a home than renting it.
Bengaluru: The score of 55 for a professional with a salary range of 8-14 lakhs signiﬁes that the monthly cost renting is cheaper than buying by more than 70%. The low rental prices also meant that though the professional with a salary more than 15 lakhs can afford to buy a house renting is a better option.
Chennai: The score of 55 for a professional with a salary range of 8-19 lakhs signiﬁes that the monthly cost renting is cheaper than buying by more than 70%. The low rental prices also meant that though the professional with a salary more than 20 lakhs can afford to buy a house, renting is a better option.
Delhi NCR: The low rental values compared to high property prices makes it a place where renting can be easily afforded and the EMI associated with home loan is high. It is advisable to rent for a professional with a salary range of 8 – 25 lakhs
Hyderabad: The professional with a salary range of 8-9 lakhs is better off renting. The professional with a salary of 10- 11 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but have to make few adjustments to the current lifestyle in order to afford the additional amount for EMI payments. The professionals with a salary range more than 12 lakhs are advised to buy.
Kolkata: The ABRS score of 75 for a salary range of 8-12 lakhs signiﬁes the fact that rental value is critically high but the professional in the salary range can’t afford to buy. The professional whose salary range is between 13 – 25 lakhs should consider owning a home than renting it.
Mumbai: The score of 55 signiﬁes that though the rents are high, it is advisable to rent because the property prices are also high. The EMI payments to be made in case of ownership are not affordable.
Pune: A professional with a salary range of 8- 12 lakhs is better off renting. The professional with a salary of 13- 15 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but have to make few adjustments to the current lifestyle in order to afford the additional amount for EMI payments. The professionals with a salary range more than 15 lakhs are advised to buy.
The current economic uncertainty combined with the inﬂated real estate prices makes the Buy Vs Rent decision tougher for salaried professionals. Among the top 8 cities researched in this report, Delhi & Mumbai clearly stand out as cities where buying a home has become incrementally tougher and has gone beyond the reach of the salaried professionals. The minimum salary range to be able to afford a home across all 8 cities has also increased compared to 2012. Similarly, the sq ft of area for the same amount of money has shrunk. This has lead to increasing number of people opting to rent a home rather than buying one. Hyderabad continues to be the most economical choice for both renting and buying across all salary levels. However, in Pune, Bengaluru, Ahmedabad and Kolkata the salary threshold to buy a home starts after one starts earning more than Rs. 12 Lakhs per annum. These cities today offer a good buying alternative to professionals working in Mumbai or Delhi.
The economic value for a person in buying a home across 8 major cities in country is diminishing rapidly. The high interest rate regime and uncertainty in job market in next 12 months might make more people inclined towards renting rather than buying. Buying a home without clear economic beneﬁts can be detrimental to the ﬁnancial health of the buyer. We recommend that ABRS should be used as the mainstay tool to arrive at a more objective decision on whether to buy or rent.
The data is related to following localities of the eight cities:
Delhi NCR: Golf course Road, Sohna Road, Golf course extension Road, Noida – Greater Noida Express Highway, Noida City, Indirapuram, Faridabad, Safdarjung Enclave, Rohini Sec – 13, Delhi East, Delhi South, Vasant Kunj.
Kolkata: Alipore, PA Shah Road, EM bypass, Lake town, Behala, Howrah, Jodhpur Park, Jadavpur, Salt Lake City.
Pune: Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri–Chinchwad, Kothrud.
Mumbai: LowerParel, Wadala, Andheri, Ghatkopar, Ghodbunder Road, Kharghar, Chembur, Borivali West, Bhandup West, Mira Road, Kalyan, Virar, Pokaran Road.
Hyderabad: Banjara Hills, Begumpet, Kondapur, Tellapur, Kukatpally, Miyapur, Rajendra Nagar, L.BNagar.
Bengaluru: Old Madras Road, Indira Nagar, Bellary Road, Hosur Road, Whiteﬁeld, Tumkur Road, Kanakapur Road, Mysore Road.
Chennai: Adyar, Medavakkam, Tambaram, Anna Nagar, Porur, Sholinganallur, Perambur, Kolathur, Chetpet, Ashok Nagar, Chromepet.
Ahmedabad: Dudheshwar, Gomtipur Gam, Thaltej, Bodakdev, Shilaj, GOrdhan Vadi, Sardar Nagar, Shaijpur – Bogha, Sola Road, Chandkheda Gam, Vejalpur, Shilaj
The property tax to be paid is considered as 1.5% of the property value. The property tax calculation reforms need some stringent reforms to regulate the process. In most places the value is calculated based on the rental value. The rental values being shown in the related local governing bodies website varies from the actual rental prices.
The tax beneﬁts received under section 80 C is considered as INR 1 lakh both in the case of home ownership and renting.
The tax beneﬁts under section 24B for home buyers is considered as 1.5 lakhs.
The HRA beneﬁts in case of renting is considered as per the taxation rules based on average rental prices.
8. Appendix – I
Figure1: National snapshot
Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)
Figure 3: Average property price and rental values across eight major cities of India
Figure 4: No. of years required to save the corpus for down payment
Figure 5: Average no. of sq ft per lakh (`)
Figure 6: Break even horizon for eight major cities of India
Table 1: Factors associated with home ownership and renting
Table 2: City wise ranking based on the affordability to rent and buy
Table 3: Rent to Buy ratio and Urgency to buy rank
Table 4: ArthaYantra Buy vs. Rent Score Explanation
Table 5: ArthaYantra Buy vs. Rent scores for different income levels across eight major cities of
Table 6 : Other important numbers
- National Housing Board, India: www.nhb.org.in
- Jones Lang LaSalle: www.joneslanglasalle.co.in
- Makaan: www.makaan.com
- Magic Bricks: www.magicbricks.com
- Multiple Primary sources
Appendix – II
Other important numbers to look at before making the decision :
*Ini al corpus required for owning = 20% of the Average property price (down payment for home loan)
**Inial corpus required for renng= Amount equivalent to 10 months of rental value (Hyderabad which is 3 months)
*** (Renting the home) / Average out of pocket cost (Owning the home) The gross income of 8 lakhs per annum is considered.
Written By Arthayantra