The current edition of Buy vs Rent research covers 8 major cities across India.
Ahmedabad: Ahmedabad is now the cheapest city to rent a property unlike the previous year.It also stands 2nd in affordability to buy ratio. Buying a home would be a better option for individuals with income above 12 lacs.
Bengaluru: Over the years the city of Bangalore is favored for renting than buying which is clearly indicated by higher increase in rents as compared to the property prices. The average property rents increased by 37.51% whereas property prices increased by 12.64%. It stands 4th in term of affordability to rent amongst the 8 cities. It is suitable for professionals having income more than 15 lacs to buy the property in the city.
Chennai: Chennai experienced a decline in property prices in the last 3 years whereas the rentals have increased by 10%. Due to the price shift, the affordability to rent has gone to 6th from the last year’s rank of 4th .More or less the property prices remained stagnant with a marginal decline by 3%. Suitable for professionals with income 20 lacs or above. Delhi NCR:City with a population consisting of mostly migrants have become expensive to rent as people prefer to rent as compared to buy. The rentals have increased by 29.05% which is the second highest after Bangalore. Due to higher rentals the affordability to rent rank has gone down to 7th from 6th. The affordability to buy rank remains 7th as the city has the second highest property rates in the county. It is recommended to rent the property for all the professionals.
Hyderabad: Hyderabad maintains the reputation of being the most affordable place to buy a property. The 10% decline in property prices assist in keeping the affordability to buy at the top most rank. However the rentals increased marginally upwards in the past 3 year’s period. Recommended to buy for all the professionals having income above 8 lacs.
Kolkata: During the past three years the property prices in Kolkata slipped by 2.7% . The rents also went down by 8.5% making the city more affordable to rent and as well as buy as compared to previous year. The city is now 3rd in affordability to buy rank. It has now become affordable for professionals with income of 12 lacs or more to buy a home
Mumbai:Mumbai remains the most expensive city to either buy or rent a home for the third consecutive year. Over the period of 3 years the property prices have increased by as much as 49.9% which is the highest amongst all the cities. The property trend does indicate increase in demand to buy but it is highly recommended to rent for all the professionals.
Pune:Pune have seen second high increase in property prices after Mumbai at 38.9% rise in past 3 years. The rents have also increased by 21.2%. Such high increase in prices has changed the affordability to buy rank to 5th from the last years 3rd. Also the affordability to rent rank slipped to 4th. Professionals with salary below 15 lacs are recommended to rent the property.
Over the years buying has become an ‘Indian Dream’. A lot of sentiments are attached when it comes to owning a home for the family. However, with the increasing real estate prices and cost of raw materials makes them think twice before taking such decisions. Also with the buying decision there are multiple factors like income tax savings, property tax etc. which needs to be considered. The purchase of a property is also looked as a means of capital appreciation and for a lot of Indians it’s a safe haven for investments. But the reality might be different from what they think especially in post 2008 era.
Other alternative to buying is the renting of the property, which does not expensive as buying initially. To a lot of professionals, renting could be a more feasible option as it provides ﬂexibility to rent a property as per their lifestyle as some people do not intend to live in a city for a longer period of time or in case of someone whose profession does not allow them to settle down in one city for a long time. For too long buying or renting a home has been a qualitative question. ABRS report makes it into clear quantitative framework on buy vs rent decision.
The ﬁrst and foremost decision would depend on the impact on the cash ﬂows each option would have. To buy a property one has to go through the down payment for the loan, EMI to be paid, property taxes and the regular maintenance and repair costs. Renting would attract the monthly payment towards rent along with the maintenance cost. The incremental rents in the subsequent years should not be ignored as the rents are most likely to increase year on year. The savings after such ﬁxed payments would derive whether owning or renting would a feasible option.
The net savings after bearing the cost of ownership and renting would have major impact on the tax savings for each of the decision. For some cases it becomes a deciding factor as the tax savings through Section 24 B and Section 80 C of income tax would reduce the net payments towards the EMI’s. On other hand, renting would also save your taxable income as the major or whole portion of the rent paid can be saved by claiming it under Section 10 as HRA. In short both options would help the tax savings; the comparative savings for the longer run would give a real picture on what should be done. .
Taking a decision on real estate can become more complicated than it looks, in order to simplify that Arthayantra is presenting the third Version of Buy vs. Rent report for 8 major cities in India which deeply analyzes the changes in trends of the property prices and their rental values over the past three years. It also studies how convenient it would be for working professionals to buy or rent a property considering various aspects and help them take a sound ﬁnancial decision.
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. This year also saw a 50% increase in the localities covered city. This has been done to increase the coverage area and reduce error rate.
• 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 for NHB Residex:
In the Indian real estate growth story, Chennai typically is not spoken about. However, the NHB index which indicates real estate price growth across Indian cities shows Chennai index at 349 which has been seen the highest growth since its inception in 2007.
Pune is at distant second place having experienced an increase of 132 basis points. On the other hand, ﬁnancial capital Mumbai’s real estate prices increased by 129 basis points. Cities like Delhi, Ahmedabad and Kolkata’s index value have doubled (99, 109 and 106 basis points respectively) during the 7 year period starting from 2007. For the home buyers, Hyderabad proves to be the cheapest as it has shown negative growth ( – 5 basis points) followed by Bangalore whose Real estate index increased by just 7%.
With the given analysis of real estate price trends the report aims to provide brief study of the real estate price change during last 3 years (2012 – 2014) and facilitate the decision making for the buyers of home.
4.2 Property cost Vs. Rental Value:
The key parameter in determining whether to buy or rent a home is the property cost vis-à-vis the rental value. In this study Arthayantra compares property prices and rental values of 1000 sq feet ready to occupy house across eight major cities. The diagram below shows the ﬁndings –
The average property prices in the city of Delhi ( Rs. 1.1 Crore) are almost equal to the average property prices of Kolkata and Pune combined( Rs. 59.4 and Rs. 49.9 lacs). Mumbai remains the city with the highest residential real estate prices followed by Delhi. These two cities are the least affordable for a middle class home seeker. Chennai which showed highest increment in real estate prices as per NHB residex has the 3rd highest property prices ( Rs. 69.5 lacs) in these 8 cities.
As far as the average rents are concerned, Mumbai has the average rent of Rs. 32250 which corresponds with the property rates as the highest when compared to other 7 cities. Ahmedabad comes out as city with most affordable rentals with Rs. 10250 marginally lesser than Hyderabad (Rs. 10640). Interesting fact is that some cities having comparatively lower property rates have higher rents. Kolkata whose average property prices were lower as compared to Pune has higher rent as compared to the latter (Rs.16308 vsRs.14545). The rentals are even closer to cities like Chennai (Rs. 16567) and Bangalore (Rs.16758). These factors make buying a home more attractive in Kolkata than renting. Hyderabad remains the most suitable city to either buy or rent a property with the second lowest average rent and lowest property prices.
Change in Property Rates (2012‐2014) :
Trends in the last 3 years period starting 2012 have shown a different picture as depicted by the 7 year growth index in NHB. Out of the 7 cities(Ahmedabad was not a part of our research for 2012)Mumbaihas experienced highest gain in the real estate prices in the years 2012-2014 with 49.87% increase, followed by Pune (38.91%) and Bangalore (12.64%). Chennai which had the highest rise is sixth amongst the seven cities with a negative growth of -2.97% during last 3 years. Hyderabad also showed negative trend in past 3 years emerging as the city with the cheapest real estate prices. The decline in value was also seen in Kolkata. The 3 year trend clearly shows that each market is behaving differently. From ainﬂation adjusted growth perspective, most cities in India has lost value. The only ones that are in the positive territory are Mumbai and Pune. Despite Mumbai being expensive, people living there prefer buying more than renting
Cities like Bangalore, Chennai and Delhi had incremented rentals more than proportionately compared to the property price rise. Bangalore has seen the largest increase in rentals at 37.5% over the last three years. This growth dwarfs the asset growth in the city. Delhi has the second highest growth; even here hare have shown increase in rental yields when compared to the asset appreciation. This indicates that the professional’s behavior is more inclined to buying than renting.
The change in rentals in other cities was unlike the pattern which was shown in the property price changes. Hyderabad indicated a marginal increase in rental of 1.93% as compared to the decline which was shown in the property prices except Kolkata which complimented the property price change pattern in past 3 years with a decrease of 8.5%.
4.3 Aﬀordability to buy and Aﬀordability to Rent ranking:
Assuming the income factors for a middle class family and their savings ratio and factoring in with the rental and buying prices of properties in the 8 cities, Hyderabad comes to be the most affordable city to buy a property for the third straight year. The decline in the buy prices and a marginal increase in rental prices helped the city to remain on top in terms of affordability..
After the introduction of Ahmedabad in the year 2013, the city has now replaced Hyderabad as the most affordable place to rent as per the new ranking. Mumbai easily managed to maintain its familiar position as the most expensive to either buy or rent for the second straight year whereas Chennai became more expensive to rent at 6th rank pushing Delhi further below to 7th rank. Kolkata after going through a negative growth phase in property prices have become more economical for both buy and rent as compared to the last year. ..
When it comes to affordability to buy, most of the cities managed to maintain same position as on last year except Kolkata and Pune who replaced each other at 3 and 5 respectively.
4.4 Area Covered:
For every middle class Indian spender, quantity and economy is one of the biggest factors behind every purchase decision. Just like the mileage of a vehicle i.e Kilometers covered per liter of fuel is very essential, area covered per lac rupees spend for a home is also very important aspect to consider. This would facilitate the investor to make a decision especially when they want a place for a joint family and sometimes even a nuclear family. With the change in property prices during the past three years the area covered per lac rupee spent also changes accordingly. This change in comparison with the previous 2 years is depicted in the below ﬁgure.
Mumbai being the costliest city amongst all has the least coverage per lac which is just 20% of Hyderabad which proves to be the most economical city. It remains the most economical for the third consecutive years. Kolkata improvised signiﬁcantly by providing 28% more area as compared to previous year. Ahmedabad becomes second most economical covering 20.5% more area as compared to 2013. Pune becomes expensive year on year as the area covered reduced by 9% from the previous year. Professional from Delhi would get half of the area in Bangalore which stands5th when it comes to the area covered. From lifestyle perspective consumer from Hyderabad Ahmedabad, Kolkata Bangalore tends to have large house to buy as well as rent.
4.5 Down payment:
Taking a loan is the only option left for working professionals to fulﬁll their dream to buy a home. The banks have also tightened the rules by approving loan equivalent to 80% of the value of property. This forces the homebuyers to arrange for the down payment for the loan.Assuming the savings rate of 25% of income( post income tax and property tax of Rs 1.5%) and the income increment of 10% year on year, the time required to accumulate the corpus for the down payment is presented in the below ﬁgure –.
Professionals living in Hyderabadwould take least amount of time (3.4 years) to accumulate the down payments for the home loan followed by Ahmedabad (4.1 Years). Overall the required number of years has been reduced in all cities comparedto the previous year’s ﬁndings except Pune and Mumbai. Delhi has shown some improvement from the last year as the number of years has fallen by .4years from the previous value of 10.1 years. Similar improvement can be seen in Kolkata with a change of1.2 years. Time taken to accumulate the down payment amount in Mumbai is more than thrice of Hyderabad. The Mumbaikars would have to wait for a very long time to by their dream home. Despite this uphill task, most people are becoming house owners. This is largely driven by the ability of the professional to ﬁnance their home from friends and family instead of just relying on savings, loans etc. This has also pushed the personal ﬁnance situation of many families to the brink.
4.6 Urgency to Buy Ratio:
Urgency to buy ratio is a ranking that enables professionals to take an objective decision to either buy or rent. The urgency to buy ratio indicates what extra payment one has to pay every month if the property is purchased instead of rented. This ration helps in understanding whether the rental yields are in line with the property prices in a city. The average monthly cost of renting is derived from the sum of rents and maintenance cost whereas monthly cost of buying is calculated by adding maintenance cost with the monthly EMI’s. It is a good means to understand if property prices are inﬂated.
Mumbai has the least Rent to Buy ratio .22 which means that renting home is 78% cheaper than buying. Delhi which had a lowest ratio in the previous year has bettered its position to 7. Kolkata has the highest ratio of .37 which would enable the home buyer to take the decision to buy if they can afford the EMI cost per month.
4.7 Cash Flow Break Even Analysis:
Cash ﬂow break even analysis explores the cash outﬂow for buy vs rent. The intersection of cash outﬂows due to rent or buy in the future is the break-even point.
The study will also give another dimension to the buying or renting decision. The city where the breakeven year comes before the loan tenure expires is supposed to be more suited for buying whereas the city where the breakeven year is not attained before 15 years, renting would be more suitable. In comparison with the last year, a lot of changes have occurred in the tax treatment of ownership of the property which is also been taken into account.
For example the interest component of the EMI is subject to deduction u/s 24B and the principal part u/s 80C of Income tax act. In case of renting, beneﬁt is available under house rent allowance. Using these parameters one can identify the time period where the cost of renting would be equal to the cost of buying within the loan tenure. The recent change introduced due to ﬁnance bill will also have some impact on the decision.
Hyderabad having the low rentals is the most suitable city for buying with the break- even year of 13 years. This was mainly due to drop in property prices during the past three years. Kolkata comes second where the break -even year is 14.This is mainly due to drop in the property prices. Ahmedabad would be more suitable for renting as of now due to very low rents. For the rest of the cities the time taken to equalize the cost of renting to buying is over 15 years which makes them more suitable for renting. This indicated more inclination towards renting.
5. ArthaYantra Buy VS. Rent Score (ABRS) :
The property price and rental value of the place determines if 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.
6. Comparison with previous years Bengaluru – Rising Rental Yields:
Over the last 3 years, Bengaluru has seen relatively higher growth in the rental rates compared to the property prices. Rental values in the area increased by 37.51% compared to 12.64% increase in the property prices. The NHB Residex value for the Jan – March 2014 quarter is recorded at 107, which is 2 base points less 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 for the down payment in Bengaluru has moved down marginally to 5.8 from 5.9 when compared to last year. A new home buyer in Bengaluru, now gets 2.00% more carpet area compared to the previous year, but, gets lesser carpet area by 11.20% when compared to 2012.The city being the most preferred one for the immigrants as it provides favorable working opportunities to them, renting is been more prominent option rather than buying the property. This is well indicated by the superior increase in rentals as compared to the property prices in past few years.The ABRS values of Bangalore recorded during this year increased to 90 making the professionals who fall under salary range of 20 lacs, affordable to buy a property when compared to the values recorded during the previous year.For professionals under 20 lacs income, Bangalore is the city where renting is more optimal ﬁnancially. There are micro markets such as Mysore Road and Old Madras Road where it affordable to buy even at salary below 20 lacs. However, professionals have to make lifestyle compromises and adjust to the higher commitment. The break- even year where the cost of owning equals the cost of renting is more than 15 years for professionals having annual income of less than the recommended salary range for buying. The last year’s ﬁgure was 15 years.
Chennai – Plateau Market:
The NHB Residex value for the Jan – March 2014 quarter is recorded at 349, which is 39 base points higher than the index value recorded during the same quarter of last year. Rental value of the areas over the three periods has increased by 10.75% whereas the property prices have decreased by 2.97%. Among the 8 areas, Chennai is ranked as 6th affordable place to rent and as well as buy. With respect to affordability of renting, Chennai’s ranking has increased to 6 when compared to previous years ranking of 4, which means it has become more costly when compared to the earlier years. On the other hand, affordability to buy remains on the same place but the years of saving has come down to 6.5 from 7 compared to last year due to decline in the real estate prices and increment in the savings due to change in tax beneﬁt structure. A new home buyer in Chennai, now gets 9.43% more carpet area when compared to last year and 3.08% more area when compared to 2012. The ABRS values of Chennai recorded during this year increased to 80 making the professionals who fall under salary range of 20 – 25 lakhs, either to buy a property/rent it out compared to the values recorded during the previous year. However, in case if one having income below that recommended level choose to buy a home in Chennai can choose areas like Sholinganallur and Kolathur where the property prices were much lower than the average price in the city and hence would be more affordable to buy.The break- even year is more than 15 matching the last years number.
Delhi – Rents are increasing:
Delhi continues to be second most expensive city to own a home in India. The NHB Residex value for the Jan – March 2014 quarter is recorded at 199, which is 3 base points lesser than the index value recorded during the same quarter of last year. The average rental value of Delhi over the last three years has increased by 29.05% whereas the average property prices increased by just 2.59% over the same period. Due to the increase in the rental values, Delhi stands at 7th place in the most affordable place to rent category. For an Individual with annual income of 8 Lakhs to buy a “Dream House” will require 9.70 years to accumulate fund for the down payment. A new home buyer in Delhi, now get 4.43% more carpet area compared to the previous year, but, will end up getting less area by 2.50% when compared with 2012. The ABRS score for professionals with a salary range of 8 – 25 lakhs remains in between 55 – 67.50 making it a place to rent for majority of such individuals. The residents are preferring areas in the NCR region which have comparatively lower prices. The areas like Greater Noida Expressway and Indirapuram (Gaziabad) have the lowest prices in the region but living in these areas would increase the travel time to the workplace and hence could cause inconvenience. The break- even year ﬁgure also suggest the same for the earning professionals.
Hyderabad – The Affordable Market :
Hyderabad continues to be the most affordable real estate market among the major cities of India. The NHB Residex value for the Jan – March 2014 quarter is recorded at 95, which is 7 base points higher than the index value recorded during the same quarter of last year. Rental values in the area increased by 1.93% over last 3 years but reduced by 11.35% when compared last year. On the other hand, property prices are continuing to decline by 5% on an average in the past 3 years, making Hyderabad the most affordable to place to buy a property among the 8 cities picked up for this study, but, moves down to 2nd place in the most affordable place to rent a home category. The saving required to afford buying a property in Hyderabad has declined to 3.40 years from 3.80 years in 2012. Based on the previous year prices, a middle professional needed to save for 4.10 years. A new home buyer in Hyderabad, now gets 23.38% more carpet area compared to the previous year and 11.22% when compared to 2012.The ABRS score for professionals with annual income of 10 Lakhs has increased to 90 from 77.50 as recorded in the previous year, making Hyderabad the most affordable place to buy among the eight places studied. The most affordable regions in the city are Uppal and Rajendra Nagar. The home buyers would recover the cost in less than 15 years which shows a green ﬂag to buy the property.
Kolkata – Contraction in rentals :
Real estate in Kolkata scored negative both in terms of property prices and rental prices.The fall is the steepest amongst all the cities . The average rental value and property value of the place has decreased by 8.55% and 2.69% respectively over the last 3 years. However, the NHB Residex value for the Jan – March 2014 quarter is recorded at 206, which is 9 base points higher than the index value recorded during the same quarter of last year. Among the 8 cities, Kolkata is ranked as 5th affordable place to rent and 3rd affordable place to buy a property. The years of saving required to afford buying a property in Kolkata has decline to 4.80 from last year’s stats of 6.00. Based on 2014 analysis, a new home buyer in Kolkata now gets 28.59% more carpet area compared to the previous year, but, when compared to 2012, the carpet area has just increased by 2.77%. The ABRS score of 77.50 suggests that, for an individual whose annual salary is 12 Lakhs is considered to be in a Neutral Zone, mostly advised to rent. 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. However the break even ﬁgure went to 14 years as compared to 11 years in 2013, but it would not make much impact on the recommendation to buy the property. The outer regions of city like Howrah and Jadhavpur offer lower real estate prices which could be affordable for the individual’s having lower income.
Mumbai – Zooming real estate price:
Mumbai still remains the costliest real estate market in India for 3 consecutive years. The NHB Residex value for the Jan – March 2014 quarter is recorded at 229, which is 7 base points higher than the index value recorded during the same quarter of last year. While the rental prices have increased by 13.07% in the last 3 years, whereas, the property prices have increased by a whopping 49.87%. Among the 8 cities, Mumbai stands as least affordable place in case of both renting and owning a house. The Mumbai resident still prefer to buy even if they have to travel far for work which indicates the annual increment in property prices to be far higher than the increase in annual rents. The years of saving required to afford buying a property in Mumbai has increased to 13.30 from 9.60 when compared to 2012 stats. Based on the previous year prices, a middle professional needed to save for 11.30 years. A new home buyer in Mumbai now gets 18.67% lesser carpet area compared to the previous year and 33.33% less area when compared to 2012. The ABRS for individuals with a salary range of 8 – 25 lakhs remains at the bottom with a score of 55 making Mumbai the costliest places to own a property in India. This is largely due to higher increase in the property value compared to increase in rental value.The recommendation is well supported by the break even ﬁgure of 15+ years. For the income group of 20-25 lacs areas like Mira Road and Kalyan could be affordable to buy.
Pune – Both real estate and rental increase:
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 21.21% over the last 3 years when the property prices have increased by 38.91%. The NHB Residex value for the Jan – March 2014 quarter is recorded at 232, which is 11 base points higher than the index value recorded during the same quarter of last year. Compared to the earlier years, Pune has become costlier, both in renting as well as owning the property. Among the 8 cities, Pune, now stands at fourth most affordable place to rent while it stand ﬁfth in terms of affordability to buy compared to last year’s ranking of second and third respectively. Being the neighbor of the most expensive city (Mumbai) and due to comparatively lower property prices it became a hot destination for the property purchase during the past 2-3 years. It is well represented by the increase in property prices. The vast improvement in job opportunities in the past also contributed a lot to the property prices as lot of professional were keen to buy the property and intended to settle down in the city. The years of saving required to afford buying a property in Pune has increased to 5.60. Based on the previous year prices, a middle professional needed to save for 5.20 years. A new home buyer in Pune now gets 9.27% lesser carpet area compared to the previous year and 28% less area when compared to 2012.Due to the rise in the property prices, the ABRS values of Pune recorded during this year decreased to 80 making the professionals who fall under salary range of 20 – 25 lakhs, either to buy a property/rent it out as opposed to 90 for professionals earning more than 15 lakhs during the last year. The incremental rates also had an impact on the break-even year which is not looking achievable during the loan tenure which is unlike the last year ﬁgure of 15. Some areas like Hadapsar and Kondhwa were found to have cheaper property rates and proven to be affordable for the individuals having income between 10-20 lacs per annum.
Ahmedabad – Waiting to be found:
Ahmedabad was the new addition in the last year’s buy vs rent report by ArthaYantra. The NHB Residex for Jan – March 2014 quarter has increased by 17 points to end up at 209 compared to last year’s value of 192 in the same quarter. Among the 8 cities, Ahmedabad is the second most affordable place to own a house after Hyderabad and stands at the top of the table when it comes to renting a home. This year, middle income individual needs to save for at least 4.10 years to afford the down payment for the house compared 4.80 year’s last year. The city also offers good value for buyer’s money who can get around 24.32 sq. ft. for every 1 lakh spent which is 4.14 sq. ft. more compared to last year. 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.However , the signiﬁcant decline in rentals shows a different picture altogether as the break even becomes difﬁcult during the loan tenure. Amongst all the regions Vastral and Vejalpur were the most affordable places to own a home.
The ABRS calculator does provides assistance in making a rational decision while purchasing a property but there are factors which are region speciﬁc and are very important to understand. A lot of cities have indicated indifferent behavior from what the statistics suggests but such decision are driven by factors which cannot be generalized for all the cities. Mumbai being the most expensive and unaffordable city to buy is still preferred by the individuals for buying the property. Delhi and Bangalore have become a popular choice for renting which is clearly justiﬁed by the immigrant population contributing to the increased demand for the rental properties. Pune also lies in the same category but being the nearest to the costliest city in the country it is looked as an alternative residential place which to an extent, increased the property prices in the city. Ahmedabad and Hyderabad has emerged as a heaven for the salaried individuals as the prices are very much as per their income levels.
The changing market scenario which might have some favorable impact on the interest rates for the loans could make buying a bit easier in the coming years as the rate of interest are expected to go down. The positive outlook on the future of Indian markets would also impact the job markets and hence the income levels, which might increase the possibilities to of property buying. Acquiring a property involves long term commitments and adjustments. Any decision taken in haste could cause long term impact on the personal ﬁnances. It is very important to analyze both sides of buying and renting before going forward.
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, VasantKunj, Friends Colony, Shalimar Bagh, VasantKunj, Dwarka, MayurVihar Phase 1.
Kolkata: Alipore, PA Shah Road, EM bypass, Lake town, Behala, Howrah, Jodhpur Park, Jadavpur, Salt Lake City,Maniktla,Bhavanipur,Dhakuria, Behola.
Pune: Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri–Chinchwad, Kothrud, Kasbapeth, Kharodi,Pashar,Chinchwad.
Mumbai: LowerParel, Wadala, Andheri, Ghatkopar, Ghodbunder Road, Kharghar, Chembur, Borivali West, Bhandup West, Mira Road, Kalyan, Virar, Pokaran Road, Malabar Hills, MatungaEast,BandraWest, Mulund, Dahisar.
Hyderabad: Banjara Hills, Begumpet, Kondapur, Tellapur, Kukatpally, Miyapur, Rajendra Nagar, L.BNagar, Tolichowki,Himayatnagar,Tarnaka,Uppal, Srinagar Colony.
Bengaluru: Old Madras Road, Indira Nagar, Bellary Road, Hosur Road, Whiteﬁeld, Tumkur Road, Kanakapur Road, Mysore Road, Lavella Road, Benson Town, Vijaya Nagar, Madibana.
Chennai:Adyar, Medavakkam, Tambaram, Anna Nagar, Porur, Sholinganallur, Perambur, Kolathur, Chetpet, Ashok Nagar, Chromepet,Thriuvanmiyur,Nehru Nagar,Numgambakkam.
Ahmedabad: Motera,Gota, Satellite,Maninagar,Thaltej, Bodakdev, Vatva,Ambawadi, Sola Road, Chandkheda Gam, Vejalpur, Shilaj, Vastral.
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 1.5 lakh both in the case of home ownership and renting.
The tax beneﬁts under section 24B for home buyers is considered as 2 lakhs.
The HRA beneﬁts in case of renting is considered as per the taxation rules based on average rental prices.
However, the tax calculation for the previous years is taken as per the rules pertaining to the respective previous years.
9. 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: Number of square feet covered per one lakh of amount paid
Figure 5: Number of years required to save the corpus for down payment
Figure 6: Break even horizon for eight major cities of India
Table 1: Affordability to buy rank
Table 2: Affordability to rent rank
Table 3: Urgency to buy rank
Table 4: Factors associated with home ownership and renting
Table 5: Arthayantra Buy vs Rent score explanation
Table 6 : Arthayantra Buy vs Rent Score for different income levels across eight major cities
Table 7 : Important numbers to look before making a decision.
National Housing Board, India: www.nhb.org.in
Jones Lang LaSalle: www.joneslanglasalle.co.in
Magic Bricks: www.magicbricks.com
99 Acres: www.99acres.com
Multiple Primary sources
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