The debate over whether to purchase or rent housing continues. Individuals grapple with the decision of whether to invest in a home or allocate funds to renting and alternative investment opportunities. Recent reports suggest a noticeable shift toward homeownership, indicating a change in consumer behavior driven by the increasing appeal of property ownership, largely due to rising rental yields.
Data from July to September 2024 reveal a 7% year-on-year growth in residential demand across 13 metropolitan areas, surpassing the 3.1% year-on-year increase in rental demand. Notable cities such as Bengaluru witnessed an 18.2% quarter-on-quarter surge in residential demand during this period, while rental demand experienced a 2.8% quarter-on-quarter decline. A similar trend was observed in prominent metros like Delhi and Mumbai, with residential demand outpacing rental demand in terms of growth rates. Please guide which way should I move.
Advice by Ashish Padiyar, Managing Partner at Bellwether Associates LLP
Deciding between renting and buying a home is a common dilemma for many individuals. While there is no definitive answer, analyzing worldwide trends and the specific conditions of the local market can offer valuable insights. The real estate market in India is currently experiencing a surge in home sales.
This is an ongoing debate, even with increasing interest in owning property due to rising rental yields. Most first-time homebuyers opt for a housing loan. Even in the best properties, rental yields in India are approximately 3-3.5%, while house loan interest rates are 8.25-50%. So, owning an asset by paying a higher interest rate doesn’t make financial sense. The economics of renting versus buying are heavily in favor of renting.
There may be emotional reasons to own a house and it can provide peace of mind, but financially it doesn’t make sense, even if one is confident in property appreciation. Taking a big loan to buy a house is not advisable; rent paid is only a fraction of the home loan EMI. It’s better for an individual to plan and invest the differential amounts (EMI – rent) because, over the years, it can grow much larger than the value of the property.
Owning a house is an important milestone in everyone’s life. It is important to strike a balance by taking out a minimal amount of loan when purchasing property.