Buy or rent: How to make the right choice?
The decision to buy or rent a house is a crucial one for your financial and emotional well-being and should be taken after a lot of deliberation. Here are some of the aspects one must consider, before making a choice.
Advantages of buying
The biggest advantage of buying a property, is that you end up with a massive asset of your own. If the house is purchased, by availing of a home loan, the EMIs also instill financial discipline and may prevent borrowers from frittering away their money. Moreover, the capital value of the house appreciates over time and in due course, it may become one of the biggest contributors to your net worth. “Owning a house, serves as a hedge against inflation,” asserts Mayank Srivastava, a mechanical engineer, who recently booked an under-construction property in the Noida Extension region of the NCR.
Buying a house, before one retires, also provides a sense of financial security. Otherwise, one may have shoulder the burden of paying rent and also the possibility of having to move from one home to another, when the lease agreement ends. Not having your own house and paying for a rented accommodation can also pinch, if you lose your job. Owning your own house is also emotionally fulfilling. It leads to a sense of stability. As an owner, you can also redo the interiors as you like.
Advantages of renting
Living in a rented accommodation, however, gives one greater flexibility. If you live in the National Capital Region (NCR) and get a job opportunity in Bangalore, not owning a house makes it a lot easier for you to take it up. Not being tied down to a house is good for career mobility.
It is also easier to make the change to a bigger house, at different stages of life – as your children grow older, or retired parents move in with you. It also becomes easier to move into a smaller house – when the children get married or move to other cities.
Housing prices have risen to exorbitant levels in most metros. “Sometimes, the EMI alone may take up 50-60% of an individual’s take-home salary. As a result, people are compelled to live very cramped lifestyles, with not enough money for holidays or career-enhancement courses. Other goals, such as saving for children’s education and marriage and for their own retirement, suffer due to this liability,” warns Vishal Dhawan, chief financial planner, Plan Ahead Wealth Advisors.
Making the right decision
Buy a house, only if you intend to live in that particular neighbourhood, for at least four to five years. If you plan to move to another part of the country, you would be better off not buying a house. Those with uncertain earnings, or those working in sectors where layoffs are common, should also avoid this huge liability.
Affordability should be the most important criterion. The combined EMI on all your loans (house, car, personal, etc.) should not exceed 40% of your take-home salary. You should also have enough money for the down payment on the house, which could amount to 15-20% of the cost of the house.
Experts suggest that it is not wise to buy when rental yields (total rent for the year as a percentage of the house’s capital value) are low and interest rates on home loans are high.
Also, check online portals, for purchase versus rent indices, to know whether it is financially wiser to buy or rent.