Traditionally, owning a house was one of the basic financial goals for any earning individual. With improved investment options, purchasing or renting a home is a personal decision that can vary according to an individual's needs. Here are 5 factors to consider before making the decision of whether or not you should buy or rent a property in India.
Buying a house is an expensive affair. While you can seek a house that is within your means, you will end up purchasing one that is very far from work and in the outskirts of the city and probably compromise with the view or amenities the house provides.
Further, housing loans come at an average rate of 8 percent per annum. Apart from holding the capacity to pay the EMI on this loan, you will need to be prepared for the upfront costs like downpayment, inspection fees and the 20 percent of the house's price that the bank will not fund.
Also, you have to make sure that the house loan payment does not disturb any essential expenses that you will incur in the next next 20 years (or however long the tenure of your home loan is going to be).
To make a financial decision, you can compare the rent rates and selling prices of the house in the location you wish to reside. If the property in the area has appreciated at a considerable rate in last good number of years, buying a house there could be a better bet than renting as the costs will pay off in the long run.
Job changes are more frequent at present. Some jobs even require relocation due to change in office location or a transfer. Unless your employer arranges for an accommodation every time there is a change in the job location, buying a house in a new city could be difficult.
As a family, you also need to consider how much your children will have to travel to get to school (which you cannot switch very often) and also your spouse's travel distance to work. Travel will sooner or later become exhausting and end up taking a toll on your health.
Renting allows you to pick a house in a location that is convenient for everyone in the family. You can also save on the amount of time and money you spend on commute.
3. Asset creation
The major selling point for purchasing a house is that it will help you build an asset. While that is a good reason to start, it does not necessarily mean your investment in the house will multiply in value.
Considering the time value of money and inflation, real estate has not been giving its investors a great percentage in terms of returns when compared to investments linked to markets (like mutual funds). Further, one has to consider the amount of debt they will be carrying for the long number of years and the amount of maintenance expenses that come with owning a house. By the time you pay off the loan, you will have spent more on buying the house than its property value in years to come.
Alternatively, if you do wish to buy a house of your own for personal reasons, you can choose a location that you actually like which is not within the city you live in. For example, NRIs working in the Middle East often build houses in their hometown, making an advanced investment for their retirement years. You may, in fact, spend less on building the house and probably earn reasonable rental income on the property during the years that you choose to not live in it.
4. Income generation
Rental yields in India are not high. While it may help lighten some of the home loan EMI burden, there are many problems associated with renting out a house.
Tenants will have specific needs and demands which you will have to cater to. There could be chances that you have to chase the tenants for collecting rents. You will also have to perform background checks (in case of apartment flat rent outs) and visit the property regularly; which will not be convenient if you have a regular day time job.
Finding tenants is all-together a different burden and if you do not find one, you will lose on the monthly income that you desired for in the first place.
These issues will not be faced if you invest the money, that would have gone towards EMI, into an instruments fetching higher returns, like equity-based mutual funds.
If you plan on purchasing or building an additional house for rental income, you will also have to consider the tax implications that come with it.
No doubt about the fact that renting houses gives a better flexibility considering the fact that you have the freedom to move out anytime with a month's notice.
However, some families may wish to stay in a stable location for its proximity to their extended family or for better living conditions. In such cases, owning a house would make more sense and become a comparatively feasible option.
For those who wish to live in house with the latest amenities and proximity to the work place, they would prefer to keep changing their houses to a new view out of their windows. Flexibility is more of a personal choice over a financially feasible one.