While owning a house may provide a sense of stability and serve as a huge capital asset, taking a house on rent gives greater financial and physical flexibility.
Buy or rent? Arriving at the ‘right’ decision about whether you should buy or rent a property depends on two dominant factors. Before jumping to any hasty decision, let us take a look at those factors.
Money: There is no delicate way to say this. No matter how emotionally driven your choice is — money would always be an important factor to decide whether you should purchase a property or continue renting. Across the world, India included, renting is cheaper than buying. Therefore, if living economically is your choice, renting is the way.
Personality type: In India, social factors shape how we feel about property ownership. We live in a country where renting will always be viewed as a non-serious, stop-gap arrangement. Depending on how you react to the ever-present social pressure, you will choose between renting and buying.
When should you buy a house?
If you are a family man: For a family having a permanent residence is more convenient. Monetarily, too, buying is more practical.
If you want to save money in taxes: A house purchase in India can afford your tax savings of up to Rs 3.50 lakh under various sections, including Section 80C and Section 80EEA.
If you prefer real estate to other assets: While modern modes of investing like stocks may prove to be more beneficial, many of us are neither comfortable nor confident about investing in other asset classes. Property, apart from everything else, is also an asset that can help you build wealth in the long run.
If you are not in it just for wealth creation: A permanent asset also requires care and maintenance. Therefore, when you add up all the maintenance costs, an immovable asset may not seem like a profitable asset. However, if the knowledge and comfort of owning a property seem to outweigh this additional responsibility, buying is for you.
If you prefer long-term investments: Property investments can turn highly profitable over time, especially if the initial investment is low and the growth potential of the area is high. This is particularly true of land investments. Investors who are in it for the long haul can benefit from buying and selling at a later stage.
When should you rent a house?
If you want to keep it affordable: Renting is more economical than buying, even if you factor in the long-term benefits of property ownership. You can rent a 2BHK home worth Rs 1 crore in Noida for a monthly rent of Rs 20,000. To buy the same house, you would pay Rs 64,447 as monthly EMI, if you take Rs 80 lakh as a home loan for a repayment tenure of 20 years at 7.5% interest and arrange Rs 20 lakh for the down payment. In effect, you will be paying Rs 1.55 crore as loan repayment.
- If you prefer to have ready money over notional wealth: An illiquid asset has its limitations and that is why having Rs 1 crore in your account and owning property worth Rs 1 crore is not the same. If the need for capital arises, it may take a long time before you can sell your property and make use of the liquid money.
- If you have a transferable job: Shifting from one place to another means managing and keeping a close watch on multiple properties.
- If you prefer an asset-light approach: Among other things, the property is also a liability. It is neither easy to maintain nor easy to offload at will. For those with an asset-light temperament, renting would make more sense.
Renting vs buying
|Low maintenance||High maintenance|
|Asset light||Asset heavy|
|No asset building||Asset building|
|Offers tax savings (you can claim HRA)||Offers tax savings (You can claim tax deductions under Section 80C and Section 80EEA)|
|Ease of movement||No ease of movement|
|Viewed less favorably, socially||Viewed more favorably, socially|