Buying vs Renting a House in India: Which Is More Profitable and Why?

by Samiksha Jaiswal

Every Indian desires to have a home that they may call their own. Property costs
have skyrocketed in significant cities, prompting many people to rent rather than buy.

The budget is critical when determining whether to rent or buy a home. The decision between owning and renting a home is difficult.

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Most Indians would instead buy a home than rent one. Both sides have distinct advantages and disadvantages.

Pros and Cons of Renting a Home

  1. Renting a home will deplete your savings every month while adding little value
    to your portfolio. Renting a house forces you to relocate every year, costing you time, money, and energy. There is no convenience of possessing.
  2. Suppose you're renting a home that's ready to move into because it's closer to
    your place of business. Most significantly, a property in a developed
    neighbourhood allows you to devote ample time to other vital aspects of your
    life.
  3. If the rental payment is limited to a bare minimum and the remaining disposable
    income is put towards other long-term investments, it is simple to plan various
    long-term returns such as mutual funds (14 per cent per year).
  4. Every year, there is a ten per cent increase in renting a residential home. CAGR
    (Compound Annual Growth Rate) of Long-Term Property – 10%
  5. Renting gives you the freedom to relocate if your job requires it. It allows you
    to take career breaks without worrying about EMI payments.
  6. You may need to consciously invest in other sources, such as a long-term
    investment in tech stocks or an angel investor in businesses if you're renting.

Also read: How to Manage a Household on a Budget

Returns on Rental

After paying rent, the only savings will come from mutual funds or other investments, and the entire rent paid out over 30 years will not add any
earnings. If you rent a property, you can invest more money into a mutual fund
based on your income because you can set the rent price according to your
monthly income.

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Why Pay Rent When You Can Own an Asset and Pay EMI?

"Why to pay rent when you can pay EMI and own an asset?" is the most
passionate comment by a well-wisher or any real estate company. The argument
is correct because it makes sense, as site value rises year after year, but a tenant
receives no benefit from the rent.

However, this reasoning has a minor weakness that most people are unaware of when they delve further. It has to do with the cost of real estate in India and how we go about buying a home. Let's use an example to grasp this better.

Example: Kumar rents a two-bedroom apartment in a nice Bangalore area for Rs. 20,000 per month. Now, finding a property in that location becomes extremely tough if he wants to buy a house with an EMI the same as his rent. In this situation, he'll have to look for properties in other city neighbourhoods that fit his budget.

Also read: Why Patience Is a Virtue When It Comes to Big Purchases

Key Factors to take into Account Before Buying a House

  1. Home-buying trends are prevalent because of the high rental living costs in
    booming cities like Mumbai and Hyderabad. These locations have high monthly rental expenses, making homeownership impossible for ordinary middle-class families. The average monthly rent is equal to the average EMI in plain terms.
  2. As a result, purchasing a property is a more profitable option than renting.
    The availability of affordable homes in the city's outskirts has increased the
    number of homebuyers in these capital cities. It provides reliable connectivity at a low cost of capital.
  3. Rental housing is also standard in some cities, although only in high-end areas
    close to the city. Bangalore, Delhi, Pune, and Hyderabad are some places that
    provide homebuyers with more preference. Migratory workers frequently prefer rental properties over homeownership.
  4. Renting is the superior option. This may not be true in all market scenarios,
    though. The Indian real estate market was in a depression, with property prices in all major metros and Tier-I cities showing signs of weakness. House buyers
    who are considering purchasing a property should keep in mind that investing in real estate at this time does not make sense unless they are purchasing a primary residence.

(Check out 'Learn & Grow with Wizely' to read and learn more about real estate investments.)