Home loans are becoming cheaper: Should you buy or rent a house?
written by ET Bureau, published in The Economic Times.
January 1, 2017
With the new year ushering in cheaper home loans, we study the ArthaYantra Buy Vs Rent Report 2017 that looks at 12 cities across India to map where buying is affordable and where living on rent is more cost-effective.
How rents compare with property prices?
The key parameter in determining whether to buy or rent a home is property cost vis-a-vis rental value.
1. Sale price and rentals are for a ready-to-occupy 1,000 sq ft property.
2. Baseline gross annual income considered is Rs 8 lakh.
3. 20% of the cost of the house is considered down payment.
4. Home loan tenure considered is 15 years, at an interest rate of 9.25% per annum.
5. Average savings to buy a home is considered 25% of one's annual income.
6. 50% of monthly take home salary is considered as EMI payable.
7. 1.5% of the property value is payable as property tax.
8. Rental security deposit varies city to city.
The Arthayantra Buy Vs Rent Score
The score determines the pros and cons of buying or renting a property in every city.
How many sq ft will Rs 1 lakh buy?
Buying a house is a big financial decision, and the buyer should ensure he gets the best value for money.
Prices, rents have changed over the year
While property prices and rentals have fallen in Delhi, Hyderabad, Chennai and Pune have witnessed a rise in both.
What you should do if you are in
Though property prices and rents have fallen, it makes more sense to rent for households with annual incomes of up to Rs 12 lakh.
It is the third most expensive city to buy a house in. For those with an annual income of up to Rs 16 lakh, renting is recommended.
The second most expensive location to buy or rent a house. Renting is recommended for households with an annual income of up to Rs 16 lakh.
If you consider the EMI vs. rent ratio, it is the best destination for buying a house in.
The costliest city to buy or rent. Renting recommended for those earning up to Rs 25 lakh per annum.
An affordable city to rent or buy in. Those with an annual income over Rs 15 lakh can buy a house.
Prices are comparable to those of Bangalore. Households with an annual income of up to Rs 14 lakh should rent a house.
An affordable property market. Those earning less than Rs 8 lakh a year should rent.
The most affordable city to buy or rent a house in. Anyone earning more than Rs 8 lakh a year can afford to buy a house.
Costliest among the new entries. Households with income of up to Rs 8 lakh should choose to rent a house instead of buying.
As rents are low, those earning less than Rs 8 lakh a year should take homes on rent.
Another city with low rents. Households earning up to Rs 8 lakh a year would be better off renting a house.