8 points on what makes more sense to buy or rent a home
Home buying is an important decision in the life of an individual. Things have changed because of the pandemic and the lockdown. However, here are 8 points that can help you answer, whether it makes more sense to buy or rent a home?
By Varun Singh
Does it make more sense to buy or rent a home? A question that bothers many, but both the sides have strong arguments.
But in the times of COVID 19, things have changed a lot. According to Santhosh Kumar, Vice Chairman – ANAROCK Property Consultants, sales figures clearly indicate, people are quietly closing deals in a marketplace which has, counter-intuitively, been enabled by the COVID-19 crisis.
COVID-19 has polarized opinions on home buying decisions. Kumar has listed the below points, that can help home buyers take an easy decision.
- Pandemic deals: The lockdowns have impacted sales and developers want to make up for the lost time and clear inventory. It is clear that the unheard-of deals available now are because of pandemic market conditions. As such, they will vanish once the crisis blows over.
- Calculations favour buying: The buyers on the market now have done their homework. The 5-year rental outgo for city living amounts to 27-52% of the cost of a home in the suburbs of MMR, NCR and Bengaluru. This is a strong financial rationale for suburban homeownership *
- The need for autonomy: In the current context, people need homes that they can adapt to their requirements – and rented homes don’t offer this flexibility. From a work-from-home perspective, the onus is no longer on small rented homes in the city centres whose landlords will not permit to be altered – it is on larger homes which can be adapted at a will.
- Rock-bottom home loan rates: Homebuyers were hoping for lower home loan interest rates. The economic compulsions of pandemic-reduced consumption have pressed interest rates down to as low as 6.85% – the best rates in decades. The repo rate to which home loan rates are linked is at a 20-year low.
- The price is right: While inferior projects have seen distress-related price correction, it is now clear that developers of quality housing will hold on to prices that are already trimmed as low as they can get. When prices do not reduce even in a pandemic slowdown, they are evidently at their lowest best. Average residential real estate prices across the top 7 cities have been range-bound for the past 5-6 years, and 66% of unsold homes are priced under INR 80 lakh.*
- No new launches: New launches increase supply and thereby cause prices to reduce. However, there will be very few new project launches now as developers will focus on clearing existing inventory. The market will thus attain equilibrium in a few quarters and then become more developer-favouring. This means that prices will harden.
- Hard asset in uncertain times: The COVID-19 pandemic has caused everyone to take a hard look at what they can fall back on when things go south. An owned home is freedom from rent, while rent is a recurring expense which does nothing but push the stop-watch ahead a month at a time.
- Investment rationale: Living on rent does not help to create an asset, while homeownership does. Simultaneously, other popular investment asset classes such as stocks and gold are volatile and unpredictable in pandemic times. Housing retains its intrinsic value in uncertain times and eventually appreciates when times improve. Also, home loans come with attractive tax benefits. Rental housing doesn’t.
Considering the total annual rental outgo for 5 years + 3.5% annual rental appreciation. E.g. in MMR, the average monthly rental outgo in city-limit areas is Rs 45,800. For five years, this equals nearly Rs 28.66 lakh (including standard rental escalation for this period). This is almost 52% of the total average cost of a property in MMR’s peripheral areas.
“Curiously, there is almost no discussion about people whose jobs are secure, who have always wanted to own a home, and whose previous equivalence has now been eliminated by the pandemic. Many now choose not to face the future with such uncertainty again. If they were ambivalent about buying a home before, their minds are now made up, and they are acting,” says Kumar.