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Buying a home vs Renting a home?

India Infoline News Service | Mumbai | November 20, 2012 12:58 IST

Buying a home in India's Metros, out of reach for middle class: ArthaYantra

ArthaYantra,India'sfirst integrated personal financial service company, has commenced one-of-its kind research on Buying a home vs. Renting a home in key metros - Delhi NCR,Mumbai,Bangalore,Hyderabad, Kolkata,ChennaiandPune. The main objective of the research is to quantify the buy vs. rent decision from a personal finance perspective.

In order to create an objective measurement metric, ArthaYantra developed a proprietary composite score "ArthaYantra Buy vs. Rent Score" (ABRS)to address the buy vs. rent discourse. ABRSnot only aids in making the Rent vs. Buy decision but also explains the affordability and need to buy or rent in a given city.

ArthaYantra's research addresses multiple questions such as how much more money does a professional need to shell out for buying a home compared to renting it? Can the professional actually afford this additional amount?ABRSanswers these questions by considering three important factors: rental value, property price and gross income. The ABRSTMscoring system not only tells whether it's better to buy or rent but also tells whether it's affordable to buy or rent. The complete research provides scores for each city, for professionals in different salary brackets (8-25 lakhs).

Key findings of the research:

Historical data of Real Estate prices:Chennaihas recorded the highest raise in the index value followed byPune,KolkataandMumbaiand Delhi NCR region. The index value ofBangalorerecovered steadily from its dip in 2009. The current index value ofHyderabadrecorded a decline, resulting in cheaper residential properties.

Property cost vs. Rental Value:Hyderabad,Puneare the most affordable place for a professional to rent as well as buy.Bangaloreranks 3rdon the affordability to rent where as it ranks 4thon affordability to buy.Chennai ranks 4thon the affordability to rent where as it ranks 5thon affordability to buy.DelhiandMumbaiare least affordable places for both. The average property price inKolkatais less than that ofBangaloreandChennaibut the rental values are higher.

Down payment:The average property prices translate to the number of years professional needs to save for the corpus for down payment. Professionals inHyderabadandPunewill need minimum of 4 years for saving the down payment. Whereas inKolkataandBangalore, a professional needs to save for 5 years. InChennai, one has to save for 6 years. InMumbaiand Delhi NCR, one has to save for at least 8 years to be able to afford the down payment.

Area:The average square feet per lakh (INR) determines the amount you need to pay for the desired area. At 26.57 sq. ft. per lakh,Hyderabadgives highest value for money compared to other 6 metros. Hyderabadis followed byPune,Kolkata,BangaloreandChennai. Delhi NCR andMumbaioffer the least sq. ft. per lakh.

Rent to Buy ratio:The ratio compares the monthly cost of renting a home to the monthly cost of owning the same place. The ratio underlines the necessity and urgency with which the house needs to be bought. The rent to buy ratio of 0.41 shows that the rental values inKolkataare higher and makes it an "immediate buy". The ratio of 0.33 forHyderabadandPunegives ownership of house an advantage over renting.

Break Even Horizon:The annual out-of-pocket costs in case of renting include the monthly rent, maintenance charges and tax. The annual out-of-pocket costs in case of ownership include the monthly EMI, the maintenance charges and tax. The values have been calculated and compared across the average loan tenure of 15 years. The year at which the annual costs match determines the minimum stay period in the house. The minimum stay period is 12 years forKolkata, 14 years forPuneandHyderabad, 15 years forMumbaiand above 15 years for Delhi NCR,BangaloreandChennai. The tax benefits received under the HRA allowance dominate the tax benefits received in case of ownership over the period of 15 years.

City Specific Highlights:

DelhiRenting a home is the best option, since the average rental value of residential property is less compared to EMI.


MumbaiThe higher property prices and least number of sq. ft. lakh (as compared to seven cities) make it a place to rent.




Most affordable city for a professional to buy a home.
BangaloreA buy to rent ratio of 0.27 and moderately high property prices makes it a place to rent.


ChennaiRent to buy ratio of 0.25 which means that the rental prices are cheaper compared to EMI option for own house.




Average rental value of residential property is high compared to average property prices. Decent no of sq. ft.
lakh make it a place where one should buy as soon as the corpus for down payment is saved.


Second most affordable city to buying a home.

ABRS integrates a consumer's concern vis-a-vis his ability to afford buying or renting a home. The monthly rent value to EMI comparison in turn defines the duration of stay in the house. Most of the costly personal financial decisions made by the consumers during this period either involve buying something they could not afford, EMI's that are too high or living beyond the means. ABRS suggests the best recommended action given the rental value, EMI to be paid and the gross income.

Hence, the ABRS report concludes:

  • HyderabadandPuneare the best places to own a house. The property prices and rental values in these two cities are low, thus making them the most affordable places for a professional to rent or own a house.

  • The real estate market ofKolkatafavors the home owners because of its moderate property prices and high rental value.

  • Though the moderate property prices ofChennaiandBangaloremake a strong case of ownership for professionals with higher salaries, the low rental values make renting a better option.

  • The high property prices and low rental values of Delhi NCR make the decision to rent easier.

  • Mumbaiis the least affordable city for a professional because of its high property pricesand rental values.

  • First time home buyers should consider the potential time of stay as an important factor.


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