28 SEPTEMBER, 2021

With skyrocketing property prices in India, many people choose to rent a house rather than buying one. Even those who do have the finances to buy a house wonder whether simply renting one is a better alternative. Now, both renting and buying a house have their own advantages; the decision is based on an individual’s preference and finances.

Here are some factors one should keep in mind while choosing between renting and buying a house:

  • Work life

Many people work in jobs that require them to travel and relocate frequently from one city to another. In such situations, it is considered best to rent a house rather than buy one. However, if a person is going to live in one city without having any plans of moving to another, buying a house seems like a practical solution. If they have a family, shifting from one rented house to another could be inconvenient. In this case, it is advisable for one to apply for home loan and buy a house.

  • Property value

This is one of the most important aspects that one needs to consider. With a home loan, an individual would be required to pay at least 10% of the property value as down payment. Therefore, if the property value were set at Rs 1 crore, they would have to put a down payment of at least Rs 10 lakh upfront. If they choose to rent a house, they would be required to pay a security deposit, which usually depends on the property and its location. Now, the deposit amount has to be large enough to cover at least 3 to 5 months of the rent. In such a case, renting could be cheaper as compared to buying a house.

  • Financial situation

To understand this point, consider two scenarios. In the first scenario, an individual chooses to rent a 2 BHK for Rs 30,000 per month with a lease for 20 years. This means that the individual’s total outflow after 20 years including the rent increment would be Rs 1.89 crore.

In the second situation, this individual opts to buy a house, which is worth Rs 1 crore, with a home loan eligibility of Rs 90 lakh for 20 years with the home loan interest rate at 9% per annum. Let’s say the property value increases by 10% every year. In this situation, the individual’s total outflow after 20 years would be Rs 2.19 crore. However, do keep in mind that the individual’s cumulative net gain by buying the property instead of renting will be Rs. 3.16 crore after 20 years.

Keeping in mind both the situations, purchasing a property seems to be a better option in the long run. If you have a steady income and use a home loan EMI calculator to plan the EMIs, buying a property might be the better alternative. Make sure to understand various aspects while deciding whether to rent or buy a house, after all, it is important to consider your financial standing too.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.