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How to decide between staying on rent and buying a home?


A question that many home seekers find difficult to address, is whether they should purchase a house or stay in a rented apartment. In the post-pandemic scenario, many families have realised the benefits of owning a home and the sense of security it provides. Yet, there are many who may be wary of taking the plunge and investing in a property. Housing.com addressed some of these pertinent questions at a webinar conducted in association with Kotak Bank Home Loans on the topic ‘How to decide between staying on rent or buying a home?

The panelists at the webinar included Sanjay Garyali (business head, housing finance and emerging market mortgages, Kotak Mahindra Bank) and Rajan Sood (business head, Proptiger.com). The session was moderated by Jhumur Ghosh (editor-in-chief, Housing.com News).

 

Should you buy or rent?

There is no denying that home buying is a personal and emotional decision for any family. The pride of owning a house and the way it scores over renting an apartment, are some factors that influence home buying decisions. According to Garyali, “If one looks at it from a financial perspective, then, real estate is an asset class with low risk. Moreover, the pandemic has highlighted the fact that buying a home may be a safe investment. Whether a person wants principal protection even if the property gives lower returns in the initial three or four years, or if one is looking for a higher return on investment, are points that one has to look at when buying a home.”

Highlighting the fact that the market conditions influence the decisions on buying and renting, Sood added: “The efficacy of owning vs renting largely depends on the market conditions. In the rapidly-growing real estate market, owning a home makes sense. On the other hand, if one sees no further scope for property price appreciation, then, renting may be a better option.”

Garyali pointed out that “Real estate prices have come down significantly in the last five years. Secondly, there is now a transparent and low interest rate regime. These two factors should encourage buyers to invest. However, one should look at affordability. If one is in a stable environment or sector, then, it is the best time to invest in real estate and buy a house.”

Sood concurred that the favourable conditions in the market hint at home buying as an ideal choice to make in the current scenario. “In the given conditions, when home loan interest rates have been at an all-time low, there are also builders offering good prices and discounts are available. Moreover, the incentives given by the state governments and reduction in stamp duty, are some factors that have resulted in a rise in demand for properties.”

At the same time, decisions need to be backed by thorough planning and calculations. An individual should evaluate the expenditure involved when it comes to paying EMIs or monthly rent, before deciding which investment is better.

 

The need to assess one’s financial situation

Speaking about the importance of financial planning for an investment, Ghosh highlighted: “No matter which property segment one is looking at, or the income bracket one belongs to, it is essential for a home buyer to determine the amount of money that would be necessary, to be financially ready to buy a home.”

Emphasising that home buying is a journey, Garyali said, “The home buying journey starts at least two years before the actual home purchase. One needs to factor in the down payment amount, various home-related expenditures and the EMIs to be paid.” One has to consider the financial strength to meet these expenses, including monthly EMIs. He further advised that “If one is planning to buy a house, the planning should start at least three years before investing.”

Considering that home loan eligibility remained crucial when opting for a house, Sood said: “Before finalising a decision to buy a house one has to keep in mind that banks only allow a certain loan amount and there is a maximum limit an individual will be eligible for, depending on the income level. As a buyer, one has to evaluate the options and consider what is favourable. One also needs to ensure, from a sustainability perspective, if one has the stability of income to service the EMIs. Financial experts recommend that not more than 30% of one’s income should go towards servicing the EMIs.”

Moreover, in the post-pandemic scenario, many families have been battling financial problems due to job loss and salary reduction. So, the decision of whether to buy a new house or choose a rented accommodation, should be made after ensuring one’s financial stability.

 

Home buying as part of retirement planning

Home loan eligibility is based on many factors, including the applicant’s age, income and repayment capacity. Getting a home loan with a longer tenure for a person above a certain age, say 45 years, may be difficult, as compared to someone who is much younger. Additionally, one must plan for a stable income source to meet various expenses. The panellists maintained that these were certain factors that individuals nearing retirement and looking to invest in a property should keep in mind.

 

Is it the right time to buy a second home?

Investing in a second home can be an excellent option that can provide great returns, if one has enough funds and a stable income source. “Most of the demand these days comes from serious end-users – those moving out of rental accommodation, or those looking for spacious homes to upgrade their living standards. With the new work from home concept, there is a prominent category of buyers who are seeking second homes in smaller cities, with the objective of leading a peaceful life away from the hustle and bustle of cities. Such locations have also seen a price appreciation, given the rise in demand,” said Sood. If one were looking to settle in a different city for a longer period, buying a house could be a convenient option.

See also: Is 2021 the right time to buy a home?

 

What are the options if you are planning to buy a home?

Many home buyers come across situations where they may have to choose between ready-to-move-in houses and save on rent, or invest in an under-construction property and live on rent till they get the possession. With RERA coming into the picture, the risks of investing in under-construction properties have greatly reduced. However, one can also consider ready-to-move-in properties by researching for options that offer good deals. Garyali added, “If you are at a stage in life, where you can afford an outright purchase, you can negotiate with a developer and go for a ready-to-move-in apartment, instead of an under-construction property. Whether you are going for an under-construction or a ready-to-move-in property, it is extremely important to check the brand and developer you are going for.”

Speaking about the current trends, Sood said that “People are preferring under-construction projects. The overall contribution of under-construction projects has gone up in the past one year.”

Another trend observed in the major metro cities is the growing number of resale property transactions.

When looking for a home, the experts concluded that it was essential to evaluate one’s objectives and whether it would be for personal use or as a pure investment option. If one is looking for higher returns, it is crucial to study the market conditions to make an informed decision. With real estate being a secure investment option, owning a house should certainly be the ultimate goal for any individual to lead a comfortable life, they maintained.

 

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