Whenever it comes to moving into a new house, the question of buying vs renting a home is sure to arise. Given the soaring property rates, especially in the metropolitan areas, people usually prefer to rent. However, a majority of individuals in India consider buying a home as a big financial achievement.
Now, both options come with their own set of financial considerations and pros and cons. So, if you are in the dilemma of whether to buy or rent a home in India in 2024, you have come to the right place.
We will cover all the crucial factors, enabling you to make an informed decision. Read on!
Understanding the Basics
Before we move on to buying vs renting a home, let’s understand their basics:
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Definition of Buying a Home
When you buy a home, you pay for the entire price of the property to the seller or owner. The house is registered under your name, and you have the freedom to reside in your property, offer it on rent, sell it off in the future, or use it as an inheritance for your children.
Read Also: Can a Foreigner Buy Property in India? – Essential Guide
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Definition of Renting a Home
When you rent a home, you enter into a contract with the landlord to reside on their property for a specific time period in exchange for a predetermined amount (rent). This agreement can be renewed or extended based on the decisions taken by the landlord and the tenant.
Financial Considerations
Here are the financial considerations of buying vs renting a home:
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Buying a Home
Here are some of the costs related to buying a home:
Upfront Costs:
- Down Payment:
If you are planning to purchase a house by availing a home loan, you need to pay a certain percentage of the property value as a down payment. This is because banks and other financial services institutions can only cover up to a certain extent of the value of your selected property.
For instance, the loan to value (LTV) for properties below ₹30 Lakhs is 90%. Thus, you need to pay a down payment of ₹3 Lakhs to avail the loan.
- Registration Fee:
When you buy a house, you need to register it under your name in order to gain legal ownership. To gain the property registration certificate, you need to pay the registration fee to the local court.
The registration fee usually ranges from 0.5% to 8% of the property value.
Read Also: How to Calculate Property Value? Easy Methods Explained
- Stamp Duty:
Stamp duty is the tax that you need to pay when purchasing property. It generally ranges from 2% to 9.90% of the property’s total market value and tends to differ across states.
Ongoing Costs:
- EMI:
To pay back the home loan, you need to pay Equated Monthly Instalments (EMIs) throughout the loan tenure. Usually, shorter the tenure, higher is the EMI amount and vice versa.
Thus, it is crucial that you determine the EMI and the loan tenure using a home loan calculator to ensure that you can pay it each month on time without straining your finances.
- Maintenance:
Purchasing a house may be a one-time affair. However, you have to keep bearing its maintenance costs as long as you are the owner. These include small and major repairs, utilities, furniture replacement, lighting, landscaping, pest prevention, pool maintenance, amenities, and more.
- Property Taxes:
The Government of India imposes property tax on all property owners based on the location, property type, occupancy status, year of construction, carpeted square area, etc.
Moreover, it is calculated using various methods like unit area value system, capital value system and annual rented value system and their rates tend to differ across states.
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Renting a Home
Here are some of the costs related to buying a home:
Upfront Costs – Security Deposit:
When you rent a home, the only upfront cost that you need to pay is the security deposit. It is an additional amount that you need to pay to the landlord for handling unforeseen circumstances while you reside in their property.
Generally, you need to pay this deposit before moving into your rented property, and it is refunded when the rental agreement ends.
Ongoing Costs – Monthly Rent:
The monthly rent is the only ongoing cost that you have to bear when you rent a house. However, just like home loan EMIs, you need to pay it before the due date. Otherwise, the landlord may charge a late fee.
Emotional and Psychological Factors
Following are some emotional and psychological factors that you must take into account when deciding upon buying vs renting a home:
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Sense of Ownership and Stability from Buying
For most Indians, buying a house is a financial milestone. It offers a sense of ownership, along with a stable place where they can live for the long term.
Also, buying a house brings financial stability as the owner can offer it for rent or sell it off for a profit when the property rates appreciate. They can also use the house as collateral to gain credit and utilise the funds elsewhere.
However, all these benefits will not be available when you are renting.
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Flexibility and Freedom
If flexibility and freedom to live anywhere is what you are looking for, renting can be an ideal choice. You can rent a house in an area of your choice and when you feel like a change of scenery, you can relocate to another location without any hassles.
Alternatively, in case of buying a house, you get tied to a single location and need to sell off your property if you wish to settle elsewhere.
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Impact on Lifestyle and Family
After you pay off the home loan, you just have to bear the maintenance charges, which are substantially lower than the monthly rent. Thus, the money saved can be invested in other avenues or utilised to upgrade your lifestyle. Also, buying a home is a better option if you have a family with kids. Also, you can add them as the legal heir to your property, enabling them to inherit the house in future.
Long-term Investment Potential
Check out the long-term investment potential of buying vs renting a home:
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Real Estate Appreciation Rates in India
As per reports, there has been a 10% year-on-year increase in property values in India in Q1 2024. Check out the price changes in the top 8 metropolitans in the table below:
| City Name | Avg. Property Value per square foot in Q3 2023 | Avg. Property Value per square foot in Q1 2024 | Quarter-Over-Quarter Change in Price (Q4 2023 to Q1 2024 ) |
| Bengaluru | ₹9,976 | ₹10,377 | 4% |
| Delhi NCR | ₹9,170 | ₹9,757 | 6% |
| Kolkata | ₹7,912 | ₹7,727 | -2% |
| Mumbai | ₹20,047 | ₹20,361 | 2% |
| Ahmedabad | ₹6,737 | ₹7,176 | 7% |
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Benefits of Owning an Appreciating Asset
Some of the benefits of owning an appreciating asset are as follows:
- Long-term wealth generation
- Acts as an effective hedge against inflation
- Can serve as collateral for secured loans
Location and Lifestyle Considerations
Listed below are a few location and lifestyle factors that you must consider when deciding between buying vs renting a home:
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Impact of Location on Buying vs Renting Decision
If you are planning on moving to a developing locality, buying a home may be a better choice as you can easily sell it off down the line for a hefty profit. However, if you are relocating to a posh area, renting may be a better choice, as property rates are usually pretty steep.
For instance, if you are looking for residential properties in South Mumbai, renting is a more economical choice than buying a house.
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Urban vs Suburban Living: Cost and Lifestyle Differences
Rental rates and cost of living in urban areas are usually on the higher side. What’s more, you get to live in prime areas with a fast-paced lifestyle, top-notch infrastructure and a reliable transportation system. Property options here usually consist of apartments, penthouses, duplexes, builder floors, etc.
Comparatively, rent and cost of living are lower in suburban areas. These locations offer a slow, and peaceful lifestyle with a lot of greenery and a sense of community. Property options generally consist of spacious individual houses, villas, bungalows, farmhouses, gated communities, etc.
Case Studies
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Scenarios Where Buying is Beneficial
Suppose you have a family with kids, a stable job and are planning to settle down in a developing area. Under such circumstances, buying a house will be a better choice as it will serve as an appreciating asset, which you can sell for a profit in the long run.
Also, there is the security of property ownership, and you can even pass it down to your children in future, thereby securing their future.
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Scenarios Where Renting is More Advantageous
Suppose you are a bachelor or a couple who has moved to a new city for professional reasons or need to constantly relocate due to your job requirements. Also, you may like the flexibility of moving to a different area for a change or you already have a house and just need a place to stay that is near your workplace. Under such circumstances, renting can be a better choice.
Pros and Cons Summary
Check out the summary of the advantages and disadvantages of buying vs renting a home before making your final decision:
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Summarising the Advantages & Disadvantages of Buying
Advantages:
- Passive income through rent
- Appreciating long-term value
- Huge tax benefits
- Owner can add his/her children as a legal heir to the property
- Sense of ownership
- Acts as an asset which you can use as collateral for secured loans
Disadvantages:
- Large initial costs
- Needs timely maintenance and renovation, the costs of which have to be borne by the owner
- Liable for property tax
- Selling a house can be a time-consuming task if owners wish to relocate
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Summarising the Advantages & Disadvantages of Renting
Advantages:
- Offers a lot of flexibility, enabling renters to relocate without any hassles
- Has lower upfront costs compared to buying property
- Serves as a more economical option for people who have just moved to a new city
- Ideal for people who wish to settle in an area for a short time period
Disadvantages:
- An eviction notice can come without any warning
- Lack of the freedom to modify or renovate the property
- No tax benefits
Are you still thinking about buying or renting the property? Check out the luxurious residential properties at Rustomjee, featuring spacious apartments, luscious greenery, world-class amenities, and more. Here, you can enjoy the benefits of community living and connect with nature, regardless of whether you decide to buy or rent a home.
FAQs
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Is it better to buy or rent a home in India?
If you want an investment that provides long-term capital appreciation and passive income and has good financial resources, buying a house can be an excellent choice. However, renting is the ideal option if you wish to settle in an area for a short period and need the flexibility of relocating to another location when needed.
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What are the hidden costs of purchasing a house?
Registration charges, stamp duty, maintenance fees, home loan processing fees, brokerage charges, and GST are some of the hidden expenses which are included in buying a home.
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Does renting a home have more advantages or disadvantages?
Renting a house has more advantages than disadvantages as it has lower initial costs, no liability of paying property tax, allows you to relocate without any hassles and enables you to reside in a location that aligns with your preferences and lifestyle.
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Is it worth buying a house in Mumbai?
If you have the required financial resources, then purchasing a house in Mumbai can be an ideal investment decision. Property rates in this city are always on the rise, along with a high demand for rental properties, enabling you to gain long-term capital appreciation as well as passive rental income.
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Why is buying a home more important than renting?
Buying a home is more important than renting in case you wish to permanently settle down in an area with your family and acquire an asset that provides long-term capital appreciation.
