The change is continuous in every sphere of life. The one who adopts the changing trends leads a better life especially in the field of finance. The conventional financial rules our parents and grandparents followed are not beneficial in present time. We at Investocafe analyzed how the new money managing practices are more beneficial today.
Arthayantra Buy Vs Rent Report
Earlier, a house meant financial security and a good long-term investment but today, buying a house implies a huge EMI burden. Paying off a home loan early in your career compromises your other financial goals. So the new trend is RENT A HOUSE INSTEAD OF BUYING. The renting a house is more affordable than buying a house as per the Artha Yantra Buy vs Rent Report 2017. Have a look that in present scenario in different cities what is the rental cost and what will be the monthly cost to buy :
However, this luxury of low EMI will only be fleeting. "You are not locking in at the current low rate for the entire tenure of the loan. The lender will revise the interest rate upwards when the broader rates start inching up," cautions Jayashree Kurup, Head of Content and Research, Magicbricks. Besides, the benign mortgage rates completely mask the fact that the price of the homes itself continues to remain beyond the average homebuyer's budget.
Often, homebuyers build in certain expectations of how their income will grow over the years or how the value of the house will appreciate to build the foundation on which they commit to high-ticket loans even if current circumstances do not favour such an outflow. Ritesh Brahmbhatt, 34, from Mumbai, is banking on a better future earning profile to ease the burden he faces today owing to a hefty home loan.
Also, one doesn't become house poor overnight. It can happen gradually as your personal situation changes. Perhaps at the outset you are able to pay off the high EMIs, but you may end up house poor if your circumstances change. For instance, what if one partner is left jobless for an extended period of time? The current trend of mass layoffs across sectors should serve as a warning to anyone projecting sustained higher income into the future. The salaried class is also witnessing lower increments.
"It is prudent to base the home buying decision on current income profile rather than making assumptions about the future," warns Amol Joshi, Founder, PlanRupee Investment Services. Likewise, if one partner decides to stay home after having children, or after the birth of the second child, housing payments can become a greater burden than what it may appear today.
Another fallacy that pushes people to buy a home they cannot really afford is the argument that paying rent is a waste of money. Experts say it makes more sense for prospective homebuyers to stay on rent rather than commit to a high-ticket purchase. "Buying property simply to save on the rent has put many under severe stress," points out Suresh Sadagopan, Founder, Ladder 7 Financial Services.
"It may be a better idea to stay on rent for the time being and invest the balance in a high-yield investment that can allow you to build savings so that you are in a better position to afford that house later." Investing the savings on EMI through a SIP in an equity mutual fund is the ideal approach to build that corpus, if you can put off buying the house for at least another five years.
Renting may be the smarter option particularly in some cities where the home value-to-rental value ratio is very high (See table). The Arthayantra Buy vs Rent Report 2017 suggests that in cities like Mumbai, Delhi, Bengaluru and Chennai, anyone with yearly income less than Rs 25 lakh, Rs 16 lakh, Rs 12 lakh and Rs 16 lakh respectively, would be better off renting than buying.
The Urgency-to-Buy (UTB) ranking helps to decide whether you should buy or rent in a particular city. The UTB ratio indicates what extra payment one has to pay every month if the property is purchased instead of rented. The average monthly cost of renting is derived from the sum of rents and maintenance cost whereas monthly cost of buying is calculated by adding maintenance cost with the EMI.
While Mumbai and Delhi are the two most expensive cities for both buying and renting residential property, Chennai and Pune are mostly affordable for rentals. According to the annual buy versus rent report of ArthaYantra, Delhi has seen rentals for residential property increase by 20% over the last four years, while average buying prices have increased by 9% for the same period. Hyderabad continues to be the most affordable city for both buying and renting as rents have increased by 6% over the last four years, while residential property prices have dropped 10.5% in the same period.
ArthaYantra Corporation released the 5th edition of its annual Buy vs Report (ABRS). This report which used to cover 8 top cities has added 4 cities this year, increasing the coverage to a total of 12 cities in India. Realty Fact
According to a report by personal finance portal Arthyantra, property prices in Mumbai have gone up by as much as 50 per cent over the last three years. That means it will take a mid-income professional (with a salary of Rs 8 lakh) 13 years to accumulate enough money for paying the down payment for buying a property in Mumbai, the report says.
According to the report, Mumbai remains the city with the highest residential real estate prices followed by Delhi. It estimates average property price of 1000 sq feet in Mumbai to be about Rs 1.6 crore, while in Delhi to be Rs. 1.1 crore.
The report termed 'Buy vs Rent' also analysed real estate markets across eight major Indian cities on parameters like price of residential properties, rental value and years required to accumulate the corpus for down payment.
1. It would take 10 years to accumulate enough money to fund the down payment on a property in Delhi and the National Capital Region. Like in Mumbai, those with incomes of less than Rs 25 lakh should rent a property.
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