Table of Contents
Zerodha co-founder Nikhil Kamath, who has been a long time advocate of renting over buying a home, recently purchased his first apartment. Kamath on his podcast ‘WTF is with Nikhil Kamath’ explained the reasoning behind the move.
“The thing with renting, of all the advantages of renting, there is one disadvantage: you don’t have foresight as to when you can move out of the house. I had to move out of this house, whereas I might have liked to stay longer in this house,” Kamath said.
Should you buy or rent a property?
Factors that drive the rent or buy decision include financial wherewithal, job growth prospects, stage of life, size of family, and personal preferences, said real estate experts.
An individual in Bengaluru with a stable job who is paying a monthly rent of ₹50,000 for a standard 2 BHK worth ₹1.2 crore may grapple with the rent or buy dilemma.
If the individual decides to stay on rent, then one-year payable rent for the individual is ₹6 lakh. For the next 10 years the total rental outgo + 7% annual rental escalation is approximately ₹83 lakh. This rental outgo is almost 69% of the total cost of this property – and this is just an expense with no investment value accrued, said an expert.
Also Read: Zerodha’s Nikhil Kamath takes a U-turn, buys a house after advocating staying on rent
According to experts, if an individual opts to buy the property via a home loan, has the financial wherewithal to make a 20% down payment and borrows the remaining amount over a 10-year tenure at a 9.5% interest rate, such a purchase is profitable.
According to an analysis by property consultancy Anarock, the average residential rental values rose more than the capital values between 2021-end to H1 2024 in Bengaluru, Pune, Kolkata and Chennai. But in NCR, MMR and Hyderabad witnessed the reverse trend wherein capital values appreciated more than the rental values.
Overall, rental values in key micro-markets of the top seven cities have gone up to a significant 72% between 2021-end and H1 2024, while capital values saw lower growth, it showed.
More than one rationale
According to experts, living on rent does not help to create an asset, while homeownership secures an asset. Simultaneously, other popular investment asset classes such as stocks and gold are volatile and unpredictable in uncertain times. Housing retains its value in uncertain times and eventually appreciates when times improve, and home loans come with attractive tax benefits, experts say.
Also Read: Real estate isn’t easy, it is a lot of ‘donkey work’: Nirupa Shankar says on Zerodha co-founder Nikhil Kamath’s show
Abhishek Lodha, Managing Director and Chief Executive Officer of Macrotech Developers, also favours buying a property over renting one. “With the significant increase in rentals across the country, it is seen now that while rentals might look attractive in the short-term, in the medium term, rentals are unlikely to create wealth for the middle class and therefore buying a home as soon as possible is the best possible option, not just from the perspective of creating wealth, but also giving stability and respectability to the family,” he had said during an investors’ call earlier this year.
Can you afford an equated monthly installment?
Check your finances before you decide to buy a property. If you find that you do not have at least 30 to 40% of the amount to be paid as a down payment, continue to stay on rent, advise a few experts.
Remember, banks will only fund 80% of the cost. Those who already own a home can consider upgrading to a more spacious apartment.
Experts say that as far as possible and depending on your age, it’s always advisable to pay a sizable amount as a down payment. This is important because you may be able to service an EMI today but not so in the future if you do not have a job. So plan judiciously.
Also Read: Rent versus buy: Average rental values increased more than capital values in Bengaluru, Pune, Kolkata and Chennai
Also remember that property prices in established locations (areas that have matured over the last five to 10 years and there is a sizable population living there) are always higher than in areas where projects have been launched a few months back. Therefore, if there is an area that has come up recently and has good infrastructure, it may be advisable to invest in a property 10 to 15 km away. Better still, you may want to consider taking a house on rent in an area where you may invest in a project.
Choose the right location. Check if there are proper roads leading up to the project, enough shops for daily needs, and that schools and hospitals are close by. Check the distance to your workplace and the modes of transport available.
