Which is a Financially Wiser Option- Buy or Rent a house?

Finding the right place to stay is one of the most important requirements. While most people start out by renting, eventually they always reach a crossroads when they wonder about the benefits of buying one’s own home Vs living on rent.

So, let’s delve deeper into buying vs renting a house and how you can decide which is the better option for you.

Renting vs Buying a House

In India, one places a higher value on owning a house and is considered an important milestone in life. More than creating value, one attaches a strong emotional and mental connection to owning a house as it instills a sense of safety and pride. Many even consider purchasing a home as an investment.

However, many people prefer renting a home rather than just buying one due to the economics. Let’s look at how both are different when one can choose house buying over renting.

Overview of Real Estate in India

The Indian real estate market is a booming sector and according to the IBEF report, it is expected to reach $1 trillion in market size by 2030, up from $200 billion in 2021.

And, India ranks 51st in the global list of annual rise in housing prices in Q4 of 2021, up from 56th rank in Q4 of 2020. During the period, there was an average 2.1% rise in housing rates. You can also refer to it as housing inflation. The number for urban and metro cities is much higher.

Furthermore, the increase in input cost in recent months will further increase the cost of acquisition of house property in the near future.

When is Buying a House a Better Option and Why?

Renting a house property is not a wise financial decision if you have a family, strong roots and have decided to get settled in a particular city. The monthly cost incurred towards paying rent doesn’t result in any physical creation of assets.

For instance, if you have considerable time left to retire (more than 20 years) and choose to take a home loan, the EMI could be equivalent to your rental cost. And, you get to own a property by the time you complete the home loan repayment.

Furthermore, in renting a house, you have to stay according to the terms of the house property owner. In most cities, the cost of rent will only increase over time. On the other hand, depending on the terms agreed upon with the lender, your EMI could stay the same over the tenure of the loan.

Rising Cost of Owning a House

One of the biggest concerns for any house buyer is the increasing ownership cost. Housing inflation coupled with increased input cost and rapid urbanization is resulting in pricier houses.

The property that may look affordable now, may become a luxury for you in the next few years.

Delaying your decision to buy a house and choosing to stay in a rented house to save for house acquisition costs is not a financially wise decision. You will be spending on both rental costs and saving for buying a house.

A Safe Investment

A house is considered a safe investment and has potential for capital growth. When you choose to stay in a rented house, you are not only foregoing the opportunity to own a house early but will also not enjoy higher capital growth.

Tax Benefits

There are numerous tax benefits that are offered on home loan repayments. For instance, you can claim a tax deduction of up to Rs 1.5 lakh in principal repayment under Sec 80C, up to Rs 2 lakh on interest payment under Sec 24, and eligible for an additional tax benefit of up Rs 50,000 under Sec 80EE as a first time home buyer.

The tax benefits offered on a home loan help to reduce the homeownership cost, making EMIs more affordable.

Must Read : Tax Benefits on Home Loan for Joint Owners

Owning a Home VS Renting: Which One is a Better Option?

On financial metrics, owning a home definitely has an advantage. However, before arriving at any decision on whether to buy or rent a house, consider the pros and cons.

Take into consideration your income level, expenses, short to long term financial commitments, and most importantly, you will need to ensure you have sufficient funds to pay the downpayment. If you do not meet the required home loan eligibility criteria, or need to have a better income level to be eligible for a loan amount equal to the funds you need, or if you do not plan to settle in the city where you are now, then renting would be a better option.

Buying a house property on a home loan requires long term financial commitments, and you need to have stable finances to obtain one. Therefore, the decision to rent or buy a house should be based on needs and priorities, not just financials. Use our home loan eligibility calculator to get an estimate of the maximum loan amount you may be able to get based on a few key parameters.