[Omkar]

There’s plenty of debate on this topic already. Especially when people from different generations talk about it. The ideologies are different and so are the approaches towards this specific topic. Here’s an article from Finshots talking about this specifically –

Indians love real estate. That’s a fact. A Jefferies report from 2023 pointed out that over 50% of India’s household wealth is tied up in property. That means, if you’re around the age of 30, you’ll probably hear the inevitable question from your extended family, “When are you going to buy a home?”

Here's an example of Maya and Tara who live in Bengaluru.

Maya’s got her eyes on a 2-bedroom apartment in a good locality. It’s ready to occupy and it’ll set her back ₹1 crore. It’s a reasonable distance from her workplace as well so she’s happy about that. She has saved up ₹20 lakhs which will be put towards the downpayment. And she heads to the bank to choose a loan. She picks the 8% floating rate. She thinks over 20 years (the home loan tenure), it might go up and down but she’ll get an average of 8%. That works for her. The bank tells her the EMI works out to nearly ₹67,000 a month. She thinks that’s manageable.

Meanwhile, her friend Tara finds a 2-bedroom apartment in the same complex. And she decides to rent it. She pays ₹30,000 including maintenance for the society. Tara’s game plan is simple — she’ll invest the difference between what an EMI would cost her and the rent she pays. She’ll watch that money grow. And she’ll use that to finally buy a home for retirement.

The value of Maya’s home grows at 6% every year for 20 years. (We took 6% since that seems to be the average growth of housing in India over two decades as per CRISIL). Tara’s landlord increases the rent by 5% every year. Tara earns 12% returns on her investment.
And guess what…. Tara’s Renting strategy seems to win!!!

If the rent you pay is almost the same as the EMI, it’s time to buy a house.
Seems like a sensible thumb rule, right? And if you simply look at the numbers, it’s likely to be true. Because it doesn’t leave any room for investing any surplus.

But just think about this based on the Maya vs Tara debate. If Tara were to pay nearly ₹67,000 as rent for a 2-bedroom apartment, she’d probably get a much bigger and swankier house than Maya. In a better locality even. So her quality of life could be higher. And maybe much more enjoyable. That’s something the thumb rule won’t take into account.

Housing isn’t a great investment but for most people, it’s the best investment they will ever make because it’s the only asset they will leave alone and let compound for 10, 20, 30 years.

Basically, if you don’t have the discipline to actually invest the amount you save by not paying an EMI and if have mini heart attacks each time there’s a stock market crash, it’s a problem. Eventually, you’ll panic and withdraw your money and delay investing again. You’ll never create wealth that way. Maybe a house as an investment is a better fit for you in that case.

Source - Finshots

[shankar.balan]

Im a believer in ‘renting’. Always have been.
But then like most normal middle class folk,
I have also succumbed to ‘investing’ in property. An investment which more often than not, has not been worth its salt. But then, peer pressure and all the rest of it, you get the picture.

[MileCruncher]

Investment in Residential Real Estate as an asset class gives below par growth.

But buying a house in which you live is different. Its about putting in roots and not being worried about being asked by the landlord to vacate every 2/3 years.

Typically in Mumbai EMI vs Rent used to 1:3. However post Covid, rentals have shot through the rough while capital values haven't. Its come down to 1:2 (in my case) or even lower in some cases.

Hence I believe, beyond a particular age, you need to start thinking of where you want to live and buy a house there, and get the 20 yr tenure (or lesser) to pay it off before you retire.

[ashivas89]

The rent to EMI difference is much narrower in BLR around IT hubs.

Difference between rent I will effortlessly get for my flat (I certainly will get more if I throw some cheap furniture in) and my EMI is just 12k.

I see the gap only increasing in the near future.

[antz.bin]

Shouldn't the renting equation also include the following costs?

1. Packers and movers costs every 2-3 years on the whims of your landlord
2. Being treated like second class citizens by some society members who are flat owners / RWAs. It's a shame that my current society (where I am a tenant while I await possession of my flat 2x the price of my rented flat) doesn't even allow tenant families to participate in Ganeshotsav and similar other cultural activities.
3. Some societies not allowing tenants to use amenities like gym/swimming pool even though they do pay maintenance. Additional cost of getting these facilities outside.
4. Bachelor / Divorced tenants being not allowed or removed using bylaws changes later. The bachelor cannot be removed if the person is a flat owner.
5. Cost of removing and installation of water purifier, ACs, TV, geyser, chimney, washing machine, dishwasher etc. from old flat to new at the time of shifting.
6. Having to live with furniture not optimised for your place leading to sub-optimal utilisation of space in the overpriced rented space.
7. Costs of finding new place to live each time we move that also includes brokerage.
8. Environment and financial costs of not being able to opt for EVs even if the usage justifies it just because the landlord may refuse permission to install charger in the parking.
9. Repair and replacement cost of furniture and appliances damaged during transit.

Why none of the renting vs buying calculators take these costs into account?

Also, the finshots calculator increased the rent at 5% while the apartment value grew by 6%. Why different rates of inflation? If anything, as a new locality gets older, the facilities around improve so average rental growth will probably outstrip the CPI inflation rate.

Edit: I did some number crunching on the finshots spreadsheet. The rent amount crossed EMI amount on month 133 (start of the 12th year). But the amount invested did not become negative to compensate it. This error happened for the next 8 years with no correction which has skewed the results in favour of renting.

[shankar.balan]

Originally Posted by antz.bin

2. Being treated like second class citizens by some society members who are flat owners / RWAs. It's a shame that my current society (where I am a tenant while I await possession of my flat 2x the price of my rented flat) doesn't even allow tenant families to participate in Ganeshotsav and similar other cultural activities.
3. Some societies not allowing tenants to use amenities like gym/swimming pool even though they do pay maintenance. Additional cost of getting these facilities outside.
4. Bachelor / Divorced tenants being not allowed or removed using bylaws changes later. The bachelor cannot be removed if the person is a flat owner.

The scenario you are outlining here seems to be like one would expect in a 19th Century Orthodox Village situation with a Kangaroo Court setup like a Khaap Panchayat!

No housing society has the legal right to do or impose any of the above-mentioned inequalities on anyone living in the society who is also paying rent and maintenance.

Please check your rental agreement and/ or consult a competent lawyer.

[Mystic]

My vote is Buy wherever possible.

It makes sense to buy house only if the interest for housing loan is subsidised by your employer.

In India, my employer has a policy called HLIS ( housing loan interest subsidy). I bought a villa in Bangalore besides my office about a decade back in whitefield. I had enough cash to buy it after my relocation to India from USA but my financial adviser told me to take loan. Now the villa after a decade is more than 3 times the original cost in market.

In USA, my son’ s employer which is a top university gives interest subsidy by a huge margin compared to market rates along with a one time down payment free for first house. This is a norm in USA to retain talent and encourage the tenured faculty to stay put in the university with a loan going for 3 decades as the average descent house near university costs 3 million USD.

I have given all the homes I own in south India for rent for peanuts but the tenants are descent people so it is less headache for me to maintain and they do the maintenance themselves without my supervision. Idea is that home prices increases 3 times in one decade as a norm and the homes are maintained with the small rent it fetches ( this holds good in my properties and am not sure if this thought process is true in other Indian cities).

[VWAllstar]

Traditional thought of having one house of your own where you live is fast getting replaced with this concept. In the past decade real estate hasn't seen much growth. Infact I have my own example of buying a flat in Pune for X amount in 2012 and selling it for X amount in 2023. No profit and no loss. Mathematically it is a loss as I paid for the maintenance year on year and since it was our weekend house, there was no rent income. However, numerous house parties with family and friends cannot be quantified. If I had invested that X amount in large caps or even Nifty 50 Index fund, minimum returns could have been 2.5X.
Need suggestions on two options I have thought about.
Details:
Currently staying in a flat valued at 1.3CR which can go for redevelopment by 2026. Intend to sell to mitigate risk of redevelopment.
Will be moving to a bigger and better flat by June 2025 which will be our primary house. House bought with no loan.
Option 1
Now I am looking at a prospect of a near posession flat in Powai costing me 2.3 CR where the monthly rent is 75K -90K. I have 1.3CR to invest and take 1CR as Home Loan. That 1.3CR would be from selling the current flat in Mumbai. Approx EMI for 20 years at 8.5% would be 86K which means it can be negated against the rent income. (Considering I am in the new Tax Regime so no benefits of Home Loan and not considering the taxation on rent income)
Option 2
Keep the current flat and earn rent from the builder till it gets redeveloped. Post redevelopment give it for rent which would be around Rs. 45K per month. There will be around 20% FSI so the value can go up to approx 1.6 CR.

Which option would be beneficial and why? I am tilted towards option 1 as I am worried about the redevelopment. Since it is a standalone property, no big brands are going to come ahead for redevelopment. If I sell it and buy a near completion flat (option 1) from a branded real estate (read L&T) then I don't see much of a risk.

[rakesh_r]

Originally Posted by VWAllstar

Which option would be beneficial and why? I am tilted towards option 1 as I am worried about the redevelopment. Since it is a standalone property, no big brands are going to come ahead for redevelopment. If I sell it and buy a near completion flat (option 1) from a branded real estate (read L&T) then I don't see much of a risk.

It all depends on where your old flat is located. If its in the suburbs, its a goldmine since builders are scouting for properties since there is not much of land left in Mumbai. My situation matches with yours. I bought a 3bhk flat in Pune. Initial plan was to sell out my Mumbai flat and use the money to buy a flat in Pune. Later decided to retain the former since the returns i get in Mumbai (flat is located near to the international airport and SEEPZ) is way more than that of in Pune. Moreover its slated to go for redevelopment, hence invested in my Pune flat separately.

[headbanger]

Buying home is a goal for me but it's a game of ratios for me.

Not in favour of putting more than 40% of networth in home buying. And the home has to be on a land piece, not a box dangling in sky. Tier 1 city is a strict no no as the quality of life is deteriorating day by day there. It's just a matter of time before the pricing catches up with this sustainability aspect.

If either of the above aspects are not met, renting is the favourable option as the money doesn't get locked and unhindered mobility remains intact.

[V.Narayan]

Don't get fooled by all those so called "investment managers" on the social media and in the bank branches. Evaluating purchase of your first house/flat is a security and safety back stop decision it is not a financial decision. That its property value might appreciate is an added bonus. It is alright to look down upon buying your first house - one you intend to live in - till there is a serious economic downturn in the economy or in your life. To say "only rent" is fine till your life moves upwards in a gentle linear curve. And when we are young we assume that is how it will be till it is not.

Your second real estate investment may be measured on financial parameters and return on investment, but never the first.

[libranof1987]

There are two ways to look at this: a) financial, b) intangible (sense of security, comfort, stability).

If you think of a house purely from a financial standpoint, the equations depend on several factors and may change drastically from time to time. You can put this into numbers, as the article highlights, and you may well be able to look at what makes more financial sense. However, even then, it doesn't consider many other financial aspects, as rightly called in other posts: the cost of moving between houses, broker costs and so on.

Next, the intangibles. antz.bin has rightly called out the many challenges that one may face when renting.

For our parents' generation, owning a home was the ultimate purpose / goal / achievement, because most came from nothing. Or had to move to cities from villages and towns and had to start from scratch.

The few generations that followed saw the Indian economy take off, which brought not just tremendous opportunities, but also frequent movement as companies and cities were adapting to growth. I believe the 70/80s generations saw the bulk of instability given that there was frequent changing of cities for professional reasons. Also, given the real estate boom and salaries on an upward trend, most people could afford buying multiple houses. And some even needed so, in case they moved cities. Similarly, for some, it made sense to rent, if they anticipated moving cities, or even countries.

However, things appear to have stabilized now, with most opportunities available in most cities.

Renting may make sense as a way of living in western countries where homes are owned/maintained by corporations, and are governed by several regulations which protects both, the owner and renter. But in ours, given the reality of Indian real estate, having the luxury of your own home cannot be understated.

As V.Narayan has so aptly said, the first house is an important decision that should be driven by the intangibles, not financial parameters.

[DigitalOne]

I own a 2 BHK in South Bangalore. I moved from that flat to a rented 2bhk flat in Whitefield to stay closer to office. The owner of that flat had moved to a rented 3bhk a couple of kms away since his parents had to come stay with him and a 2bhk was not enough.

I moved back from Whitefield to South Bangalore (not my own flat) since we had to move very close to my in-laws. The owner of my current flat had to move to stay close to his wife's workplace in southern outskirts of Bangalore.

Long story short, you see three families now living as tenants despite owning flats in the same city. These are not outliers. Look around amongst your friends and relatives and you will see these examples.

If you think you will get stability by buying a house, dream on.

------

My forecast is that next couple of years in IT are going to be brutal. That is going to have a major impact in RE markets like Whitefield. Be careful before you commit any large investments.

[FAIAAA]

Voted Rent
They say "Fools learn from their own mistakes, the wise from established wisdom and experience of others." I am the former - life long learner ( I don't know what I don't know) and picked this up after owning 3 homes ( and not making real returns on them) and renting ~20 homes over the years across 6 metros and 2 tier 1 cities.
There are two sets of drivers 1. Emotional 2. Logical / financial. ( Humans think they are intellectual beings who emote. It's actually the opposite - emotional beings who rationalize their emotional decisions)
Keeping emotions aside ( earlier gen legacy of owning your own home/roof), reasons to rent for life or Atleast till you are 50+ ( all figures below are annualised)
1. Rental yields are 2-3% . Add 5-8% capital appreciation, you are looking at 8-15% max
2. Over long periods, mutual funds will match or beat ( during bull runs and certainly next decade if all goes and stays well with our economy viz rest of the world )
3. Home is a significant investment/concentrated risk, illiquid, paper work and bills /receipts. MFs, you can track, switch/redeem partially /fully at short notice
4. Life's uncertainty, you really don't know where life ( work / personal factors) will take you. Plus with GenAi impact on IT jobs, MFG ( PLI led) and Services sector growth in tier 2 Towns, real estate markets in big urban centres may see a structural correction.
5. Above all, freedom / choices and flexibility. 1. Choices/ Location - you can still rent places /locations ( posh location, closer to work etc) where you can only dream of owning. 2 -You dont like a place, place has issues ( water, noise etc)., you can move. Scale up ( growing family) or down ( later years) as required ( think of all the old couples you know who struggle to maintain their big homes or selling homes /villas to move to smaller flats)
For all of the above, I wouldn't buy a flat ever again in this life and live of the delta returns ( delta between MF returns and rentals)

[V.Narayan]

Originally Posted by Omkar

There’s plenty of debate on this topic already. Especially when people from different generations talk about it. The ideologies are different and so are the approaches towards this specific topic.

Meanwhile, her friend Tara finds a 2-bedroom apartment in the same complex. And she decides to rent it. She pays ₹30,000 including maintenance for the society. Tara’s game plan is simple — she’ll invest the difference between what an EMI would cost her and the rent she pays. She’ll watch that money grow. And she’ll use that to finally buy a home for retirement.

The value of Maya’s home grows at 6% every year for 20 years. (We took 6% since that seems to be the average growth of housing in India over two decades as per CRISIL). Tara’s landlord increases the rent by 5% every year. Tara earns 12% returns on her investment.
And guess what…. Tara’s Renting strategy seems to win!!!

Thank you @Omkar for sharing this. Permit me to plunge into this logic.

All,

My disconnects are as follows - First, in both the cases of Maya & Tara there are too many assumptions, just the kind the desk pushing investment experts in banks and social media love to dole out. Finance and wealth creation are subjects few succeed at but every second person is an expert. Over a 20-year period almost all these assumptions could and will go off the charts in either direction making a mickey out of well laid plans of mice and men. Second, I have never met a person, not even the very wealthy, who, in Tara's shoes, can follow the discipline of taking the difference between the EMI & Rental and studiously invest it each month into the higher yielding investment. It is not just a question of discipline but of needs, desires, emergencies, mistakes, unforeseen expenditures and so on.