Buy Vs Rent ! What should I do?

For a modern day home buyer, it has become a tough choice. “Should I pay rent or EMI’s for my house”?  Hefty costs associated with buying a house, make most independent youngsters to rent one, once they start earning.

Buy Vs Rent ! What should I do?

As they start families and save money, many choose to buy a home. However, while it is apparent that there are no returns in renting, one needs to be mindful of the costs and recurring expenses associated with buying and owning a house. In this article, we have listed down five important points to consider while comparing Buying Vs Renting which shall help you take a right decision.

1. Cost: 

Buying:

• Buying definitely has a huge upfront cost which includes paying the token money/advance amount at the time of booking or entering into an agreement. In most cases, this is 20% of the purchase price. If you are planning for a home loan, there are installments to be paid. With many banks, during the initial years, the monthly payment gets adjusted towards the interest on the loan and gradually start including payback of the principal amount.
• If you are buying an under construction property, then there is an additional burden of paying VAT and Service Tax (GST to kick in soon).
• To get the legal ownership transferred and registered in the buyer’s name, the state government levies additional charges known as Stamp Duty and Registration Fees.
• There are other costs such as Khatha Transfer fees, Property Tax payments etc to be considered as well. In case the property is in a gated community, you also need to factor in quarterly or annual maintenance charges, corpus funds etc.
• Interior decoration cost is the only cost which is under your control and can be budgeted as per your requirements.

Renting:

• In metro cities, house owners demand security deposit which varies from 3 months to ten month’s advance rent (depending on the city you are in). In Bangalore, it is usually 10 months; which is an interest-free deposit with no returns.

The maintenance cost charged by most landlords increases the overall cost and makes it more expensive.

2. Recurring Cost:

 Buying:

• The ownership comes with a lot of responsibilities and one needs to incur monthly/yearly costs such as electricity bill payments and property tax.

    Renting:

• Apart from the security deposit and the monthly rentals, there are no other periodic payments.

3. Investment:

Buying:

• Once you buy a property, you become the legal owner of the property. The rental generated from the property can be used to pay your EMI’s and therefore it’s considered as a feasible investment option.
• The property value may increase over time, which often is one of the most appealing factors for a buyer.

Renting:

• When you rent an apartment/house, the cost borne by you does not generate any return value.

4. Tax benefits:

 Buying:

• To make housing more affordable, the government has brought in certain benefits for the home buyers under the Union Budget 2017:
  • There is a reduction in the holding period for computing long-term capital gains from transfer of immovable property, from 3 years to 2 years (this makes an investment in property more attractive as one need not wait for 3 years before selling the property to avail tax benefits due to long-term capital gains).
  • People with income slab of Rs. 6 lakhs will only have to pay 2.5% of the interest rate irrespective of the loan amount taken from the bank. For instance, if one takes a loan of Rs.20 lakhs and the interest rate is 9%, the actual interest applicable will be 2.5%, which means one gets a subsidy of 6.5%. Similarly, people coming under the income slab of Rs.12 lakhs and Rs.18 lakhs per annum gets a subsidy of 4% and 3% respectively.
  • The new slabs apply to a loan with a tenure of up to 20 years.

(In case, one gives the house on rent, there is a reduction in tax benefits as the loss computation on a rented property is limited to Rs.2 lakhs).

Renting:

• If you are a salaried employee and staying in a rented apartment/house, then you are entitled to claim the house rent allowance.

5. Relocation: 

Buying:

• Once you buy a house, relocation is seldom feasible, and you may end up spending long hours in traffic while commuting to workplace.

Renting:

• Renting gives you the flexibility to freely relocate depending on your preferences and requirements.

We hope this article has helped you understand the difference between buying and renting an apartment or house and their associated costs and benefits. Now, the important homework you need to do before buying or renting an apartment or house is to estimate the cost of financial resources like income and other assets in hand before taking a decision. Buying may look like a lucrative option but it involves huge costs, whereas renting is an easily doable option which comes with fewer responsibilities and peace of mind but there are no returns. We hope you make the right choice.