In the present scenario, property agents report that out of the total leads generated, majority comprises of buying and selling compared to renting. But a closer look at the current market reveals some key benefits of renting as well. As a result, staying on rent is perhaps more advantageous than buying a flat. A contrast between the two options lets you assess better in order to decide whether to rent or buy.
In order to buy a home, a substantial amount of down payment is required. When you live on rent, the same amount is saved and invested elsewhere, for example, in a mutual fund. If you look at the long-term perspective, you end up saving more money if you live on rent. An apartment will create an asset with a good market value, but your mutual fund investment will grow bigger. A house worth Rs 50 lakhs will be worth 1.6 crores in 20 years if 6 percent annual appreciation is estimated. But if you pay Rs 20,000 monthly rent and save the rest, then you have a fund value in the range of Rs 3.54 – 5.8 crore, assumed at an annual return of 14-17% minus the rent paid in the same period.
The annual rent of a house is much lower because of easy availability of properties for rent these days. Around 2-3 percent of the property price is what you pay as an annual rent in a metro city. On account of economic slowdown, there is not much growth in any sector. Prime properties are available on rent at affordable rates. Investors who are not end-users prefer to rent out for a fixed income. People find it profitable to rent a furnished flat in a well-maintained housing complex instead of bearing the EMI burden. For example, it does not make sense to shell out Rs 30,000/- as EMI if the same flat is available to rent for 20,000/- per month.
There is still a lot of scope for a market correction so far as prices are concerned. Property prices are expected to come down further as the unsold inventory available is quite high. Perhaps they expect a boom in the real estate market, but it seems the market is unlikely to recover soon. The prices will slide further. The cost of the property will be cheaper and the EMI outflow will become moderate.
Consider any area and the market projections are not in favor of a sharp rise in property value. If you want to buy now and sell later to fetch capital appreciation, you cannot be confident of recovering the invested amount. When the future is not promising, it is better to live on rent and forget about capital gains in the short-term.
Current Property Trends
Is there any hope of a rise in property value because of location advantage? Will prices decline? The local property market is unpredictable, unstable and unorganized. It is not wise to take a home loan and buy a flat in the hope of improved infrastructure over the coming years. If nothing happens on the ground, your hope of reaping benefits will be dashed. This could lead to a financial crisis in your life as well.
RERA has come into existence and GST has also been formalized. But their impact on the real estate market is not fully understood yet. How these fundamental changes will affect in the long term have to be studied for some more time. It is wiser to stay on rent, and see how the market responds to these changes and then take a call.
Lower Home Loan Rates
If the market does not recover, a lower interest rate is the next logical step to inject buoyancy. Instead of buying now, see whether the lower interest rate becomes a reality soon. Saving interest outflow for years matters a lot for the salaried home-buyer.
When you buy a flat, there are other expenses to include, such as property tax, registration charges, insurance, annual repairs, maintenance and other costs. In the current market, these costs add up a lot more to your planned budget.
Many fake developers and fraudsters are getting caught and this will lead to a positive impact on price correction. It is better to see how the market is cleaned up and genuine players are allowed to function with ease. As the market is already moving in that direction, it is better to see how it pans out across the country and then decide in favor of investing in a property.
Since renting allows you to live in a place near the workplace or has other amenities to offer if something of your choice is not available within budget near your office, put your decision to buy on hold. With a better mix of residential and commercial projects coming up, the options available nearby will be far more suitable as transport costs will be reduced and the commute time will be saved as well.
Keeping in mind these factors are currently visible in the property market, it makes sense to live on a rental basis. Log on to Monest & find the right property agent for you as per your needs.