x

What Is The Best Bet - Rent Or Buy A Home?

Home »  Magazine »  What Is The Best Bet - Rent Or Buy A Home?
What Is The Best Bet - Rent Or Buy A Home?
Rajat Mishra - 03 December 2019

The book Happiness Hacks by New York Times bestselling author Alex Palmer, brings out some pertinent factors that make us happy. One among those is to live on rent rather than buy one’s own home.

While this advice may sound strange to most Indians who dream of owning one but looking at the crisis and transformation the real estate sector is going through, Palmer’s philosophy holds currency for sure. With exponentially mushrooming co-working spaces, digital rental platforms like Nestaway, NoBroker coupled with an  increasing number of unsold inventories, one cannot deny the sector is witnessing a ripple effect of a consumer behavioural change.

According to data from Anarock Property Consultants’ consumer sentiment survey, there has been a huge shift in the age demography of Indians looking to buy homes over the last two decades. In the late ’90s, most homebuyers were from 45-55 years of age because they would buy a home with savings rather than fully depend on loan. However, in 2019, the trend has changed. Only 36 per of homebuyers are in the 35-45 age group. The millennials are not buying homes and staying in rented accomodation instead.

Amit Agarwal, CEO, NoBroker, says, “Renting has been at an all-time high due to the many changes introduced by the government. Renting does not pin them to any city, or an area and today’s consumer is more on the go.”

According to Delloitte Global Millennial Survey 2019, most millennials are largely experience-driven. Buying a house stands third in their list of priority,  after seeing the world and being wealthy.

In fact, as per International Monetary Fund’s (IMF) last estimates, India’s residential rental market was worth more than $20 billion, of which 68 per cent or $13.5 billion was in urban areas. However, the largely unorganised and informal rental housing market has made it tough to arrive at the actual market size.

 A report by Knight Frank - ‘Institutional--ising The Rental Housing Market In India -2019’ points out four factors influence the growing need of rental housing in India, namely -  ownership focus of government policies, stagnant residential prices, housing unaffordability and urbanisation trends.

As per the research, the house price to income ratio was as high as 11 in Mumbai Metropolitan Region (MMR) in 2010, which means a family had to shell out 11 times its annual earnings for an apartment. This ratio is high at 6 and 5.6 times for NCR and Bengaluru. 

Let us say you are living in a rented apartment worth Rs80 lakh and are paying a rent of Rs10, 000 per month. Keeping appreciation at five per cent per annum, you would end up paying `63.1 lakh rent in 20 years. Let us juxtapose this with an option of buying a home. If you want to buy the same apartment for which you are availing `70 lakh home loan at an interest rate of 8.3 per cent for 20 years. You will end up paying Rs1.44 crore at Rs59,864 as EMI.

So if you stay on rent, you will save around `81 lakh which you could spend on travelling, your child’s education or any other way. Except, you won’t end up with an asset.

Rohit Tripathi, a young software professional who recently bought a flat in the Pune, shares his experience, “I have spent days visiting 11 houses, going through traumatic documentation formalities. Buying a home  is no cakewalk.”

Ajay Tiwari, Co-founder of India’s first one-stop relocation platform Happylocate, says one factor millenials are more concerned about is mobility. “As we are in the business of relocating millennials from one city to another, we have observed they are always on the go. Buying a home will limit their mobility and bind them to one place,” he explains.

The downturn in the real estate sector is widely attributed to behavioural change of home buyers. That is why there are six lakh unsold units in India. 

Vivek Rathi, Director, Research, Knight Frank India, narrates his own experience, “Almost 80-85 per cent of office demand is fulfilled by tenancies. Same is the case with retail and warehousing. But this is not the case in  residential space demand. Here you do not have any institutional rental housing market, which would allow homebuyers not to deal  with difficult landlords.”

The proposed model tenancy law will be instrumental in institutionalising rental housing which is largely unorganised in India.

1

b1

Currently, there are 21.72 million urban rented households in India. “Given the current state of Indian real estate, there is certainly room for institutional rental housing,” argues Amit Agarwal from NoBroker. The recent introduction of RERA and increased regulation has further made it mandatory for the rental real estate market to align and resonate with the needs and preferences of the modern consumers. However, the Draft Model Tenancy Bill as believed by many would be able to solve the innumerable problems this sector is grappling with, feel most experts.

The bill would help streamline a lot of discrepancies in the rental sector adding ownership and accountability, which has hitherto been missing. It would also spell out a lot of grey areas that need urgent attention. Everyone is eagerly awaiting for this to happen.

“Putting a body in place for addressing tenancy grievances at the local level is a laudable move as it would help in faster solving of cases. Also, capping the deposit which is a much-needed step, especially in cities like Bangalore where humungous amount of money is charged as deposit is a very welcome step,” concludes Agarwal.

rajat@outlookindia.com

Housing Sector Crisis and Beyond
A Homebuyer’s Financial Woes