BUYING OR RENTING A HOUSE: WHICH ONE IS BETTER?




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BUYING OR RENTING A HOUSE: WHICH ONE IS BETTER?

For many Indians, owning a home is not just a goal—it’s a lifelong dream. Yet, the question often raised – is it better to buy or rent the house? This decision involves more than financial considerations; factors like tax benefits, personal circumstances, long-term goals, and emotional fulfillment all come into play. Let us explore all such key elements while making this critical decision of life.

1. Tax Consideration:
The tax benefit are different for house property under Old Tax Regime (OTR) & New Tax Regime (NTR) as under:

i) Self Occupied House Property:
No tax benefit is available against house property purchased or housing loan availed in respect of self occupied house property under the NTR. However the benefit of deduction of Rs. 2 Lakh towards interest & Rs. 1.50 Lakh towards the principal repayment would still be there under the OTR.

ii)  Rented Property:
Whether OTR or NTR, taxpayers can claim deduction towards the interest paid on loan taken for purchase of such property in respect of let out property.
Since the majority of the taxpayers are now opting for the NTR and it is likely that the OTR may be phased out, tax considerations alone should not be enough to sway the decision between buying and renting a home.

2. Financial Perspective: Costs and Investments:
Generally, rental cost vis a vis fair market value of the property is normally in the range of 2% to 4% p.a. Let’s take the average home price in Central India wherein a 2 BHK flat can cost around 75 Lakh. At current interest rates of about 8.50%, the EMI on a loan amount of Rs. 70 Lakh would come to a little over ₹60,760/- for 20 years loan tenure. One could find a similar size apartment at a monthly rent of ₹ 20,000 resulting in a monthly saving of around Rs. 40,000/ leaving such person with an amount of Rs. 4.80 Lakh p.a. which obviously one can invest in assets that could give a better return. Purely from a financial planning and investing standpoint, it makes much more sense to rent a property and invest the surplus funds into alternative investment options with higher returns. Rather if anyone considers the interest cost on a standalone basis, no one can ever buy the house property. This is the reason most people find it unaffordable to buy a property as buyers have to shell out a major part of their monthly income as monthly installments (EMI). However, to some extent the economical consideration for buying the house property is justified by the appreciation in the value of the house property resulting in the biggest wealth creation for most of the middle class taxpayers.

3. Emotional Value and Stability:
Buying a house is normally not a function of return on investment. Owning a home carries emotional weight, often symbolizing security, success, and permanence. The sentiment of “having a roof over one’s own head” resonates deeply in Indian culture where it fulfills not only a basic need but a cherished milestone in life.After food & cloth, the house property is considered as a primary need for the family. For many, buying a first home is a deeply personal decision driven more by emotion than pure economics. Despite the financial strains, the sense of pride and stability derived from ownership is irreplaceable for some. Low-interest loans also provide motivation, allowing more families to achieve this goal and secure a personal space to call their own.

4. Home ownership vs. Renting:  Weighing the Pros and Cons:
Ultimately, there is no one-size-fits-all answer to whether buying or renting is better. Each decision depends on individual circumstances, goals, and preferences. Below are several important factors to consider:

i)  Long-Term Financial Impact:
Rent is a monthly expense that does not result in the creation of physical property. Rent payments, though often lower than EMIs, do not contribute to long-term investment. Ownership also hedges against inflation, as property values and rental costs are likely to rise in tandem, whereas EMI payments remain more predictable, depending on the loan terms. Though renting allows investing free funds elsewhere potentially yielding higher returns, still appreciation in property value has historically provided financial security and remains a primary source of wealth for the middle class.

ii)  Lifestyle and Freedom:
Owning a home grants control over the property; one can renovate, remodel, and personalize it as per his choice. With ownership, one is free from the restrictions often imposed by landlords ensuring freedom, privacy and security. Further, changeover or relocation results in wastage of money, time, and energy beyond other inconveniences. Rents and security deposits would also increase in tandem with the rise in rates and inflation.

iiiFinancial Security and Income Stability:
If the income is steady and allows for long-term loan commitments, buying even with a home loan might be a better choice. However, one must understand that the Home loans carry lengthy commitments, typically spanning 15 to 25 years, during which interest rates may fluctuate. One may plan considering this unpredictability.

iv) Flexibility in Renting:
Sometimes renting can be even smarter & makes more sense if the financial commitment doesn’t permit owning a house. It offers financial flexibility and freedom from long-term commitments. For those early in their careers or frequently relocating, renting is often the more practical choice.

v) Mobility and Relocation Needs:
A major advantage of renting is its adaptability, especially for professionals needing geographic mobility for career growth. Purchasing a home could limit this flexibility, making renting a more attractive choice for those whose work or lifestyle requires frequent moves.


Final Thoughts:

Choosing between buying and renting depends on weighing financial capacity, lifestyle needs, future aspirations, and personal values. For those with strong financial security, stable income, and a desire for long-term stability, ownership can be a rewarding investment both financially and emotionally. Conversely, those who prioritize flexibility, immediate financial advantages, or lack the resources for a down payment may find renting a better fit. No single answer applies universally, but understanding these considerations can empower one to make a decision aligned with the life goals and financial realities.

 

 




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