To buy, or rent a home, that is the ques­tion

KEY DE­CI­SION Good price and af­ford­abil­ity may not be suf­fi­cient rea­sons to buy

Hindustan Times (Chandigarh) - Estates - - 3 - Ash­wini Ku­mar Sharma ash­wini.s@livemint.com

De­vel­op­ers and real es­tate agents are ar­gu­ing that prop­erty prices have bot­tomed out and prospec­tive home­buy­ers should go ahead and realize their dream of own­ing a house now. The ar­gu­ment comes in the back­drop of per­sis­tent buzz in the sec­tor that prop­erty prices have cor­rected. How­ever, does it make sense to buy a prop­erty now, just be­cause prices have come down? Not al­ways.

WHEN NOT TO BUY

Fi­nan­cial plan­ners in­sist that apart from price, there are var­i­ous other fac­tors to con­sider while buy­ing a house. And if th­ese fac­tors mat­ter to your sit­u­a­tion in life, you may find that stay­ing on rent may be more ad­van­ta­geous to you than buy­ing a house now.

YOU CAN CON­SIDER BUY­ING A HOUSE IF YOU ARE SURE TO STAY AT A PAR­TIC­U­LAR LO­CA­TION FOR OVER FIVE YEARS

Flex­i­bil­ity

If you be­lieve that your ca­reer or busi­ness is not at a point where you can de­cide where you will be stay­ing for the next sev­eral years, you should con­sider stay­ing on rent rather than buy­ing a house now and then strug­gling to sell it a few years later. “It is not nec­es­sary to own a house right in the be­gin­ning of your ca­reer. Most peo­ple to­day would go to any place where their ca­reer would take them. Hence, a home bought in one place may not serve them when they move to an­other lo­ca­tion to pur­sue their ca­reer,” said Suresh Sadagopan, a Mum­bai-based fi­nan­cial plan­ner.

Af­ford­abil­ity

In pure fi­nan­cial terms, rent­ing a house could be bet­ter than buy­ing it. Typ­i­cally, an­nual rent of a house is 1.5-2.5% of that prop­erty’s price in a metro. “Fi­nan­cially, if the rent you pay is lower than 2-3% of the value of the prop­erty, you could con­tinue to stay on rent,” said Lo­vaii Navlakhi, man­ag­ing di­rec­tor and chief ex­ec­u­tive of­fi­cer, In­ter­na­tional Money Mat­ters Pvt. Ltd, a Ban­ga­lore-based fi­nan­cial plan­ning firm.

Com­fort

Of­ten, the house one can af­ford to buy is not the most suit­able— be it in terms of lo­ca­tion or size. A young fam­ily may want a house next to their chil­dren’s school, and forego buy­ing a bet­ter house that may be far. If own­ing a house is not a life goal, rent­ing can make life eas­ier in this and many other sit­u­a­tion. Rent­ing can al­low you to live in a place that is near your work place or has other ameni­ties that are im­por­tant to you. There­fore, if the house that suits your needs is within your rental bud­get, but be­yond your buy­ing ca­pac­ity now, it is bet­ter to rent rather than choose a prop­erty or lo­ca­tion that does not suit you.

Long­term com­mit­ment

Buy­ing a house on loan is a long term com­mit­ment. You have to be able to with­stand sit­u­a­tions such as fluc­tu­a­tions in in­ter­est rates on home loan or even loss of job for some time; and still con­tinue to pay your EMIs reg­u­larly. If you be­lieve that you may be sus­cep­ti­ble to un­cer­tain­ties in the near- to medium-term fu­ture, the house could be­come a huge li­a­bil­ity rather than an as­set. Of­ten, peo­ple stretch and take large loans to buy their house. But be­fore do­ing so, one should find out “what is the backup plan in case you have no in­come for (even) 1 month to pay the EMI,” said Navlakhi. Re­mem­ber that you have to pay the EMI, and you can’t re­duce it at will.

WHEN TO BUY

How­ever, buy­ing a house makes sense in many sce­nar­ios, re­gard­less of the prop­erty’s price. If you find a suit­able house and can af­ford to buy it, you should go for it, keep­ing in mind the fac­tors men­tioned be­low.

Sta­bil­ity

You can con­sider buy­ing a house if you are sure to stay at a par­tic­u­lar lo­ca­tion or city for more than 5-7 years. More­over, in the long run, your rent is cer­tainly go­ing to in­crease at a faster rate than your EMI. In fact, the EMI may even come down go­ing for­ward, de­pend­ing on the over­all in­ter­est rate sce­nario.

Fi­nan­cial sta­bil­ity

If you have suf­fi­cient funds to make a larger down pay­ment (more than the manda­tory 20%) with­out com­pro­mis­ing on your other fi­nan­cial goals, buy­ing a house makes sense. Most fi­nan­cial ad­vis­ers sug­gest buy­ing a house (first house or house for end use), if the fi­nances are in place.

Tax ben­e­fit

Given that there are con­sid­er­able tax ben­e­fits on re­pay­ment of home loans, the cost of bor­row­ing can come down by 2% to 2.5% for those in high­est tax bracket, pro­vided the to­tal home loan is Rs25-30 lakh. This is be­cause the ben­e­fit on in­ter­est re­pay­ment is capped at Rs2 lakh a year, so this ben­e­fit di­min­ishes for big­ger home loans.

Low home loan rates

In last cou­ple of years, home loan rates have come down by about 2%, bring­ing the EMI down by about Rs3,400 on a home loan of Rs25 lakh with ten­ure of 20 years. So, cou­pled with tax ben­e­fit, buy­ing a house would be more ben­e­fi­cial in cer­tain seg­ment now, than a few years ago.

Cre­at­ing an as­set

If your fi­nances are in good shape and prop­erty prices are not ex­cep­tion­ally high in your choice of city and lo­ca­tion, you may opt to pay EMIs rather than monthly rents, as the former helps you to cre­ate an as­set.

Above are some of the fac­tors to con­sider while buy­ing a house. You need to eval­u­ate them and see which ones are more rel­e­vant to you and your par­tic­u­lar sit­u­a­tion now be­fore de­cid­ing whether to buy now, or live on rent.

MINT/PHOTO

In pure fi­nan­cial terms, rent­ing a house could be bet­ter than buy­ing it

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