Synopsis
Instead of simply following your parents’ recommendations, examine the advantages and disadvantages of renting versus buying.
Indian parents have to be the most vociferous when it comes to advocating the purchase of a house to kids. In the current scenario, however, it may not be a good idea for millennials to buy property as an investment. For self-occupation too, one must consider various factors before committing to a large EMI. It is better to rent when you start working instead of being tied down to a large EMI.
Instead of blindly following your parents’ advice, consider these pros and cons of renting and buying before taking a decision.
Pros
- Lower rent: Rent will be lower than home loan EMI. In NCR, you can rent a Rs 1 crore, 3-BHK house for Rs 15,000-25,000, but the EMI with 40% down payment @7% will be Rs 46,500 a month for 20 yrs .
- Down payment: You don’t have to amass a large down payment amount early on in your career. For renting, you just need to provide a 2-3 month security deposit upfront.
- No allied costs: You don’t have to worry about paying property tax, maintenance costs, repair bills, parking costs, etc.
- Ease of job sifting: You don’t have to worry about maintaining or renting the house if you need to shift cities or countries for your job.
- Flexibility of location: You can decide where to rent depending on proximity to workplace or school, reducing your transportation costs.
- Building an asset: The amount you spend on rent can be used to pay the home loan EMI for building an asset for life.
- Tax benefits: You can get tax deduction of up to Rs 2 lakh on interest paid for self-occupied home under Section 24, and Rs 1.5 lakh under Section 80C on principal amount.
- Low loan rates, higher appreciation: Currently, home loan rates are low at 6-7%. Property prices are set to appreciate after the fall in the past few years.
- No worry of shifting: You don’t have to constantly worry about moving houses if the landlord wants you to leave.
- No landlord issues: You don’t have to suffer the landlord’s whims when it comes to maintaining the house or argue over who will pay for repairs, painting and other maintenance jobs.
- Emotional security: Having one’s own house provides peace and mental stability and the freedom to keep it as per one’s wish.
Cons
- Rent rise: Besides the annual rise of 8-10%, the landlord can increase the rent anytime or ask you to evict.
- No tax benefits: You do not get any tax incentives for renting.
- No freedom: You have no choice of altering, or making structural changes to the house without the approval of the landlord.
- Outflow after retirement : You will have to continue to pay rent after you retire when you have no source of income.
- Society limitations: You will have to abide by the rules of the society, which can include restriction on pets, limited vehicles, etc
- More expensive: Buying a house is more costly than renting. besides the upfront cost of purchase, you have to pay charges for maintenance, property tax, renovation and repairs.
- Illiquid asset: Real estate has much lower liquidity, which means that if you need the money, you cannot sell a house immediately.
- Depreciation: As has been seen in the past few years, there is no guarantee that property prices will always rise
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