Which Is Better? Buying a House or Staying in a Rented Apartment

Affordability is one of the biggest concerns of many individuals when buying a house. Buying a home requires a huge investment; for most individuals, it is one of the biggest investments in their life. Since it is impossible to buy a house without any financial assistance for most home buyers, they end up burning holes in their piggy banks and getting themselves drown in loans to buy the house of their dream. Hence, before taking the leap, it is important to assess your income, expenses, and affordability to purchase a house. If your credit score is high and you are confident about your loan repayment capacity, you can consider taking a home loan to buy your dream house.

The argument - of buying v/s renting a house has been there for many decades. Those in favour of buying a house often build the argument by stating that paying rent does not give you any returns but paying EMIs gives you your own property that continues increasing in value. While it is true that paying rent does not offer any returns, there are many angles to this statement. Firstly, it is not possible to buy a property and pay the same EMI as your monthly rent. The EMIs are substantially higher than your monthly rent, especially in prominent locations. Suppose you have rented an apartment in a prime location in Pune for Rs 50,000 per month. The location is convenient to you as it is a few minutes away from your work location, has good connectivity to your hometown, and you have made some good friends there. If you decide to buy a home by paying the same EMI as your rent, i.e., Rs 50,000, you will have to buy a home outskirt. This can significantly affect your lifestyle and may increase transportation expenses. If you do not want to compromise on your lifestyle, you will have to pay a substantially higher EMI that can burden you with loan repayment and make it financially stressful until you repay your entire loan amount.

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Apart from the home loan repayment, it is necessary to consider your other life goals. With a change in life stages, you will have different life goals like marriage, a child's education, a parent's retirement, and other responsibilities towards your parents, in-laws, siblings, children, etc. Even if you are comfortable repaying the home loan EMI at this moment, you need to consider your future life goals and make sure the EMIs will not be burdensome in the future. Hence, before availing of a home loan, it is necessary to consider the opportunity cost of the loan.

Financial discipline is another important factor that must be considered when buying a house. If you lack financial discipline and impulsively buy products and services without thinking of their requirements and credit card bills, it will be challenging for you to pay the home loan EMIs timely. But having a good credit score, debt-to-income ratio, and stable income is a sign that you might be able to repay your home loan EMIs regularly.

As they say, 'ghar bar bar nahi banta', as a potential home buyer, you should check if you are ready to make a long-term commitment. Earlier, people had a tendency to buy a house as they start working and continue living in the same house until the very end. However, things have changed now. Millennials do not want to settle in their job and location. In fact, they keep looking for better opportunities even when they are working in a renowned company and earning well. So, if you are someone who prefers to move around, buying a house might not make sense. But if you would like to remain rooted in one place, buying a house will give you stability. Renting a house might not be convenient for you as the rent generally increases every year, and you might have to change places after every few years.

While most potential home buyers do not consider the returns that the property might generate in a specific period, it is necessary to understand that most properties generate below-average returns in the long term that are similar to or even lower than fixed-income instruments like fixed deposits. Besides, investment in real estate can face many liquidity challenges, and you could find it difficult to find a buyer in a buyer's market.

Many potential home buyers consider availing of a Home loan due to its several tax benefits. You can claim up to Rs 1.5 lakhs under Section 80C of the Income Tax Act for the principal loan amount paid. This amount also includes the stamp duty and registration charges. Furthermore, you can claim a tax deduction of Rs 2 lakhs on the interest paid under Section 24 of the Income Tax Act. However, these deductions apply only to the property whose construction is finished within five years. If the construction is not finished within the time frame, then you can claim only up to Rs 30.000. While staying on rent might not offer any direct tax benefits, you can claim the tax benefit on your House Rent Allowance (HRA).

With all the benefits of renting a house, it seems that property is not the best investment. Many better investment avenues can generate substantially better returns than property. However, if you are looking at a house as an emotional investment and a feel-good factor, make sure you check your affordability, the convenience of the location, your future life goals, etc. Also, bear in mind that property is a high-maintenance asset that requires periodic expenses like property tax, society maintenance, repairs, etc. Besides, with changes in your life stages, you might outgrow the house that you buy, considering your current requirements.

To conclude:

Considering the points mentioned above, you can decide whether to buy or rent the house. It might not make sense to purchase a property as an investment to build a corpus in the long term because most properties do not generate inflation-adjusted returns. However, if you are looking for an emotional investment to make memories with your family and stability by staying at one place, it is advisable to buy a house after considering your income, credit score, debt-to-income ratio, affordability, life goals, future responsibilities, etc. It will help you make a decision that does not lead you to a financially burdensome life.

Warm Regards,
Ketki Jadhav
Content Writer