Renting vs. Buying a House in India - How to Make the right choice

Whether you are moving to a new city or planning to change your existing home, making the decision to buy or rent a house in India is perhaps the most difficult one.

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About 50% of millennials find buying a house or an apartment convenient, while the rest vote for rentals. 

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A constant clash of opinion makes the homeownership decision more challenging.

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While rental homes seem convenient initially, it comes with additional cost in the form of deposit money and damage deduction many landlords make while you are vacating the place.

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Similarly, if you buy the property and realize you won’t be staying there for too long, all your investment will go down the drain.

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Yet, owning a home is almost everyone’s dream and life goal. Homeownership is a status symbol and a significant financial investment toward one’s future. 

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There are so many scenarios to consider before making this decision. This is why making the property decision is no walk in the park.

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In this article, we have curated a guide to help you decide which is a smarter option: Buying a house or renting one.

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Buying a house might be your dream, and you might have been saving toward it for quite some time.

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But it may or may not be fruitful for you, especially if the dream home you have envisioned is out of your budget or you won’t be staying at the same place for a long time.

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So, let’s understand some of the benefits and drawbacks of purchasing a house. 

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When you should consider Buying a Home?

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1. You are considering it as an investment:

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‍Purchasing a house is a significant financial investment and real estate is one of the safer forms of how you can invest your money.

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So, if you are making this decision, make sure it is profitable. The valuation of the property differs between a standalone house and an apartment.

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For instance, the reselling value of an apartment is lesser than a house. Therefore, if you plan to buy a property, consider how long you intend to stay. 

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2. If you need help with tax exemption:

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‍Another significant benefit of purchasing a house is tax exemption. If you take a house loan to pay 80% of the property valuation at the time of purchase, you can claim the principal loan amount for tax exemption each fiscal year.

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Types of tax benefits

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ITR Section 80C 

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• You can claim a tax deduction of up to 1.5 lakh for the principal amount.
• This may include stamp duty and registration fees, but you can claim this amount only once.

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ITR Section 24

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• Interest deductions of up to 2 lakh rupees
• These deductions are only available for properties that are completed within five years.
• If it is not completed within this time frame, you can only claim up to 30,000.

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ITR Section 80

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• Every fiscal year, first-time home buyers can claim an additional 50,000 on the interest amount.
• The loan amount cannot exceed 35 lakh.
• The property must be worth less than 50 lakh.

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3. You need a permanent residence:

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‍Purchasing a home means having a permanent residence. You will have lifelong control over it unless you sell it to someone.

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That’s not all; if you purchase a standalone home, you buy the land on which the house is built, unlike an apartment.

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Hence, you can avoid legal complications, especially during expansions and renovation.

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4. You want to design your dream home:

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‍If you own the house, you can design it as you envisioned. For example, if there is a huge space at the front, you can construct a pool or a landscaped garden.

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The freedom to create cozy spaces within the four walls of your home rests upon you. 

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5. You avoid landlord-related issues:

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‍There won’t be any landlord issues when you have the house in your name. No one will knock at your door asking for the rent if it gets delayed.

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Similarly, if you want to arrange a party at your home, you can do so without asking for your landlord’s permission! 

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When should you avoid Owning a Home?

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1. Maintenance hassles:

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‍Since you will own the property, you need to look after it, be it renovation, repainting, handling electrical or plumbing issues, and even paying property and water taxes every year without fail.

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Every responsibility will fall upon your shoulders. If you do not want this hassle, you should not consider buying a standalone home. 

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2. Requires too much documentation:

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‍While buying the property, you must file the sea of documentation carefully, such as ID proofs, land ownership papers, tax receipts, income certificates, and more.

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Plus, you need to get your name registered as the property owner. If the property is built on any government land, you must apply for a change of plot ownership.

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All these tasks can be pretty overwhelming and quite confusing if you’re a first homeowner.

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3. Expensive purchase:

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‍It is no wonder that buying a house is a costly investment. The price varies based on the home or the land’s location.

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That’s not all; if you only purchase the land, you have to bear the additional cost of home construction, interior design, and decoration, apart from the registration cost.

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You will have to bear a substantial financial burden for decades if you buy it on loan.

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4. Lower liquidity:

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‍You won’t be able to sell the house immediately if you need quick money. The selling process of a property is much more cumbersome than the buying process.

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Also, there is no guarantee that you will get the price you want since it involves price negotiation.

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Things you must consider while making home-ownership decision

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There are certain factors you should consider while buying a house. Such as: 

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1. Financial Situation: You need to consider your financial standing because you’d have to pay at least 20% of the property value as a down payment. Even though it is just 20%, in reality, it is a substantial amount you may take years to save.

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2. Credit Score: To be eligible for a higher home loan, you must ensure you have a stellar credit score. The higher your credit score, the better your interest rate and loan terms would be. Otherwise, you may have to spend more on a down payment or pay a high-interest rate. So, do evaluate the score before making the decision.

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3. Debt-to-income Ratio: You must consider your debt-to-income ratio before applying for a home loan. Investing in a house is not feasible if your monthly debt exceeds your monthly income. Ideally, it should be below 28%.

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Why you should consider Renting a House?

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1. Costs much less than owning a home:

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‍Let’s understand this with a small example. Assume you have rented a 2BHK house for Rs. 15,000 a month and paid Rs 1.2 lakh in deposit.

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So, yearly you are paying only Rs. 1,80,000. Whereas, if you buy a house worth Rs. 45,00,000 in a Tier 2 city by taking a home loan at 7.1% interest, you will have to pay nearly double your loan amount as interest (Rs. 63,86,916).

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Your monthly EMI would be Rs 30,241, which is Rs 3,62,892 annually. Hence, it is evident that renting a home is much more pocket-friendly than buying one.

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2. High mobility:

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‍Rental places offer you high mobility. It means you can move out of the home any time you wish without hassle.

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It is the landlord’s responsibility to find a new tenant, not yours.

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3. Fewer maintenance hassles:

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‍By renting a home, you can avoid the hassle of renovating the house and ensuring it is in top-notch condition.

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Repairs and maintenance is a task that mainly falls on your landlord’s shoulders.

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4. No rapid price fluctuations:

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‍One of the significant benefits of taking the rental property is the immunity against the price fluctuations of the real estate market.

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The rental rates don’t depend on the market valuation of a property.

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Following proper planning and legal agreement ensures your rental charges remain fixed for at least 11 months.

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Your landlord may increase it by a nominal percentage while renewing your rental agreement.

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Pros of Renting a House

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Alternative to owning, renting a property is usually suitable when you know you might have to move to a different home soon.

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Most millennials switch jobs to grow careers and move to other cities to make a mark in their professional world.

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Hence, renting a home makes more sense in this case than owning one. 

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Here are some other reasons why it’s better to consider renting a home than owning one - 

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Cons of Renting a House

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Landlord issues:

‍When you consider renting a home, remember you would have a landlord to answer to. It can be due to delayed rent, having house parties and loud noises, or accidentally damaging the home in any way.

Lack of stability:

‍A rental home doesn’t offer the same sense of stability and security as your home can. It is not permanent. Hence, you’d have to move out if your landlord decides not to rent or sell their home.

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Limited freedom of decoration:

‍Most landlords do not allow you to make any changes to the house’s architecture, like adding nails, putting up stickers that peel off the paint, or changing the regular shower to a rain shower. Some landlords even prohibit the renters from repainting the walls. Hence, if you plan to rent a home, discuss these things before paying the deposit.

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Conclusion

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Buying your dream home is an important life goal. But, if you genuinely want to enjoy the feeling of being at home, proper planning is required.

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Otherwise, you may have a house with a large loan and not have enough money for goals such as retirement or your children’s education. A scenario such as this is likely to cause more stress than happiness.

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Whereas renting may appear to be “throwing money away,” if you value flexibility, low-maintenance living, and the ability to spend your money on other things such as investing in Digital Gold or travel, it may become a blessing in disguise.

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When it comes to buying vs. renting, there isn’t a clear winner. The decision is highly personal. Decide what works best for you and then take this important decision.