Buying a Home vs Renting – What’s Best in the Current Market?
There’s no question that the outbreak of COVID-19 has adversely impacted the country’s economy. The repercussions of the pandemic translated to the closure of businesses, loss of jobs, stagnant manufacturing, and a high rise in unemployment. As a result, individuals have experienced rising insecurity in relation to income and long-term employment.
While at the same time, many individuals are still confused as to the best way to invest their savings. Gold prices have shot up and the stock market remains quite unpredictable. With the rise in need of security, real estate has always been the most preferred option for investment that yields good returns.
Is Buying a House Profitable Now?
Despite the fallen real estate prices in various segments, experts believe that the industry will bounce back in the next couple of years. This means prospective buyers can capitalize on the low real estate prices right now. Another factor is that after the outbreak, individuals are realizing the importance of having an owned asset as both an investment and shelter.
The idea of buying a house is safe and profitable. Investing in a property generates both income and price appreciation. The new normal of working from home has increased the demand for owning a home. Many companies are still operational via work from home and avoiding public transport. Therefore, employees are looking for affordable homes closer to their workplace.
Apart from the reasons for owning an asset and having a feeling of security, lower home loan interest rates are also persuading individuals to purchase a home. The home loan rates are at an all-time low thanks to RBI’s decision of cutting down repo rates, and even the rates of property are stable and affordable. The current time is ideal to invest in residential property and leverage the investing benefits.
Earlier in urban areas, individuals preferred to go for a rented house rather than investing in a property and locking their capital. The reasons included: lack of savings, avoiding a permanent property in a particular location, or reduction in savings. However, if you are looking for a good return on investment, then buying a property is a great idea.
4 Benefits of Buying a House in the Current Market
Buying a home or living in a rented home is a challenging decision. However, you’re assured of the following benefits when you choose to invest in a property –
1) Invest in a physical asset and build equity- By investing in a hard asset; you obtain peace of mind while also building your equity. It provides ultimate security to you by assuring a monthly cash flow if you choose to rent it out. During uncertainties, being in your home reduces cash outflow and unnecessary stress of looking for shelter.
2) Availability of ready-to-move-in property- You can buy a residential property like ready-to-move-in apartments. In modern times, you can buy a full-furnished apartment eliminating all types of market risk. The pricing of such properties is different from those that are under construction.
3) Leverage low interest rates- The increasing rental costs such as security deposits and increase in rent up to 15-20% have made the burden of home loan interest rates much cheaper. Paying a monthly rent would never increase your equity; hence the cash outflow does not contribute to wealth creation. Even if the asset appreciates, a licensee or tenant does not benefit from it. Relatively, buying a home is a preferable option.
4) Government incentives- The government always encourages individuals to buy a home by offering various incentives and tax benefits. With the enactment of RERA, the government has enhanced the security of homebuyers. The objective of the Government has been to induce first-time homebuyers with interest subsidy, reducing tax burdens, and affordable housing. Budget is the most important aspect when you think of buying a home.
So Should You Buy or Rent?
If you earn a good salary and have job security, then this the best time to invest in a residential property. Everyone wishes to have a dream home. If you were looking to buy for a long time, then you should capitalize on the lowest interest rates, subsidy, and affordable housing options.
The current macroeconomic factors and economic scenario are tempting for both first-time and second-home buyers. There has been a price correction in the real estate properties coupled with lower interest rates. Now, buyers can bargain for the best deal and buy their dream home as there are ample opportunities like ready-to-move inventory.
Ultimately, whether to buy or stay on rent depends upon your budget and financial status. If you can arrange money for a down payment and can pay your instalments comfortably, buying a home would be a wise decision. However, if you are facing a financial crunch, staying on rent would be rational.
If we consider this example where you wish to buy a property of ₹70 lakhs with a loan of ₹50 lakh at an interest rate of 6.75%-7.10% for 15 years, your EMI would be around ₹45,000. The annual outflow would be around ₹5,40,000.
But if you are staying on rent at a similar location and property, your rental yield of 4% means a rental amount of around ₹4 lakh. If the rental yield is 3%, it means a rental outflow of ₹3 lakh. This means that a rental yield of 4% means a good capital appreciation. But a rental yield of 3% or 2.5% sees no capital appreciation in the future stating that the property is overvalued.
Before buying a home, you must ensure that you buy a home that has a rental yield of more than 2.5 -3%. If not, then it is better to stay on rent.