There are numerous reasons for investing in property in India. There are people who purchase houses because it is their dream to own one. There are others whose buy flats/houses with the sole purpose of investment and profitability. There are others who create future residential/investment opportunities for their families.
Even though reasons can be many, there is a nagging question among the property buyers which eats into their conscience in the dead of the night- Given the resources being available for both, which is better- buying or is renting?
The question is academic. (Some say it is only second to age old conundrum: Which came first, chicken or the egg? Which-by the way-some scientists claim to have solved). However this is not as complex and can be answered in the form of a framework. This framework has individual variables varying from person to person and hence the answers would differ too.
Rent or Purchase?
Assume you have landed a job in Microsoft and have moved to Hyderabad. Even though the city is not your home, but the pay is good and food even better. For the first couple of years you live on rent and then hear your co-workers talking about the EMI on their home loans from time to time.
You figure that the amount you pay as rent is only slightly lesser than/or equal to the amount you would have to pay as your EMI. You do the maths and talk to banks and verify that what you had been thinking indeed is true. You immediately start looking for apartments for sale in Hyderabad. But there is a nagging thought at the back of your head telling you that maybe you should stall.
The Reasons to Stall
Ideally, you should take time to contemplate on the need. Most of the buyers make purchases based on their ability to pay and do not take into account all the inherent reasons of the purchase. Most people do not/cannot purchase two or three houses in one go. There are those who do invest in numerous real estate projects, but they do it objectively, only to make profits.
First of all, rentals are always lesser than the costs of purchasing a house. Most of the times, a buyer does not factor in the long term borrowing costs. These costs can increase the overall cost of purchase.
Many times, the EMIs are subject to revision and change. This is evident in case of floating rates which are in turn subject to market risks. Such changes occur due to the shift in the market dynamics. Hence just because you find the EMIs to be favorable at present does not mean that they would remain so in future.
What if 10 years down the line you find better opportunities in another city? If you have already made such a big investment, moving to another city is difficult. Selling may not be the solution. What if the realty market of your current location is experiencing a slowdown? Would you be able to sustain the price differential? What about the moving costs and opportunity costs?
Someone who has spent ten to fifteen years in a city and is sure about his/her prospects should opt for a purchase (all other factors being equal).
For a neo professional, renting a house in a city is considered to be a good option for the first 10 years. Only once a certainty is established in the mind of a buyer should he/she opt for a purchase.