Renting vs Buying a House

As you build your career and think of settling down, the age-old question always comes up: do you keep renting a house or do you think of investing your monthly rent in a home loan and eventually become a homeowner? There are different schools of thought on this. The older generation prefer the stability of owning a property whereas the newer millennials prefer the simplicity and flexibility of renting a home.Let us break down the pros and cons of buying a home vs. renting a home and help you decide which suits you best.

There is no denying the fact that buying real estate is one of the best investments that you can make. You acquire a significantly priced asset and this can secure your future to an extent. Real estate prices usually keep increasing and the price of your property would increase drastically a few years down the line. But there is always a flipside to the coin. Appreciation of real estate is not given and depends on market conditions, location of the property and maintenance of property.In contrast, if you rent a house, the funds that you save can be invested in mutual funds or PPF and used to build a significant corpus.

Homeowners are eligible for a tax benefit of Rs. 1.5 lakh per annum under Section 80C and Rs. 2 lakh per annum under Section 24B . If the property has been bought under a joint home loan, the co-applicant can also enjoy tax benefits on the interest component of the loan. The above tax benefits, however, are only applicable after the complete repayment of the home loan and come into effect only when the lender hands over the property to the new homeowner.In comparison, for people renting a house, a part of their rent is tax deductible under Section 10(30A) of the IT Act due to the House Rent Allowance (HRA) of salaried individuals. The same benefit also applies to self-employed individuals or salaried individuals who do not have a separate HRA component in their salary.

When you buy a house, you incur several significant expenses. Other than the home loan down payment and the monthly EMIs, you also incur heavy costs of registration, loan processing fee, valuation charges, etc.In contrast, if you rent a home, you’re only required to pay the monthly rent and the deposit (which will be refunded on termination of the rent agreement).

Buying a house

• Much more stable option as you’re the owner and you do not have to conform to the whim and fancy of a landlord.
• An asset that is extremely useful for the future of your family, sometimes even the next few generations.
• The EMI remains fixed most of the time, so you’ll be paying the same amount throughout the loan tenure.
• Tax benefits are greater than those available when renting.

Renting a house

• Money saved from not buying a home can be invested and used to build a big corpus.
• Renting is always easier if you’re looking to live in urban locations where property prices are too high to purchase.
• Easy to relocate in case of job transfer or any other reason.
• You’re required to pay only the monthly rent and the electricity bill. No maintenance charges are incurred by tenants.

As you can see from the above points, whether you want to buy a house or rent it depends entirely on your requirements, future needs and outlook towards financial planning. If you want a simple answer, try to answer the following questions:

• Are you planning to relocate to a new city in the next 5 years?
• Use an online home loan calculator. Is the calculated EMI affordable for you?

If the answer to the first question is ‘Yes’ and the second question is ‘No’, then it is obvious that you should not buy a property since relocating is on your agenda, and renting would be more suitable. If the answer to the first question is ‘No’ and the second question is ‘Yes’, then you’re better suited to buy a home and can start planning accordingly.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.