arthayantra buy vs. rent score (abrs)

Kolkata

Hyderabad

Chennai

Mumbai

Pune

Bengaluru

Delhi

ArthaYantraA CFO FOR EVERYONE

BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Buy

Rent

VS.

CCopyright 2012Cwww.arthayantra.com

Table of Contents

C

Summary 3

1. Introduction 6

2. Methodology 7

3. Assumptions 8

4. Findings

4.1 Historical data of Real estate prices 9

4.2 Property Cost vs Rental Value 10

4.3 Down Payment 12

4.4 Area 13

4.5 Rent to Buy Ratio 14

4.6 Break Even Horizon 15

TM5 ArthaYantra Buy vs Rent Score (ABRS ) 17

6. Other Important Numbers 19

7. Conclusion 20

8. Limitations and Concerns 21

9. Appendix 22

Copyright 2012Cwww.arthayantra.com

Buying the house is perhaps the biggest and the most common dream of every

professional. Though buying a house has high emotional quotient, it is a decision that has to

be financially prudent. A wrong decision could result in excess debt and an illiquid asset.

This research paper provides a personal finance perspective to the rent vs. buy decision.

Here are some of the key findings of the research:

Property cost vs Rental Value: The Residential Property prices in Bengaluru and Delhi NCR

are not proportional to their rental value. Though the average residential property values

of Bengaluru is higher than Kolkata by 6%, the average rental value is less by nearly 32%. The

situation is similar for Delhi NCR and Mumbai. Though their average residential property

values are identical, their average rental values differ by nearly 60%.

Down payment: The years of saving required to afford the initial down payment i.e. 20% of

the property price determines how sooner one can buy a house. It takes at least 4 years to

save for the required corpus in Hyderabad and Pune. In Kolkata and Bengaluru it takes 5

years and in Chennai it is 6 years. In Mumbai and Delhi NCR a professional has to save for at

least 8 years to be able to afford the down payment amount required.

Area: The average square feet per lakh (INR) determines the amount you need to pay for

the desired area . At 26.57 sq ft per lakh, Hyderabad gives highest value for money

compared to other 6 metros. Hyderabad is followed by Pune, Kolkata, Bengaluru and

Chennai. Delhi NCR and Mumbai offer the least sq ft lakh.

Rent to Buy Ratio: The ratio compares the monthly cost of renting house to the monthly cost

of owning the same place. The ratio underlines the necessity and urgency with which the

house needs to be bought. The rent to buy ratio of 0.41 shows that the rental values in

Kolkata are higher and makes it an “immediate buy”. The ratio of 0.33 for Hyderabad and

Pune gives ownership of house an advantage over renting.

Breakeven Horizon: The annual out of pocket costs in case of renting include the monthly

rent, maintenance charges and tax. The annual out of pocket costs in case of ownership

include the monthly EMI, the maintenance charges and tax. The values have been

calculated and compared across the average loan tenure of 15 years. The year at which

the annual costs match determines the minimum stay period in the house. The minimum

stay period is 12 years for Kolkata, 14 years for Pune and Hyderabad, 15 years for Mumbai

and above 15 years for Delhi NCR, Bengaluru and Chennai. The tax benefits received

under the HRA allowance dominate the tax benefits received in case of ownership over

the period of 15years.

Summary


Copyright 2012C www.arthayantra.com Page No:3

TMArthaYantra Buy vs Rent Score (ABRS ): Our proprietary ArthaYantra Buy vs Rent Score

TM(ABRS ) not only aids in making the rent vs Buy decision but also explains the affordability

TMand need to buy or rent in a given city. ABRS considers 3 important factors: rental value,

property price and gross income of the individual.

Delhi NCR: The rent to buy ratio of 0.20 means that the average rental value of residential

property is very less compared to its higher prices. Renting is the best option.

Kolkata: The buy to rent ratio of 0.41 means that the average rental value of residential

property is high compared to the average property price. This makes Kolkata a place to

buy. The moderate prices and a decent number of sq ft lakh make it a place where in you

should buy a house as soon as you can afford it. The out of pocket costs are also in favor of th

buy with the breakeven being achieved at 12 year (fastest of the seven cities).

Mumbai: The place with highest average rental value and average property price. The rent

to buy ratio of 0.31 meant that the rental prices are moderately high and it is advisable to

buy. But the higher property prices and least number of sq ft lakh( among the seven cities)

makes it a place to rent.

Pune: The rent to buy ratio of 0.33 means that the rental prices are moderately high and it is

advisable to buy. The years required to save for down payment (4 years, least among the

seven cities) and the property prices being in a affordable range makes it the second most

affordable city.

Hyderabad: The most affordable city for a professional. The rent to buy ratio of 0.33 meant

that the rental prices are moderately high and it is advisable to buy. The years required to

save for down payment is 4 and one can get 26.57 sq ft lakh. The affordable gross salary

zone also starts from INR 10 lakh.

Bengaluru: The average residential property values of Bengaluru is higher than Kolkata by

6%, the average rental value is less by nearly 32%.A buy to rent ratio of 0.27 and moderately

high property prices makes it a place to Rent.

Chennai: The rent to buy ratio of 0.25 means that the rental prices are cheaper compared

to EMI to be paid in case of ownership. The city with third highest property price also means

that one need to save longer for the required down payment. These factors make it better

for renting.




KOLKATA

HYDERABAD

CHENNAI

BENGALURU

DELHI NCR

BUY

Buy VS. Rent

Years to accumulateDown payment (20%)

MUMBAI

8-25 L

MUMBAI 8-25 L

10-11 L8-9 L

8-12 L

8-15 L

13-15 L

16-20 L

16-25 L

21-25 L

51 10080

8-12 L 13-17 L

PUNE 8-10 L 11-12 L 13-25 L

12-25 L

18-25 L

Sq Ft per Lakh

9.19 Sq ft 19.52 Sq ft 9.19 Sq ft 18.39 Sq ft 26.57 Sq ft 13.96 Sq ft 23.39 Sq ft

Kolkata

Hyderabad

Chennai

Mumbai

Pune

Bengaluru

Delhi

Figure1: Graphical Representation of Buy Vs. Rent


TMArthayantra Buy Vs. Rent Score (ABRS )

HYDERABAD DELHI NCR CHENNAI KOLKATA BENGALURU PUNE

RENT

Gross Income

*

Buying a home is a tough decision to make and emotions cloud the decision making. Often

buying a home is given a high emotional weightage by family, friends and society at large.

People associate the advantages of housing security, physical asset creation and property

appreciation with home ownership. Renting is associated with expenditure. However,

renting gives flexible lifestyle options, high level of mobility and is easy on the purse when

compared to the Home loan EMI.

From a personal finance perspective there is always a tussle between buying a home and

renting it. Is it prudent to buy? Is there an upside to taking a place on rent? How the lifestyle is

going to be affected? What is the impact of the locality chosen? This research paper tries

to objectively address the major factors which impact the decision of buying or renting.

The common assumption that the residential property always appreciates is inconsistent.

The appreciation of a residential property is dependent on several factors. So one can't

actually determine the rate at which the residential property is going to appreciate or

depreciate. A school of thought supporting the rent argument says the amount invested in

a home when invested well in capital markets for the common horizon of 15 years could

yield the same or better rewards. The real estate market scenario is similar to that of equity

markets because it is unpredictable.

The other common assumption held is buying a home eventually results in increased tax

savings. But the fact that the EMI payments accounting for principal payment of home

loan come under the same section as Provident fund and required risk cover for self and

family, one can't enjoy major tax benefits beyond 1.2 lakh stipulated in section 80C. The tax

benefits received under section 24B i.e. the interest payments made towards house loan

can be matched up with house rent allowance in case of renting. So a professional

shouldn't base the decision of buying a house on the tax savings he/she is going to receive.

So eventually, the three factors which play a predominant role in making the decision are:

Current Property price which determines the EMI to be paid, current monthly Rental value

and the current gross income. Monthly rent or the EMI being paid shouldn't end up

consuming most of the salary which in turn affects the lifestyle. It is not a good financial

decision to buy if the rental value is low compared to the EMI to be paid in case of

ownership.

As a part of this research we aim to provide a quantitative answer to the question of buying

vs. renting a home. We analyzed the costs associated with owning a house and renting a

house across seven major cities of India: Delhi NCR, Pune, Mumbai, Hyderabad, Bengaluru,

Kolkata and Chennai.

1. Introduction

Copyright 2012


C www.arthayantra.com Page No:6

Property prices and rental prices of various residential properties were collected from

multiple data sources to generate the primary and secondary data for the analysis. The

public data sources including the data by National Housing Board (NHB) of India, data

from various real estate reports and data from major real estate aggregations is collated.

The primary research has been performed by collating information from over 100 real

estate agents across the cities considered.

The methodology used for arriving at results considers various key parameters derived from

the initial data collected: Price of the residential property and their rental value. Various

important factors like the years of saving required for a professional to accumulate the

corpus for down payment and the number of square feet per lakh are derived from the

average property price.

The main idea behind this research was to quantify the buy vs. rent decision from a personal

finance perspective. The factors which drive the decision are: how much more money

does a professional need to shell out for buying a home compared to renting it? Can the

professional afford this additional amount? Our proprietary ArthaYantra Buy vs. Rent Score TM(ABRS ) tries to address these questions and come up with a comprehensive scoring

system. The scoring system not only tells whether it's better to buy or rent but also tells

whether it's affordable to buy or rent.

Factors associated with buying a house Factors associated with renting a house

Down payment for home loan Security Deposit

No. of Years required to save for down payment

Monthly Rent

EMI on home loan Yearly increase in rent

Monthly property maintenance charges Monthly property maintenance charges

Annual repairs Income tax savings under HRA exemption

Annual property tax

Income tax savings under section 80c and 24 b

Table 1: Factors associated with home ownership and renting

2. Methodology



The sale price of 1000 sq ft area ready to occupy homes for sale is considered.

The rental value of 1000 sq ft area ready to occupy homes for rent is considered.

20% of the cost of the house is considered as the required down payment to buy a

house.

The loan tenure is 15 years.

The lending rate for the loan is 10.50%.

Average savings rate is 25%.

The minimum gross income required to buy a house is calculated by considering

50%of monthly take home salary= Monthly EMI to be paid.

The gross income of the professional increases 10% annually.

1.5% of the property value is considered as the property tax to be paid.

10% annual increase in rent is considered.

Considering real estate as an asset class having same properties of other asset

classes.

The ownership/buy case considered is for self occupancy.

3. Assumptions



4.1 Historical data of Real estate prices

National Housing Board India's Residential Index (NHB Residex) tracks the movement of

prices in the residential housing segment across India. Figure 1 shows the historical NHB

Residex values since its inception in 2007.

Chennai has recorded the highest raise in the index value by 209%. Pune followed up with

100%, Kolkata and Mumbai with 96% and 97% respectively. Delhi NCR's index was up by

72%. The index value of Bengaluru recovered steadily from its dip in 2009 and recorded a

0% increase. The current index value of Hyderabad recorded a 15% decline compared to

its base year, resulting in cheaper residential properties compared to those in 2007. It is

evident that each of the cities has different real estate market and different expectations

from real estate. The effort is to identify the places that are most affordable for a

professional, given the current scenario.

It is important to look at these graphs to get only a high level perspective of the general

movement in real estate in each of the cities. We delve into each city's prospect in the later

sections. The relative nature of the index hides many interesting facts.

4. Findings

NHB Residex

Increase in Index Value

Neutral in Index Value

Decrease In Index Value

National Housing Board India Residentional Index(NHB Residex).

Delhi NCR

Kolkata

Mumbai

Pune

Hyderabad

Bengaluru

Chennai

172

196

197

200

85

100

309

2007 Q2 2012

100

100

100

100

100

100

100

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)



4.2 Property cost Vs. Rental Value

The most important thing that stands out while assessing the current residential property

prices and NHB Residex is the base effect. Chennai's property prices (INR 7,161,591) as per

NHB Residex have grown three fold but still remain less than that of Delhi NCR (INR

10,882,500) and Mumbai (INR 10,931,885). Pune whose property prices (INR 4,276,071)

doubled as per NHB Residex are identical with that of Hyderabad (INR 3,764,188) which

recorded a 15% decline in its index value. This means that the property prices of Chennai

and Pune in the base year 2007 were less compared to other cities.

The most important factor that stands out from the rental value of the properties across the

seven cities is the anomaly of the property values not proportional to the corresponding

rental values. Kolkata's average property price (INR 5,123,000) is less than that of Bengaluru

(INR 5,437,500) by 6%. But the Average rental value of Kolkata (INR 17,833) is higher than

that of Bengaluru (INR 12,125) by nearly 32%. The same case has been observed with Delhi

NCR and Mumbai. Though their average residential property values are identical, the

average rental value of Mumbai (INR 28,830) is higher than that of Delhi NCR (INR 18,137) by

60%.

Comparisons of Average Rents and Average Property Prices

Average Property Prices Average Rental Value

1000 Sq Ft Ready To Occupy Residential Apartment

The graph compares the property price and rental value of 1000 sq ft ready to occupy

house across seven major cities of India. The bar graph depicts the average property price

in the city and the line graph depicts the average rental value in the city.

Figure 3: Average property price and rental values across seven major cities of India

(Rs. 10,438)(Rs. 12,000)

(Rs. 17,833)

(Rs. 12,125)

(Rs. 14,955)

(Rs. 18,137) (Rs. 28,830)

(Rs. 10,931,885)(Rs. 10,882,500)(Rs. 7,161,591)(Rs. 5,437,500)(Rs. 5,123,000)(Rs. 4,276,071)(Rs. 3,764,188)



NCR

Benga

luru

CITIES Affordability to Buy Rank Affordability to Rent Rank

HYDERABAD 1 1

PUNE 2 2

KOLKATA 3 5

BENGALURU 4 3

CHENNAI 5 4

DELHI NCR 6 6

MUMBAI 7 7

*On a scale of 1 to 7 with 1 being most affordable and 7 being least affordable based on the average property prices.

Table 2: City wise ranking based on the affordability to rent and buy

The above table shows the affordability to rent rank and the affordability to buy rank based

on the average property prices and average rental values across the seven major cities of

India. Hyderabad stands out as the most affordable place for a professional to rent as well

as buy. Mumbai stands out as the least affordable place in both scenarios. Pune is the

second most affordable place and Delhi NCR is the second least affordable place. The rank

of affordability to Rent matches with the rank of affordability to buy in the case of above

mentioned 4 cities. This means that the high/low property prices of the 4 cities are translated

to their relative rental prices.

rd thBengaluru ranks 3 on the affordability to rent where as it ranks 4 on affordability to buy. th thChennai ranks 4 on the affordability to rent where as it ranks 5 on affordability to buy.

th rdKolkata ranks 5 on the affordability to rent where as it ranks 3 on affordability to buy. This

means that the average property price in Kolkata is less than that of Bengaluru and

Chennai but the rental value is higher. This signifies the fact that people of different cities

have different expectations from their real estate markets.



The average property prices translate to the number of years professional needs to save for

the required corpus for down payment. Based on the above stated assumption and

average property prices a professional can afford the down payment required in

Hyderabad and Pune in 4 years.

In Kolkata and Bengaluru a professional has to save for 5 years and in Chennai a

professional has to for 6 years. In Mumbai and Delhi NCR, a professional has to save for at

least 8 years to be able to afford the down payment. A professional from Hyderabad and

Pune needs to save two fold to be able to buy a house in Mumbai and Delhi NCR.

Gross Income : 8 Lakhs Saving Rate : 25% Per annum

Figure 4: Years to save money for downpayment

(8 Years)

(8 Years)

(6 years)

(5 Years)

(5 years)

(4 years)

(4 years)

A critical decision in purchasing a home is the down payment required. It is often a

substantial amount of money . Assuming a 20% of property price as the down payment and

a saving rate of 25% for a professional with a gross income of 8 lakhs, based on the current

average property prices, the time required to save the corpus determines how sooner one

can afford to buy a home. Figure 4 shows the graphical representation of the same.

4.3 Down payment



Years to save money for downpayment

NCR

Bengaluru

Based on the average property prices

Figure 5: Average no. of sq ft per INR 1lakh across seven major cities of India

Mumbai, the costliest city to buy a home out of the seven cities considered, offers the least

space of 9.15 sq ft per lakh. Delhi NCR is the second costliest city offering a living space of

9.19 sq ft per lakh, which is only 0.04 sq ft more than Mumbai. Hyderabad, being the

cheapest city to buy a home out of the seven cities considered offers the largest living area

of 26.57 sq ft per lakh. This means that a professional who wants to own a home in Mumbai

and Delhi NCR has to spend 3 times more than what he spends in Hyderabad for the same

no of sq ft.

Pune is the next cheapest city to buy a home in. It provides a residential space of 23.39 sq ft

per lakh. A professional from Mumbai and Delhi NCR will get 2 and a half times more area in

Pune for lakh. Kolkata offers the third largest living space of 19.52 sq ft per lakh. Bengaluru

and Chennai come in next at 18.39 sq ft and 13.96 sq ft per lakh respectively.

(Sq ft 9.15)

(Sq ft 9.19)

(Sq ft 13.96)

(Sq ft 18.39)

(Sq ft 19.52)

(Sq ft 23.39)

(Sq ft 26.57)

The area of residential occupancy is an important aspect of life style. It determines the size

of the home that is provided for the family. Figure 5 compares the average number of sq ft

that can be bought for 1 lakh rupees across the seven cities.

4.4 Area



Average sqft per 1 lakh(INR)

NCR

Bengaluru

CITIES Average out of Pocket Cost

(Ren�ng the house)(INR)

Average out of Pocket Cost

(Owning the house)(INR)

Rent yo Buy Ra�o(Ren�ng the house)/(Owning

the house)

Urgency to

buy rank

DELHI NCR 19,137 97,236 20% 7

KOLKATA 18,833 46,304 41% 1

MUMBAI 29,830 97,673 31% 4

PUNE 13,000 38,814 33% 2

HYDERABAD 11,438 34,288 33% 3

BENGALURU 13,125 48,085 27% 5

CHENNAI 15,955 64,331 25% 6

*On a scale of 1 to 7 based on the monthly cost of renting and monthly cost of buying with 1 means buy as soon as

possible and 7 means renting is better than buying.

As per the values mentioned in Table 3,Delhi NCR has the least rent to buy ratio value which

means that the renting is nearly 80% cheaper compared to buying a house based on the

monthly charges one bares in both the cases. Kolkata scores highest making the decision

to buy easier once in a position to afford the EMI payments and required down payment.

The rent to buy ratio of 0.33 in Hyderabad and the least average out of pocket cost in case

of owing house (INR 34,288) means that the buying is a better option in Hyderabad. Though

Mumbai has a ratio value of 0.31 which meant that the buying is better option, high

average out of pocket cost in case of owning (INR 97,673) meant that affordability is a

major stumbling block.

Table 3

The rent to buy ratio explains the additional monthly payments to be paid in case of

ownership compared to renting. The ratio also helps in understanding whether the property

prices are being translated to the rental value or not. The ratio is calculated based on the

average monthly cost of renting (rental + maintenance) and average monthly cost of

ownership (EMI + Maintenance).

4.5 Rent to Buy Ratio



Ignoring the price escalations of the residential property, one important question to be

answered is the breakeven horizon i.e. how long a new home buyer would have to own the

home to justify the decision of buying instead of renting in financial sense. Figure 5 shows

the graphs of the annual out pocket costs incurred in case of ownership and renting based

on the average property prices and average rental prices across the seven cities. The

annual out of pocket cost in case of renting include the annual amount paid towards the

rent, the annual maintenance charges and the amount of income tax. The annual out of

pocket cost in case of ownership include the annual amount paid towards the EMI of the

house loan, annual maintenance charges and the amount of income tax .

The income tax being paid is considered in calculations because most of the professionals

feel buying a home is good for their tax savings. The idea is to compare the tax benefits

received in case of buying a home and renting the home. The payments made towards

the principal amount of the home loan are considered under section 80C. The payments

made towards interest on home loan are considered under section 24b. In case of renting

one can claim tax benefits under house rent allowance.

The provident fund received and required risk coverage for self and family also come

under section 80C. These items do fill up most of the 80C part. Out of the EMI payments

being made, in the initial years most of the amount accounts for interest payments rather

than the principal amount. By the time the payment towards principal increases, one can

also expect the salary of the professional to increase in turn increasing the Provident fund

being received. So, the tax benefit under section 80C in case of ownership doesn't actually

add much of advantage.

4.6 Break Even Horizon





No. of years

6 8 10 12 14 16 18

Though the tax benefits in case of ownership are higher during the initial years, renting the

same place gives better tax benefits over the next few years. The benefits of renting are

higher especially in the regions where the costs of ownership and renting don't match up

during the average loan tenure of 15 years. The breakeven year i.e. the year at which the

annual cost of owning house is equal to the annual cost of renting the same place is

calculated over the average loan tenure i.e 15 years. The cost of ownership and renting

matchup in Kolkata happens after 12 years. The costs matchup happens approximately th

after 14years in Pune and Hyderabad and at 15 year in Mumbai. The costs don't matchup

in the case of Delhi NCR, Bengaluru and Chennai. The planned length of stay in the house

becomes an important aspect in deciding whether to buy or rent especially for a first time

home buyer. With the current average stay around 7 years. most of the house owners might

not see a break even point.

Figure 6: Break Even Horizon for seven major cities of India

Based out of pocket expenses for owning a home v/s renting a home

Break Even Horizon Buy Vs. Rent (years)

(12)

(16)

(15)

(14)

(14)

(16)

(16)

Current Average stay 7 years

NCR

Bengaluru

There are multiple factors to be considered during the decision to buy or rent a place. The

factors include property price, EMI's, corpus required for down payment, rental value,

security deposit to be paid for renting a house, expected duration of stay etc. These

parameters though important cannot individually serve as a single reference point for

making an unbiased and objective decision on whether to buy or rent. Currently most of

the people look at the appreciation of property price and comparison of the rental value

and property prices are given major priority in the decision making process. This approach is

flawed. The appreciation of the property value can't be determined provided the fact that

the movement of real estate prices is unpredictable. It's not necessary that the property

prices translate to rental values. Even the lending rate on house loan differs from individual

to individual. So considering EMI to be paid instead of property cost in comparison with the

rental value gives a clear picture.

ArthaYantra developed a proprietary composite score called ArthaYantra Buy vs. Rent

Score (ABRS to objectively address the buy vs. rent argument. ABRS is an effort to TM TM)

seamlessly integrate a consumers concern vis-a-vis ability to afford buying and renting and

the reason why one should own a house instead of renting. The monthly rent value to EMI

comparison in turn defines the duration of stay in the house. Most of the costly personal

financial decisions made by the consumers during this period either involve buying

something they could not afford, EMI's that are too high or living beyond the means. ABRS TM

is an effort to suggest the best recommended action given the rental value, EMI to be paid

and the gross income.

As a part of this research report we have calculated the ABRS score across different salary TM

ranges based on the average property prices and rental values of the cities. In this

research, the scope of the scoring system is confined to rental value and price of the

corresponding property of the same region. It can be extended to compare the rental

value of one region with property prices of a different region. This makes ABRS a powerful TM

tool to logically gauze the pros and cons of renting and buying a house.

5. ArthaYantra Buy vs Rent Score (ABRS)

Score Recommended Ac�on

100 Buy (Rents are very high)

90 Buy (Rents are high)

87.5 Buy/Neutral. But it is recommended to buy as rents are very high

77.5 Buy/Neutral (Can afford both ownership and rent )

80 Can afford both ownership and Renting but because of

low Rent to Ownership Rent is recommended.

75 It is Advisable to buy but EMI can't be afforded. Have to Rent.

67.5 Rent/Neutral (Can afford both ownership and rent but rent/EMI ratio is low)

55 Can afford to Rent but can't afford to Buy.

50 Can't afford both ownership and renting

Table 4: ArthaYantra Buy vs. Rent Score Explanation



Gross Income/ Cities

Delhi NCR Kolkata Mumbai Pune Hyderabad Bengaluru Chennai

8 Lakhs 55 75 65 65 65 55 55

10 Lakhs 55 75 65 65 77.5 55 55

12 Lakhs 55 75 65 77.5 90 55 55

15 Lakhs 55 87.5 65 90 90 67.5 55

20 Lakhs 55 100 65 90 90 80 67.5

25 Lakhs 55 100 65 90 90 80 80

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across seven major cities of India.

Delhi NCR: The low rental values compared to high property prices makes it a place where

renting can be easily afforded and the EMI associated with home loan in high. It is advisable

to rent for a professional with a salary range of 8 – 25 lakhs

Kolkata: The ABRS score of 75 for a salary range of 8-12 lakhs signifies the fact the rental

value is critically high but a professional in the salary range can't afford to buy. A

professional whose salary range is between 13 – 25 lakhs is better off owning a home than

renting it.

Mumbai: The score of 65 signifies that though the rents are high, it is advisable to rent

because the property prices are also high. The EMI payments to be made in case of

ownership are not affordable.

Pune: For a professional with a salary range of 8- 11 lakhs in Pune, it is advisable to rent. A

professional with a salary of 12- 15 lakhs falls in the neutral zone i.e. he can afford to buy and

it is advisable to buy but have to make few adjustments to the current lifestyle in order to

afford the additional amount for EMI payments. Professionals with a salary range more than

15 lakhs are advised to buy.

Hyderabad: For a professional with a salary range of 8- 9 lakhs in Hyderabad, it is advisable

to rent. A professional with a salary of 10- 11 lakhs falls in the neutral zone i.e. he can afford to

buy and it is advisable to buy but have to make few adjustments to the current lifestyle in

order to afford the additional amount for EMI payments. Professionals with a salary range

more than 12 lakhs are advised to buy.

Bengaluru: The score of 55 for a professional with a salary range of 8-14 lakhs signifies that the

monthly cost of renting is cheaper than that of buying by more than 70%. The low rental

prices also mean that though a professional with a salary more than 15 lakhs can afford to

buy a house, renting is a better option.

Chennai: The score of 55 for a professional with a salary range of 8-19 lakhs signifies that the

monthly cost of renting is cheaper than that of buying by more than 70%. The low rental

prices also mean that though a professional with a salary more than 20 lakhs can afford to

buy a house, renting is a better option.



*Ini�al corpus required for owning = 20% of the Average property price (down payment for house loan)**Ini�al corpus required for ren�ng= Amount equivalent to 10 months of rental value (Hyderabad which is 3 months)*** Average out of pocket cost(Ren�ng the house) / Average out of pocket cost (Owning the house)The gross income of 8 lakhs per annum is considered.

6. Other important numbers

Table 6 : Other important numbers

Delhi NCRCities Kolkata Hyderabad Bengaluru Chennai

5 years growth of NHB residex

72% 96% -15% 0% 209%

Initial Corpus required

for owning*(INR)

2,176,500

1,024,600

752,838

1,087,500

1,432,318

No.of Years to save for the corpus

8

5

4

5

6

Average No.of sq.ft per INR 1lakh

9.19

19.52

26.57

18.39

13.96

Initial

corpus required for renting**

181,370

178,333

31,313

121,250

149,550

0.20

0.41

0.33

0.27

0.25

Break Even year

15+

12

Pune

100%

855,214

4

23.39

120,000

0.33

14

Mumbai

97%

2,186,377

8

9.15

245,660

0.31

15

14

15+

15+



Rent tobuy ratio

Based on the current real estate markets, Hyderabad and Pune are the best places to own

a house. The property prices and rental values in these two cities are low, thus making them

the most affordable places for a professional to rent or own a house. The larger residential

spaces offered by Hyderabad and Pune provide a better lifestyle option. The real estate

market of Kolkata favors the home owners because of its moderate property prices and

high rental value. Though the moderate property prices of Chennai and Bengaluru make a

strong case of ownership for professionals with higher salaries, the low rental values make

renting a better option. The high property prices and low rental values of Delhi NCR make

the decision to rent easier. Mumbai is the least affordable city for a professional because of

its high property prices and rental values.

The research addresses the fact that Buy vs. rent decision has a huge impact on the

personal finance of a professional. Buying a home is an integral part of every one's dream.

But a very calculated and merit based judgment is needed before taking the decision to

own the house. It is important to assess both home for rent as well as homes for sale columns

of real estate homes classifieds column before making a decision. The comprehensive TMArthaYantra Buy vs. Rent Score (ABRS ) suggests the decision a professional should take

across the seven major cities of India based on the current rental values, property prices

and the salary. If a professional finds himself in the rent zone as per the ABRS but still wants to

buy a house, one has to make sure that his/her Emotional Premium attached with buying a

house is going to match the EMI premium being paid.

7. Conclusion



The data is related to following localities of the Seven cities:

Delhi NCR: Golf course Road, Sohna Road, Golf course extension Road, Noida – Greater

Noida Express Highway, Noida City, Indirapuram, SafdarGunj Enclave, Rohini Sec – 13,

Delhi East, Delhi South, Vasant Kunj.

Kolkata: Alipore, PA Shah Road, EM bypass, Lake town, Behala,Howrah, Jodhpur Park, Jadavpur, Salt Lake City.

Pune: Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri – Chinchwad,Kothrud.

Mumbai: Lower Parel, Wadala, Andheri, Ghatkopar, Ghodbunder Road, Kharghar,

Chembur, Borivali West, Bhandup West, Mira Road, Kalyan, Virar, Pokaran Road.

Hyderabad: Banjara Hills, Begumpet, Kondapur, Tellapur, Kukatpally, Miyapur, Rajendra

Nagar, L.B Nagar.

Bengaluru: Old Madras Road, Indira Nagar, Bellary Road, Hosur Road, Whitefield, Tumkur

Road, Kanakapur Road, Mysore Road.

Chennai: Adyar, Medavakkam, Tambaram, Anna Nagar, Porur, Sholinganallur, Perambur,

Kolathur, Chetpet, Ashok Nagar, Chromepet.

The property tax to be paid is considered as 1.5% of the property value. The property tax

calculation reforms need some stringent reforms to regulate the process. In most places

the value is calculated based on the rental value. The rental values being shown in the

related local governing bodies website varies from the actual rental prices.

The tax benefits received under section 80C is considered as INR 1.2 lakh both in the case of

house ownership and renting.

8. Limitations and Concerns:



9. Appendix

FIGURES:

Figure1: Graphical Representation of Buy Vs. Rent

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)

Figure 3: Average property price and rental values across seven major cities of India

Figure 4: No. of years required to save the corpus for down payment across seven major cities

of India

Figure 5: Average no. of sq ft per INR 1lakh across seven major cities of India

Figure 6: Break even horizon for the seven major cities of India

TABLE:

Table 1: Factors associated with home ownership and renting

Table 2: City wise ranking based on the affordability to rent and buy

Table 3: Rent to Buy ratio and Urgency to buy rank of seven major cities across India

Table 4: ArthaYantra Buy vs. Rent Score Explanation

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across seven major cities of

India.

Table 6 : Other important numbers

SOURCES:



National Housing Board, India: www.nhb.org.in

Jones Lang LaSalle: www.joneslanglasalle.co.in

Makaan: www.makaan.com

Magic Bricks: www.magicbricks.com

Multiple Primary sources (100+)



ArthaYantra is a young and innovative company started by a group of alumni of the Indian School of Business (ISB) Hyderabad. It provides integrated personal finance services using its unique

TMproprietary framework, Personal Financial Lifecycle Management (PFLM) , which helps clients achieve their financial goals. ArthaYantra's vision is to provide independent, high quality, customized financial planning solutions and their efficient execution to individuals. It employs proprietary financial models and enable investments through well balanced passive investment strategies. ArthaYantra's clientele includes individuals from India, US, Europe and Middle East.

For more information on this report please contact ArthaYantra Corporation Pvt. Ltd. visit us online: or Write to : [email protected] www.arthayantra.com

Website: www.arthayantra.com

: h�p://twi�er.com/arthayantra

: h�p://www.facebook.com/arthayantra

:h�p://www.linkedin.com/company/artha‐yantra

Our Mission To positively impact the future of our customers & their families.

ArthaYantraA CFO FOR EVERYONE

Plot #319, Second Floor, Ayyappa Society, Madhapur, Hyderabad - 500081, AP, India.

Phone : +91- 040-66245874, Fax : +91-040-66245. www.arthayantra.com, [email protected]

arthayantra buy vs. rent score (abrs)

Documents