Growing urbanisation and the rapid influx of people to metros and tech hubs for work and living has brought about a significant rise in rental and capital values in key metro cities across India.
This has again ignited the age-old debate on whether one should buy a property or continue staying on rent. The dynamics of each option – renting versus buying – however, is unique for each individual.
Incidentally, the latest data by Anarock Research, between the end of 2021 and the first half of 2024, shows that rental and capital appreciation trends vary significantly across India’s top seven cities. Here are the findings.
Cities Where Rentals Outpaced Capital Appreciation
In several cities, the rental values have surged faster than property prices, indicating that the cost of renting could eventually outweigh the benefits of delaying a property purchase.
Bengaluru: The city’s tech hub, Sarjapur Road, saw a 67 per cent increase in rental value, while capital values rose by 54 per cent. Similarly, at Thannisandra Main Road, rentals increased by 56 per cent with capital values trailing at 52 per cent. If one goes by the numbers, the data suggests that tenants in these markets may see their rental cost rise significantly in the coming years, reducing the financial benefit of staying on rent.
Pune: Hinjewadi, another tech-hub, experienced a 52 per cent surge in rentals compared to a 31 per cent rise in capital values. In Wagholi, the gap is even sharp, with rentals rising 60 per cent while property prices only grew by 30 per cent. These numbers show a clear trend: the longer you stay as a tenant in these areas, the higher your long-term cost would be, making homeownership an attractive proposition.
Chennai And Kolkata: Chennai’s Pallavaram and nearby areas saw rental value surge by 40 and 33 per cent, respectively, while capital was recorded at only 18 per cent. Similarly, in Kolkata’s EM Bypass, rentals surged by 46 per cent, while capital values grew by only 15 per cent.
The housing trend in these markets indicates that for individuals looking to settle down in the long horizon, buying a property might be a more prudent option, as continued rental increases could offset the financial situation in the long run.
Cities Where Capital Values Surpassed Rental Growth
In contrast with the above-mentioned cities, regions like the Delhi National Capital Region (Delhi-NCR), Mumbai Metropolitan Region (MMR), and Hyderabad saw capital values increase faster than rental values.
Delhi NCR: In Noida’s Sector 150, while rental values grew by 56 per cent, the capital values spiked by 126 per cent. Sohna Road saw rental values rise by 40 per cent in the same period, while capital values jumped by 54 per cent. On the surface, the data indicates that if you bought a property in these areas in 2021, your capital gains would have far exceeded any rental savings you might have enjoyed by staying as a tenant.
Hyderabad: HITECH City and Gachibowli are prime examples where property investment has paid off more than renting. Capital values in HITECH City grew by 59 per cent, while rentals rose by 46 per cent. In Gachibowli, capital appreciation outweighed rental increases by 70 per cent versus 50 per cent.
MMR: Mumbai’s Chembur and Mulund areas saw capital values grow at a slightly faster rate than rental values. Chembur saw a 39 per cent rise in capital values compared to 38 per cent lift in rents, while Mulund saw a 36 per cent growth in property values against a 26 per cent rise in rent.
Rent v/s EMI: Financial Implications Of Choosing Either
Though the data above is pertinent, it is not the sole factor that should influence one to conclude a rent versus buy decision. Buying or renting a house are choices that majorly depend on individual choices.
Let’s consider an individual paying Rs 50,000 per month as rent for a 2 BHK flat in Bengaluru worth Rs 1.2 crore. Over a year, the person would have spent Rs 5 lakh on rent. If the rent appreciates by 7 per cent annually, the total outgo over the 10 years would be around Rs 83 lakh, which is nearly 69 paper cent of the property’s current value. This money spent entirely on rent does not build any equity or investment value.
On the other hand, if the individual chooses to buy the property, makes a 20 per cent downpayment of Rs 24 lakh, and takes a 10-year home loan at, say, a rate of 9.5 per cent per annum for the balance, the equated monthly instalment (EMI) on the loan would come to Rs 1.04 lakh. At the end of the tenure, he would have not only have paid off the loan, but also have owned an asset that is likely to have appreciated in capital value, based on current trends.
While the example above points to the financial benefits of buying in some cities, the decision to rent or buy is not purely mathematical. There can be many underlying conditions in the latter scenario which may not work out for different individuals. Such as:
- Not everybody has the required liquid money to afford the upfront down payment to buy a property
- With varied incomes, an EMI that is in lakhs would not be everybody’s cup of tea. The individual must calculate their living expenses, such as food, other mandatory expenses, such as child’s education, existing liabilities, insurance premiums, transport, emergency funds, and discretionary spends, barring the EMI amount.
- Young professionals who are uncertain about long-term career plans may find more flexibility in staying on rent rather than buy a property in the city where they are currently employed.
Renting v/s Homeownership: Make Your Own Choice
Says Prashant Thakur, regional director and head – Anarock Group: “Not every individual who migrates to a certain city for job opportunities intends to put down permanent roots there. Others may be drawn to the city’s urban ethos and decide to make it their home, while yet others may perceive value in investing in a property there regardless of whether they will settle down there or not.”
The merit of investment alone cannot play a big role when weighing the pros and cons of renting versus buying a home. However, Thakur adds that current trends indicate that the security of owning a physical asset cannot be discounted.
“This trend came strongly to the fore during the coronavirus pandemic when more Indians – including the rent-favouring millennials – took a hard look at what they could fall back on when things go south.”
Ultimately, the decision comes down to a mix of individual circumstances such as job stability, financial capacity, family needs, and an understanding of local market dynamics.
So, before making any permanent decision that can impact your financial situation in the long run, evaluate specific situations, market trends, and what benefits weigh more for you – the flexibility of renting or the security of homeownership.
