Buying a house vs staying on rent?

We need “Roti, Kapada and Makaan” before thinking about achievement of other financial goals. The key financial goals for families currently are; Children’s education and Retirement corpus. A roof over our head is a basic necessity no doubt, but should we go for owning it or stay in a rented house? If you aspire to own an expensive house, the home loan EMI may make you poor and you may have no money left for other expenses after paying the EMI. It will be difficult to maintain a healthy balance between housing and other critical goals. The factors to consider in buying a house vs renting are;

Other costs

Besides the home loan EMI, society maintenance charges, home insurance premium, cost of interior decoration and property tax are additional burden on your expenses. All this leads to a compromising on your Key goals.

Selling may be difficult

Real estate is not a very liquid asset. It usually takes a lot of time for sellers to find a buyer and realise the value of their asset. The secondary or resale market has been hit by demonetisation and restrictions on cash transactions.

Tax benefits

It is not wise to go overboard on tax benefits. It may reduce your taxable income but, these deductions are available after project completion and have upper limits. Even vacant houses have tax incidence now on notional rent.

Lower Interest in future

The home loan interest rates are declining and may go down further as inflation moderates. Further as the supply of houses increase, the demand may moderate. With availability of Input credits under GST, the flat prices may likely to moderate.

Striking a balance on space

For small nuclear family with no children or small kid(s), one BHK may be appropriate in metros but there is tendency to opt for 2 or even 3 BHK flats. It requires higher expenses on  maid ‘s salary, electricity bill, society charges etc. It is critical to evaluate the space requirement. In general, home loan EMIs should not exceed 40% of the monthly income.

Real Estate Regulatory Authority (RERA) registered projects  

If you are interested to buy a flat, it is wise to go for a RERA registered project since consumers can approach to the Real Estate regulator for grievance redressal. No Builder can offer any sale after 31st July 2017 if they are not RERA registered. 

Plan for emergency situations

If you are intent on buying a house, build up adequate contingency fund that you can dip into in case there is some interruption in your normal cash flow. Put this amount in a liquid fund. Further take adequate health and term life insurance cover to provide added protection to your family finance.  The cash crunch can be severe it some people are dealing with multiple loans and face job insecurity.

Get ready to sell

If you are under severe stress owing to housing related payments, consider selling the house and moving into a smaller, more affordable home.

Renting a good option !

Some people think paying rent is a waste of money. But it makes more sense for prospective homebuyers to stay on rent rather than commiting to high EMIs. In the current scenario, It may be a better idea to stay on rent for the time being and invest the balance in equity with professional advice. This can allow you to build savings so that you are in a better position to afford suitable house later. The advantage of renting can be inferred from a comparative chart on buy vs rent in 12 major cities as published in ET wealth on 22nd of May, 2017

Last modified on Thursday, 22 June 2017 10:31

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

3 comments

  • Aishwarya Mishra

    posted by Aishwarya Mishra

    Friday, 23 June 2017 12:03

    Very helpful article. Everyone one should know all these points before buying a House

    Report
  • Sujata Desai

    posted by Sujata Desai

    Friday, 23 June 2017 12:00

    An eye opening article

    Report
  • Ramkrishna Padhi

    posted by Ramkrishna Padhi

    Friday, 23 June 2017 11:59

    true n helpful points..tnx for sharing

    Report

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