Rent or buy? What should be the preference?
According to a survey conducted by real estate company Jones Lang LaSalle
(JLL), 91% respondents expressed a desire to buy a home over living on rent. The response is largely expected but the rationality of this choice is now being questioned by many.
Real estate is the most valued asset among Indians, the desire to buy a property for ourselves someday has been etched in our culture. However, as millennials and other new generations grow into taking control of their finances and exploring the pros and cons of every financial decision they are faced with, the concept of owning a home is gradually losing popularity.
As homeowners put forth the argument that buying homes may build equity and credit for the future, renters are quick to contradict it with valid points about the hefty money and savings required for home loan approvals upfront. Similarly, as renters argue in favor of the mobility offered by renting homes rather than buying, homeowners quickly refute it by rightly pointing out the volatility of the rental market and defenselessness of renters against landlords.
Declaring a winner in this debate appears to be an uphill battle which is why if you wish to arrive at the decision that is fit for your circumstances, read on to understand the advantages of both choices.
Benefits of home ownership over renting
No landlords with stringent demands
Owing a home allows you to break free from being under the control of a landlord and gives you the chance to make decisions for your property as you see fit. This is a highly favorable outcome as being at the mercy of a landlord means that even minor repairs for electricity and water supply to be approved and made by them.
No accommodation uncertainty
Being a renter means to always be on guard against untimely, and even unfair, terminations. If you are a homeowner, you need not worry incessantly about the chance of contract dissolution and the possibility of having to find immediate shelter.
Increased affordability
Buying a house today is not the distant dream it once was thanks to the range of easy financing options available. Home loans are now easily acquired by people with a steady source of income, these loans have long tenures (10-20 years) thus, easily affordable EMIs.
Tax benefits on home loans
Home loans offer attractive tax deductions that cannot be availed when renting property. Section 80C of the Income Tax Act offers tax benefits of up to Rs. 1.5 lakhs on the repayment of the borrowed amount and Section 24(b) offers deductions of up to Rs. 2 lakhs on the interest that is to be paid on top of the loaned amount.
Buying a home guarantees property safety
When taking out a loan for property purchases, banks fulfill their due diligence and carefully check the property. This involves review of the real estate documentation, permit and builder checks, as well as its involvement in any legal disputes.
If your loan is approved, you know that the property is safe to buy. This security is not offered when renting a home.
Benefits of renting over home ownership
No maintenance and repair costs
One of the biggest advantages of renting is that you do not have to spend money on maintenance and repair, your landlord is responsible for it all. It does not matter if the inconvenience is as small as a tap leak or as big as a hole in the wall, the renter is not required to foot the bill of any renovation.
This convenience is not available to homeowners who have to shell out money for all
repair work irrespective of the priciness.
No unexpected expenses
Renters have a fixed rent; this may be subject to increase at the wish of the landlord
but not without notice, allowing the occupant to budget accordingly. If the increase in rent is unaffordable the renter is also free to find new accommodation as soon as the lease is up.
Unrivalled mobility
Renters have accommodation flexibility that buyers cannot match as they are always
restricted by their budget and affordability when looking to relocate.
For instance, living in even the most expensive cities like Mumbai may not be
possible for homeowners, but renters can easily find affordable options and relocate
as they wish to.
No real estate taxes
Property taxes vary from country to country, but they remain a great burden that eats into buyers’ savings and disposable income. These taxes are largely dependent on the age of the property, making buying new developments far more expensive than anticipated.
These costs are easily avoided by renters whose landlords handle the property tax.
No up-front costs
When renters are moving into a new house, they are required to pay a security deposit, typically worth the rent of two months according to Live Mint, which is either offset against future rent or returned once the occupant moves out.
This security deposit is significantly less than the down payment that has to be made when buying a house and can be a more a favorable route for those who do not have the money to make such a large deposit.
So how do I decide on my preference?
The points above make great arguments for both sides of the coin which is why one can only make the right decision for themselves after they reflect on their own financial circumstances. However, you must keep in mind that there is a lot more to buying a house than the stories numbers tell us.
There are a range of non-financial issues that need to be looked into before making this decision, including personal satisfaction and property aesthetics. Thus, before you make your choice, think about what is your long-term goal and ask yourself: Do I wish for mobility, or would I rather put down roots?
If your answer is mobility renting is the way to go but if you answer is the latter, buying is the right and best choice for you.
Choose wisely!
