Renting vs. buying a house: Pros and cons
Indian parents have to be the most vociferous when it comes to advocating the purchase of a house to kids. In the current scenario, however, it may not be a good idea for millennial to buy property as an investment. For self-occupation too, one must consider various factors before committing to a large EMI. It is better to rent when you start working instead of being tied down to a large EMI.
Pros of renting
Lower rent: Rent will be lower than home loan EMI. In NCR, you can rent a Rs 1 crore, 3-BHK house for Rs 15,000-25,000, but the EMI with 40% down payment @7% will be Rs 46,500 a month for 20 yrs
Down payment: You don’t have to amass a large down payment amount early on in your career. For renting, you just need to provide a 2-3 month security deposit upfront.
No allied costs: You don’t have to worry about paying property tax, maintenance costs, repair bills, parking costs, etc.
Ease of job shifting: You don’t have to worry about maintaining or renting the house if you need to shift cities or countries for your job.
Flexibility of location: You can decide where to rent depending on proximity to workplace or school, reducing your transportation costs.
Pros of buying a house
Building an asset: The amount you spend on rent can be used to pay the home loan EMI for building an asset for life.
Tax benefits: You can get tax deduction of up to Rs 2 lakh on interest paid for self- occupied home under Section 24, and Rs 1.5 lakh under Section 80C on principal amount.
Low loan rates, higher appreciation: Currently, home loan rates are low at 6-7%. Property prices are set to appreciate after the fall in the past few years.
No worry of shifting: You don’t have to constantly worry about moving houses if the landlord wants you to leave
No landlord issues: You don’t have to suffer the landlord’s whims when it comes to maintaining the house or argue over who will pay for repairs, painting and other maintenance jobs
Emotional security: Having one’s own house provides peace and mental stability and the freedom to keep it as per one’s wish.
Cons of renting
Rent rise: Besides the annual rise of 8-10%, the landlord can increase the rent anytime or ask you to evict.
No tax benefits: You do not get any tax incentives for renting.
No freedom: You have no choice of altering, or making structural changes to the house without the approval of the landlord.
Outflow after retirement: You will have to continue to pay rent after you retire when you have no source of income
Society limitations: You will have to abide by the rules of the society, which can include restriction on pets, limited vehicles, etc
Cons of buying a house
More expensive: Buying a house is more costly than renting. Besides the upfront cost of purchase, you have to pay charges for maintenance, property tax, renovation and repairs.
Illiquid asset: Real estate has much lower liquidity, which means that if you need the money, you cannot sell a house immediately.
Depreciation: As has been seen in the past few years, there is no guarantee that property prices will always rise