“Rising Residential Demand Boosts Homeownership Interest Over Renting in Indian Metros””
The decision to buy or rent a home has always sparked a heated debate among potential homeowners. The growing interest in property ownership, particularly in the Indian real estate market, has led many to question whether it’s better to invest in a home or continue renting while exploring alternative investment opportunities. Reports for July to September 2024 indicate a significant shift in residential demand, with a noticeable 7% growth year-on-year across 13 metropolitan areas in India. This trend has outpaced the 3.1% year-on-year growth seen in rental demand, showing that more people are now inclined to buy homes as rental yields rise.
A closer look at cities like Bengaluru reveals a notable 18.2% quarter-on-quarter surge in residential demand during the same period, contrasting with a 2.8% decline in rental demand. The trend isn’t confined to just Bengaluru, as other major metros like Delhi and Mumbai also show more demand for property ownership over renting. This pattern has led many individuals to believe that now is a good time to buy a home.
However, financial experts argue that buying a property may not always be the wisest decision, especially when considering the long-term implications. According to Ashish Padiyar, Managing Partner at Bellwether Associates LLP, the allure of homeownership is emotional, often driven by the sense of security and peace of mind it brings. Despite the growing appeal of owning property, many first-time homebuyers find themselves taking out loans to make their purchases, and that’s where the financial comparison becomes tricky.
In India, residential rental yields are typically around 3-3.5%, while home loan interest rates are significantly higher, averaging between 8.25% and 8.5%. This stark contrast raises an important question: is it financially sound to own an asset while paying a much higher interest rate on a home loan? In most cases, renting comes out ahead in terms of immediate financial sense. The rental cost is often a fraction of the home loan EMI, making renting a more affordable option for many.
Financial experts recommend that, instead of taking on a large loan for a property purchase, individuals should consider investing the difference between what they would pay as EMI and what they currently pay in rent. Over time, the returns on these investments could far surpass any potential increase in the value of the property they might have bought. Therefore, when you weigh the options, renting and investing in different avenues may offer greater financial flexibility and long-term growth opportunities.
Despite the logical financial argument for renting, buying a house is still seen by many as an important milestone in life. Homeownership brings with it stability and the chance to build personal equity, which renting doesn’t offer. For those who truly desire to own property, it’s advisable to minimize the loan amount and approach the homebuying process with caution. This strategy ensures that homeowners are not stretching their finances too thin while still securing a stake in property ownership.
The key takeaway from this evolving trend in the housing market is that buying a home is a personal choice that goes beyond just financial considerations. It’s important to factor in your lifestyle, long-term plans, and current financial situation when deciding whether to rent or buy. With careful planning and a more measured approach, individuals can strike the right balance between securing a home and building a solid financial future.
