The rent versus buy debate resurfaced on social media last month, thanks to popular founder and social media influencer’s choice to buy one. This was after advocating several times on social media that renting is an economically superior decision. 

Those who are pro buying have suddenly found a platform to preach peace of mind, ‘apna ghar sabse acha’, invoking wisdom of our forefathers and what not. Those who are pro renting, are seething and saying things like ‘one shouldn’t rely on social media influencers’, ‘…. made fool of … followers’ and all kinds of other derogatory remarks. 

However, the real problem with today’s world of social media conversations and too much information is that the context is often lost. The buy versus rent is a very nuanced discussion, one that needs inputs of numbers, emotions and logic. All of this is hard to express in one minute or five or in a short tweet that can be forwarded to one and all. 

Emotions or economics

This article is not being written to pass any commentary on the decision taken by the founder and influencer; it’s really their’s to make. 

Undoubtedly, buying a house to live in is an emotional decision. Economics don’t favour real estate as a lucrative asset in India, no matter how you dissect it. It’s a chunky investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains..., you may need a loan, it’s illiquid, requires immense paper work and has additional costs and taxes which keep coming up over the years of ownership. Even transmission of real estate after the demise of the primary holder is a cumbersome process, which necessarily requires visits to the local courts. Hence, the desire to own a home has to be more about fulfilling a dream than making a good financial decision. 

The basic debate goes somewhat like this: annual rental yield is roughly 2.5%-3.5% in most Indian metros, tier 1 and tier 2 cities, whereas, the loan rates for housing loans begin at roughly 8% a year. If you are making a financial decision to rent or buy, you weigh the cost at an average of 3% a year for rental versus 8% plus for loan EMI and it’s a no brainer. 

But this is a highly simplified version of the decision. 

Firstly, we are assuming that you will need to take a loan to buy that house. If that is the case, you not only have to consider the interest rate, but also consider how the EMI will impact your monthly cashflows. Will you have enough left post EMIs to continue your lifestyle as it is? Or will you need to downgrade for the first few years after taking that loan? Secondly, will you need to take another loan to do up the interiors of your house? Thirdly, are you taking a loan to buy an under-construction house, while continuing to pay rent? How is this double payment of loan repayment and rent say, for the next few years going to impact your finances and your family? 

These are financial questions but with emotional under-pinning’s. If you end up taking a loan which is too high as compared to your ability to service the monthly repayments, then the burden of debt servicing will cause a lot of emotional stress. In many cases, this kind of a decision prevents the owner from enjoying the emotional security of their own house. It causes fights amongst spouses. In large cities where homes are bought far from the work district, it results in compromising your health and your work life balance. Eventually, a large sized home loan, if not planned well, can become a lot more expensive than the 8%-8.5% annual interest you pay for it. It costs you in terms of your peace of mind, the very thing you were seeking when you wanted to buy your own house. 

Hence, buying cannot also be just an emotional decision. If buying with a loan, you need to balance out the financial consequences of your buying decision and align that with your emotions. 

The assumption is that you are buying to live and not to rent out as an investmentAn investment is made to give you a return. You make an investment if you use your money to buy either physical assets like property or financial assets like bonds and equity with an aim to receive income or gains.... 

How can you weigh your own decision?

Kamath ultimately did what suited him personally and so should you. 

If you don’t need to take a loan to buy a house and you can buy it outright, then interest cost does not matter, but consider the ancillary costs too. These costs impact all buyers really, whether on loan or not. The society maintenance costs, taxes, repairs and so on. Don’t put in all your savings to build this one asset, simply because you want to do it now. You can always plan it better.

For those who have unlimited pots of money, this debate is pointless. For others with limited pots of money to allocate across various life goals, we should try to plan out the house buying decision and optimize the cost rather than rushing into it. 

Save up till you have a substantial down-payment, such that your monthly loan repayment is not a burden. If you are buying outright, don’t forget to budget for costs around doing up your home; you can stretch that across a few years if needed financially. 

Often while debating this subject, the focus is on what one should do while buying, but renting seems to be a simpler task. It is not. Just as you do your research for buying, you need to research around the renting choice too. Who is the owner of the property, do your basic values match? It’s an esoteric measure, but extremely important. Also, don’t be afraid to ask them if they will need the premises in the next few years. Be open about your desires and ask them questions where their involvement will impact your life. 

Home is where you live

Who your neighbors are will impact the quality of your life, whether you rent or buy. Your ability to be part of a large community on a daily basis will matter to you, whether you rent or buy. How your children grow up in that community will matter, whether you rent or buy. The distance from home to work will be critical in defining your work life balance, whether you rent or buy. The external noise in the area and the construction dust will impact your health, whether you rent or buy.  

Renting versus buying is a decision where adequate research to align your emotional and financial needs has to be done at both ends. And hey, it’s not a once in a lifetime decision. There are several examples of people who, by the time they occupy the homes they bought while under construction, their families have expanded and they already need a larger space. Or they have lost jobs and EMIs are becoming a larger burden than initially envisaged. Similarly, with renting. If you don’t do you research well, you’ll end up moving every two years and that isn’t the most comfortable for some of us. 

COVID certainly brought some of this into focus. But many who were on rent even during those times, didn’t face any issues. 

In the end, this is a personal decision and no choice is the wrong choice as long as it’s your personal choice. Believe it or not, not everyone has peace of mind with owning a house, especially with a heavy loan. 

In fact, a house bought on loan, isn’t yours at all, till you repay it.