Is renting a better decision than buying a house?

People today, especially millennials believe in the Gig economy or the Asset-lite economy. These days, people prefer not to own most assets and rather rent them or use them on-demand.

Examples of shared economy-

  • Uber– perhaps, the most popular gig economy product in the world which has enabled people to not own cars and use their service for moving from Point A to Point B all over the world.
  • Furlenco– Enabling people to get furniture on rent.
  • Zomato– Food on-demand from everywhere around you including cloud kitchens ( Restaurants that operate solely on food delivery apps). Restaurants have stopped using and investing in their own delivery staff.
  • Wefast– Send anything from one place to another with on-demand delivery folks.

Similar to the above, a trend is on the rise in the residential real estate sector. People are tending to rent a house or adapt to Co-living than buying a house. This is contrary to what history has taught us that the three most important goals for a human being are-

Roti, kapda aur makaan

Roti being food security, kapda being basic clothing to wear and makaan being a roof over one’s head or simply saying Owning a house. One should aim at securing these three necessities before spending on any other thing.

Why people prefer renting to buying a home?

  • The shared economy has made a significant change in people’s lives where people pay for using a service/asset on-demand. They are spending more on travelling, learning, subscription services, etc than paying an EMI.
  • In India, home loans range from 7-8 % per annum. These rates have been going down every passing year which is a great thing. However, the Rate of return or ROI on residential real estate in India ranges from 2-3% per annum. If you’re taking a home loan, you are borrowing money at a higher interest rate than what you can earn from that asset. This is a complete NO or utter foolishness when you look at the transaction from a purely financial perspective. In developed countries, it’s the opposite. People borrow money at a lower Rate of Interest to invest in properties that give a higher rate of return. This makes it a healthy financial investment.
  • With the advancement of technology and popular startups in the coliving space (A communal living concept where people live in their own bedrooms in a condominium and share common resources like a kitchen, utilities, recreational space) like Welive and Stanza living people have adapted more to renting, especially working professionals.

Financial viability, greater disposable income to spend on experiences and other resources and flexibility are some of the factors that position RENTING as clearly a better choice to BUYING a home.

The Big Flip

This was true until we had witnessed one of the most shocking years for the whole world- 2020, The year of the COVID-19. With businesses shutting down or losing revenue due to lockdowns, loved ones succumbing to the virus leaving dependent family members vulnerable, people losing jobs due to layoffs it does come to mind how important it is to own a home.

Buying a house is not just a financial investment but means to bring a sense of security and pride for yourself and your loved ones at all times and most importantly in such unprecedented times where the whole world despite its technological advancements has gone into a shock that we have still not recovered from. The same can be confirmed from the fact that after the first lockdown a time when almost all businesses were hurt deeply, Residential real estate witnessed a great degree of appreciation (increase in market price) and growth (increase in the number of people buying) all across the world.

What history has taught us about “ Roti, Kapda aur Makaan” cannot be ignored and does hold to date despite the advancements we have made. Those who owned a home have been much better off in these trying times as compared to the ones who did not. Moreover, Residential real estate might not seem like the best bet while looking at the Return on investment when compared to other investment options but the capital appreciation over a period of time makes it a much better option when you look at the exit value after a few years. Consider this example-

A person who would have invested in a residential plot of 300 square yards in DLF Phase 1, a posh colony of Gurgaon would have paid approx Rs. 1,50,000 per square yard for the same in 2018. The price of the plot would have increased to more than Rs 2,00,000 per square yard by December 2020. Now that’s more than 30% capital appreciation in about 2 years.

Conclusion

Land is a finite resource and until Elon Musk manages to establish human colonies on Mars we are not getting any more of it. So remember that Owning a house is not just about the burden of an EMI for 20 years or a matter of financial viability but it’s a much deeper decision based on emotions, safety, security and pride. The joy that owning a home can bring you simply can’t be brought by mutual funds or stocks lying in a Demat account.

If at any point you would like to buy a house or invest in real estate in Delhi, Gurgaon or Faridabad feel free to hit us up. We’d be glad to help you in finding a real good deal.

Do you agree buying a house is better in the long run? Or is renting still a better option for you? Let us know in the comments below. Please help us by sharing this post with your family and friends if you enjoyed reading this.

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