ArthaYantra Buy vs. Rent Score (ABRS)

ArthaYantra A CFO FOR EVERYONE

BUY VS. RENT:
A PERSONAL FINANCE PERSPECTIVE

VS.
Delhi
Rent
Buy Kolkata

Mumbai
Pune

Hyderabad

Bengaluru

Chennai

Copyright 2012
C
www.arthayantra.com

Table of Contents

Summary 3
1. Introduction 6
2. Methodology 7
3. Assumptions 8
4. Findings
4.1 Historical data of Real estate prices 9
4.2 Property Cost vs Rental Value 10
4.3 Down Payment 12
4.4 Area 13
4.5 Rent to Buy Ratio 14
4.6 Break Even Horizon 15
5 ArthaYantra Buy vs Rent Score (ABRSTM) 17
6. Other Important Numbers 19
7. Conclusion 20
8. Limitations and Concerns 21
9. Appendix 22

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C
www.arthayantra.com

BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Summary
Buying the house is perhaps the biggest and the most common dream of every
professional. Though buying a house has high emotional quotient, it is a decision that has to
be financially prudent. A wrong decision could result in excess debt and an illiquid asset.
This research paper provides a personal finance perspective to the rent vs. buy decision.

Here are some of the key findings of the research:

Property cost vs Rental Value: The Residential Property prices in Bengaluru and Delhi NCR
are not proportional to their rental value. Though the average residential property values
of Bengaluru is higher than Kolkata by 6%, the average rental value is less by nearly 32%. The
situation is similar for Delhi NCR and Mumbai. Though their average residential property
values are identical, their average rental values differ by nearly 60%.

Down payment: The years of saving required to afford the initial down payment i.e. 20% of
the property price determines how sooner one can buy a house. It takes at least 4 years to
save for the required corpus in Hyderabad and Pune. In Kolkata and Bengaluru it takes 5
years and in Chennai it is 6 years. In Mumbai and Delhi NCR a professional has to save for at
least 8 years to be able to afford the down payment amount required.

Area: The average square feet per lakh (INR) determines the amount you need to pay for
the desired area . At 26.57 sq ft per lakh, Hyderabad gives highest value for money
compared to other 6 metros. Hyderabad is followed by Pune, Kolkata, Bengaluru and
Chennai. Delhi NCR and Mumbai offer the least sq ft lakh.

Rent to Buy Ratio: The ratio compares the monthly cost of renting house to the monthly cost
of owning the same place. The ratio underlines the necessity and urgency with which the
house needs to be bought. The rent to buy ratio of 0.41 shows that the rental values in
Kolkata are higher and makes it an “immediate buy”. The ratio of 0.33 for Hyderabad and
Pune gives ownership of house an advantage over renting.

Breakeven Horizon: The annual out of pocket costs in case of renting include the monthly
rent, maintenance charges and tax. The annual out of pocket costs in case of ownership
include the monthly EMI, the maintenance charges and tax. The values have been
calculated and compared across the average loan tenure of 15 years. The year at which
the annual costs match determines the minimum stay period in the house. The minimum
stay period is 12 years for Kolkata, 14 years for Pune and Hyderabad, 15 years for Mumbai
and above 15 years for Delhi NCR, Bengaluru and Chennai. The tax benefits received
under the HRA allowance dominate the tax benefits received in case of ownership over
the period of 15years.

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TM
ArthaYantra Buy vs Rent Score (ABRS ): Our proprietary ArthaYantra Buy vs Rent Score
TM
(ABRS ) not only aids in making the rent vs Buy decision but also explains the affordability
TM
and need to buy or rent in a given city. ABRS considers 3 important factors: rental value,
property price and gross income of the individual.

Delhi NCR: The rent to buy ratio of 0.20 means that the average rental value of residential
property is very less compared to its higher prices. Renting is the best option.

Kolkata: The buy to rent ratio of 0.41 means that the average rental value of residential
property is high compared to the average property price. This makes Kolkata a place to
buy. The moderate prices and a decent number of sq ft lakh make it a place where in you
should buy a house as soon as you can afford it. The out of pocket costs are also in favor of
th
buy with the breakeven being achieved at 12 year (fastest of the seven cities).

Mumbai: The place with highest average rental value and average property price. The rent
to buy ratio of 0.31 meant that the rental prices are moderately high and it is advisable to
buy. But the higher property prices and least number of sq ft lakh( among the seven cities)
makes it a place to rent.

Pune: The rent to buy ratio of 0.33 means that the rental prices are moderately high and it is
advisable to buy. The years required to save for down payment (4 years, least among the
seven cities) and the property prices being in a affordable range makes it the second most
affordable city.

Hyderabad: The most affordable city for a professional. The rent to buy ratio of 0.33 meant
that the rental prices are moderately high and it is advisable to buy. The years required to
save for down payment is 4 and one can get 26.57 sq ft lakh. The affordable gross salary
zone also starts from INR 10 lakh.

Bengaluru: The average residential property values of Bengaluru is higher than Kolkata by
6%, the average rental value is less by nearly 32%.A buy to rent ratio of 0.27 and moderately
high property prices makes it a place to Rent.

Chennai: The rent to buy ratio of 0.25 means that the rental prices are cheaper compared
to EMI to be paid in case of ownership. The city with third highest property price also means
that one need to save longer for the required down payment. These factors make it better
for renting.

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Buy VS. Rent

RENT BUY
Delhi

Kolkata

Mumbai
Pune

Hyderabad

Bengaluru

Chennai

Arthayantra Buy Vs. Rent Score (ABRSTM)
51 80 100

DELHI NCR 8-25 L

KOLKATA 8-12 L 13-17 L 18-25 L

MUMBAI 8-25 L

PUNE 8-10 L 11-12 L 13-25 L

HYDERABAD 8-9 L 10-11 L 12-25 L

BENGALURU 8-12 L 13-15 L 16-25 L

CHENNAI 8-15 L 16-20 L 21-25 L

MUMBAI DELHI NCR CHENNAI KOLKATA BENGALURU PUNE HYDERABAD

Sq Ft per Lakh

9.19 Sq ft 9.19 Sq ft 13.96 Sq ft 18.39 Sq ft 19.52 Sq ft 23.39 Sq ft 26.57 Sq ft

Years to accumulate
Down payment (20%)

*
Gross Income

Figure1: Graphical Representation of Buy Vs. Rent

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1. Introduction
Buying a home is a tough decision to make and emotions cloud the decision making. Often
buying a home is given a high emotional weightage by family, friends and society at large.
People associate the advantages of housing security, physical asset creation and property
appreciation with home ownership. Renting is associated with expenditure. However,
renting gives flexible lifestyle options, high level of mobility and is easy on the purse when
compared to the Home loan EMI.

From a personal finance perspective there is always a tussle between buying a home and
renting it. Is it prudent to buy? Is there an upside to taking a place on rent? How the lifestyle is
going to be affected? What is the impact of the locality chosen? This research paper tries
to objectively address the major factors which impact the decision of buying or renting.

The common assumption that the residential property always appreciates is inconsistent.
The appreciation of a residential property is dependent on several factors. So one can't
actually determine the rate at which the residential property is going to appreciate or
depreciate. A school of thought supporting the rent argument says the amount invested in
a home when invested well in capital markets for the common horizon of 15 years could
yield the same or better rewards. The real estate market scenario is similar to that of equity
markets because it is unpredictable.

The other common assumption held is buying a home eventually results in increased tax
savings. But the fact that the EMI payments accounting for principal payment of home
loan come under the same section as Provident fund and required risk cover for self and
family, one can't enjoy major tax benefits beyond 1.2 lakh stipulated in section 80C. The tax
benefits received under section 24B i.e. the interest payments made towards house loan
can be matched up with house rent allowance in case of renting. So a professional
shouldn't base the decision of buying a house on the tax savings he/she is going to receive.

So eventually, the three factors which play a predominant role in making the decision are:
Current Property price which determines the EMI to be paid, current monthly Rental value
and the current gross income. Monthly rent or the EMI being paid shouldn't end up
consuming most of the salary which in turn affects the lifestyle. It is not a good financial
decision to buy if the rental value is low compared to the EMI to be paid in case of
ownership.

As a part of this research we aim to provide a quantitative answer to the question of buying
vs. renting a home. We analyzed the costs associated with owning a house and renting a
house across seven major cities of India: Delhi NCR, Pune, Mumbai, Hyderabad, Bengaluru,
Kolkata and Chennai.

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2. Methodology
Property prices and rental prices of various residential properties were collected from
multiple data sources to generate the primary and secondary data for the analysis. The
public data sources including the data by National Housing Board (NHB) of India, data
from various real estate reports and data from major real estate aggregations is collated.
The primary research has been performed by collating information from over 100 real
estate agents across the cities considered.

The methodology used for arriving at results considers various key parameters derived from
the initial data collected: Price of the residential property and their rental value. Various
important factors like the years of saving required for a professional to accumulate the
corpus for down payment and the number of square feet per lakh are derived from the
average property price.

The main idea behind this research was to quantify the buy vs. rent decision from a personal
ﬁnance perspective. The factors which drive the decision are: how much more money
does a professional need to shell out for buying a home compared to renting it? Can the
professional afford this additional amount? Our proprietary ArthaYantra Buy vs. Rent Score
(ABRSTM) tries to address these questions and come up with a comprehensive scoring
system. The scoring system not only tells whether it's better to buy or rent but also tells
whether it's affordable to buy or rent.

Factors associated with buying a house Factors associated with renting a house

Down payment for home loan Security Deposit

No. of Years required to save for down Monthly Rent
payment
EMI on home loan Yearly increase in rent

Monthly property maintenance charges Monthly property maintenance charges

Annual repairs Income tax savings under HRA exemption

Annual property tax

Income tax savings under section 80c and
24 b

Table 1: Factors associated with home ownership and renting

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3. Assumptions
 The sale price of 1000 sq ft area ready to occupy homes for sale is considered.

 The rental value of 1000 sq ft area ready to occupy homes for rent is considered.

 20% of the cost of the house is considered as the required down payment to buy a
house.

 The loan tenure is 15 years.

 The lending rate for the loan is 10.50%.

 Average savings rate is 25%.

 The minimum gross income required to buy a house is calculated by considering
50%of monthly take home salary= Monthly EMI to be paid.

 The gross income of the professional increases 10% annually.

 1.5% of the property value is considered as the property tax to be paid.

 10% annual increase in rent is considered.

 Considering real estate as an asset class having same properties of other asset
classes.

 The ownership/buy case considered is for self occupancy.

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4. Findings

4.1 Historical data of Real estate prices

National Housing Board India's Residential Index (NHB Residex) tracks the movement of
prices in the residential housing segment across India. Figure 1 shows the historical NHB
Residex values since its inception in 2007.

National Housing Board India Residentional Index
(NHB Residex).
Increase in Index Value

Neutral in Index Value

Decrease In Index Value

NHB Residex
2007 Q2 2012
Delhi NCR 100 172

Kolkata 100 196

Mumbai 100 197

Pune 100 200

Hyderabad 100 85

Bengaluru 100 100

Chennai 100 309

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)

Chennai has recorded the highest raise in the index value by 209%. Pune followed up with
100%, Kolkata and Mumbai with 96% and 97% respectively. Delhi NCR's index was up by
72%. The index value of Bengaluru recovered steadily from its dip in 2009 and recorded a
0% increase. The current index value of Hyderabad recorded a 15% decline compared to
its base year, resulting in cheaper residential properties compared to those in 2007. It is
evident that each of the cities has different real estate market and different expectations
from real estate. The effort is to identify the places that are most affordable for a
professional, given the current scenario.

It is important to look at these graphs to get only a high level perspective of the general
movement in real estate in each of the cities. We delve into each city's prospect in the later
sections. The relative nature of the index hides many interesting facts.

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4.2 Property cost Vs. Rental Value
The graph compares the property price and rental value of 1000 sq ft ready to occupy
house across seven major cities of India. The bar graph depicts the average property price
in the city and the line graph depicts the average rental value in the city.

Comparisons of Average Rents and Average Property Prices
1000 Sq Ft Ready To Occupy Residential Apartment

(Rs. 18,137) (Rs. 28,830)

(Rs. 17,833) (Rs. 14,955)
(Rs. 12,125)
(Rs. 12,000)
(Rs. 10,438)

(Rs. 3,764,188) (Rs. 4,276,071) (Rs. 5,123,000) (Rs. 5,437,500) (Rs. 7,161,591) (Rs. 10,882,500) (Rs. 10,931,885)
u

R
ur

C
al

N
ng
Be

Average Property Prices Average Rental Value

Figure 3: Average property price and rental values across seven major cities of India

The most important thing that stands out while assessing the current residential property
prices and NHB Residex is the base effect. Chennai's property prices (INR 7,161,591) as per
NHB Residex have grown three fold but still remain less than that of Delhi NCR (INR
10,882,500) and Mumbai (INR 10,931,885). Pune whose property prices (INR 4,276,071)
doubled as per NHB Residex are identical with that of Hyderabad (INR 3,764,188) which
recorded a 15% decline in its index value. This means that the property prices of Chennai
and Pune in the base year 2007 were less compared to other cities.

The most important factor that stands out from the rental value of the properties across the
seven cities is the anomaly of the property values not proportional to the corresponding
rental values. Kolkata's average property price (INR 5,123,000) is less than that of Bengaluru
(INR 5,437,500) by 6%. But the Average rental value of Kolkata (INR 17,833) is higher than
that of Bengaluru (INR 12,125) by nearly 32%. The same case has been observed with Delhi
NCR and Mumbai. Though their average residential property values are identical, the
average rental value of Mumbai (INR 28,830) is higher than that of Delhi NCR (INR 18,137) by
60%.

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CITIES Affordability to Buy Rank Affordability to Rent Rank

HYDERABAD 1 1

PUNE 2 2

KOLKATA 3 5

BENGALURU 4 3

CHENNAI 5 4

DELHI NCR 6 6

MUMBAI 7 7
*On a scale of 1 to 7 with 1 being most affordable and 7 being least affordable based on the average property prices.

Table 2: City wise ranking based on the affordability to rent and buy

The above table shows the affordability to rent rank and the affordability to buy rank based
on the average property prices and average rental values across the seven major cities of
India. Hyderabad stands out as the most affordable place for a professional to rent as well
as buy. Mumbai stands out as the least affordable place in both scenarios. Pune is the
second most affordable place and Delhi NCR is the second least affordable place. The rank
of affordability to Rent matches with the rank of affordability to buy in the case of above
mentioned 4 cities. This means that the high/low property prices of the 4 cities are translated
to their relative rental prices.

Bengaluru ranks 3rd on the affordability to rent where as it ranks 4th on affordability to buy.
Chennai ranks 4th on the affordability to rent where as it ranks 5th on affordability to buy.
Kolkata ranks 5th on the affordability to rent where as it ranks 3rd on affordability to buy. This
means that the average property price in Kolkata is less than that of Bengaluru and
Chennai but the rental value is higher. This signifies the fact that people of different cities
have different expectations from their real estate markets.

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4.3 Down payment
A critical decision in purchasing a home is the down payment required. It is often a
substantial amount of money . Assuming a 20% of property price as the down payment and
a saving rate of 25% for a professional with a gross income of 8 lakhs, based on the current
average property prices, the time required to save the corpus determines how sooner one
can afford to buy a home. Figure 4 shows the graphical representation of the same.

Years to save money for downpayment
Gross Income : 8 Lakhs Saving Rate : 25% Per annum

(8 Years)

NCR (8 Years)

(6 years)

(5 Years)

Bengaluru (5 years)

(4 years)

(4 years)

Figure 4: Years to save money for downpayment

The average property prices translate to the number of years professional needs to save for
the required corpus for down payment. Based on the above stated assumption and
average property prices a professional can afford the down payment required in
Hyderabad and Pune in 4 years.

In Kolkata and Bengaluru a professional has to save for 5 years and in Chennai a
professional has to for 6 years. In Mumbai and Delhi NCR, a professional has to save for at
least 8 years to be able to afford the down payment. A professional from Hyderabad and
Pune needs to save two fold to be able to buy a house in Mumbai and Delhi NCR.

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4.4 Area
The area of residential occupancy is an important aspect of life style. It determines the size
of the home that is provided for the family. Figure 5 compares the average number of sq ft
that can be bought for 1 lakh rupees across the seven cities.

Average sqft per 1 lakh(INR)
Based on the average property prices

(Sq ft 9.15)

NCR (Sq ft 9.19)

(Sq ft 13.96)

(Sq ft 18.39)

Bengaluru (Sq ft 19.52)

(Sq ft 23.39)

(Sq ft 26.57)

Figure 5: Average no. of sq ft per INR 1lakh across seven major cities of India

Mumbai, the costliest city to buy a home out of the seven cities considered, offers the least
space of 9.15 sq ft per lakh. Delhi NCR is the second costliest city offering a living space of
9.19 sq ft per lakh, which is only 0.04 sq ft more than Mumbai. Hyderabad, being the
cheapest city to buy a home out of the seven cities considered offers the largest living area
of 26.57 sq ft per lakh. This means that a professional who wants to own a home in Mumbai
and Delhi NCR has to spend 3 times more than what he spends in Hyderabad for the same
no of sq ft.

Pune is the next cheapest city to buy a home in. It provides a residential space of 23.39 sq ft
per lakh. A professional from Mumbai and Delhi NCR will get 2 and a half times more area in
Pune for lakh. Kolkata offers the third largest living space of 19.52 sq ft per lakh. Bengaluru
and Chennai come in next at 18.39 sq ft and 13.96 sq ft per lakh respectively.

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4.5 Rent to Buy Ratio
The rent to buy ratio explains the additional monthly payments to be paid in case of
ownership compared to renting. The ratio also helps in understanding whether the property
prices are being translated to the rental value or not. The ratio is calculated based on the
average monthly cost of renting (rental + maintenance) and average monthly cost of
ownership (EMI + Maintenance).

CITIES Average out of Average out of Pocket Rent yo Buy Ra o Urgency to
Pocket Cost Cost (Ren ng the house)/(Owning buy rank
(Ren ng the house) (Owning the house) the house)
(INR) (INR)

DELHI NCR 19,137 97,236 20% 7

KOLKATA 18,833 46,304 41% 1

MUMBAI 29,830 97,673 31% 4

PUNE 13,000 38,814 33% 2

HYDERABAD 11,438 34,288 33% 3

BENGALURU 13,125 48,085 27% 5

CHENNAI 15,955 64,331 25% 6

*On a scale of 1 to 7 based on the monthly cost of renting and monthly cost of buying with 1 means buy as soon as
possible and 7 means renting is better than buying.

Table 3

As per the values mentioned in Table 3,Delhi NCR has the least rent to buy ratio value which
means that the renting is nearly 80% cheaper compared to buying a house based on the
monthly charges one bares in both the cases. Kolkata scores highest making the decision
to buy easier once in a position to afford the EMI payments and required down payment.

The rent to buy ratio of 0.33 in Hyderabad and the least average out of pocket cost in case
of owing house (INR 34,288) means that the buying is a better option in Hyderabad. Though
Mumbai has a ratio value of 0.31 which meant that the buying is better option, high
average out of pocket cost in case of owning (INR 97,673) meant that affordability is a
major stumbling block.

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4.6 Break Even Horizon
Ignoring the price escalations of the residential property, one important question to be
answered is the breakeven horizon i.e. how long a new home buyer would have to own the
home to justify the decision of buying instead of renting in financial sense. Figure 5 shows
the graphs of the annual out pocket costs incurred in case of ownership and renting based
on the average property prices and average rental prices across the seven cities. The
annual out of pocket cost in case of renting include the annual amount paid towards the
rent, the annual maintenance charges and the amount of income tax. The annual out of
pocket cost in case of ownership include the annual amount paid towards the EMI of the
house loan, annual maintenance charges and the amount of income tax .

The income tax being paid is considered in calculations because most of the professionals
feel buying a home is good for their tax savings. The idea is to compare the tax benefits
received in case of buying a home and renting the home. The payments made towards
the principal amount of the home loan are considered under section 80C. The payments
made towards interest on home loan are considered under section 24b. In case of renting
one can claim tax benefits under house rent allowance.

The provident fund received and required risk coverage for self and family also come
under section 80C. These items do fill up most of the 80C part. Out of the EMI payments
being made, in the initial years most of the amount accounts for interest payments rather
than the principal amount. By the time the payment towards principal increases, one can
also expect the salary of the professional to increase in turn increasing the Provident fund
being received. So, the tax benefit under section 80C in case of ownership doesn't actually
add much of advantage.

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Though the tax benefits in case of ownership are higher during the initial years, renting the
same place gives better tax benefits over the next few years. The benefits of renting are
higher especially in the regions where the costs of ownership and renting don't match up
during the average loan tenure of 15 years. The breakeven year i.e. the year at which the
annual cost of owning house is equal to the annual cost of renting the same place is
calculated over the average loan tenure i.e 15 years. The cost of ownership and renting
matchup in Kolkata happens after 12 years. The costs matchup happens approximately
th
after 14years in Pune and Hyderabad and at 15 year in Mumbai. The costs don't matchup
in the case of Delhi NCR, Bengaluru and Chennai. The planned length of stay in the house
becomes an important aspect in deciding whether to buy or rent especially for a first time
home buyer. With the current average stay around 7 years. most of the house owners might
not see a break even point.

Break Even Horizon Buy Vs. Rent (years)
Based out of pocket expenses for owning a home v/s renting a home

Current Average stay 7 years

NCR (16)

(12)

(15)

(14)

(14)

Bengaluru (16)

(16)

6 8 10 12 14 16 18
No. of years

Figure 6: Break Even Horizon for seven major cities of India

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5. ArthaYantra Buy vs Rent Score (ABRS)
There are multiple factors to be considered during the decision to buy or rent a place. The
factors include property price, EMI's, corpus required for down payment, rental value,
security deposit to be paid for renting a house, expected duration of stay etc. These
parameters though important cannot individually serve as a single reference point for
making an unbiased and objective decision on whether to buy or rent. Currently most of
the people look at the appreciation of property price and comparison of the rental value
and property prices are given major priority in the decision making process. This approach is
flawed. The appreciation of the property value can't be determined provided the fact that
the movement of real estate prices is unpredictable. It's not necessary that the property
prices translate to rental values. Even the lending rate on house loan differs from individual
to individual. So considering EMI to be paid instead of property cost in comparison with the
rental value gives a clear picture.

ArthaYantra developed a proprietary composite score called ArthaYantra Buy vs. Rent
Score (ABRSTM) to objectively address the buy vs. rent argument. ABRSTM is an effort to
seamlessly integrate a consumers concern vis-a-vis ability to afford buying and renting and
the reason why one should own a house instead of renting. The monthly rent value to EMI
comparison in turn defines the duration of stay in the house. Most of the costly personal
financial decisions made by the consumers during this period either involve buying
TM
something they could not afford, EMI's that are too high or living beyond the means. ABRS
is an effort to suggest the best recommended action given the rental value, EMI to be paid
and the gross income.

TM
As a part of this research report we have calculated the ABRS score across different salary
ranges based on the average property prices and rental values of the cities. In this
research, the scope of the scoring system is confined to rental value and price of the
corresponding property of the same region. It can be extended to compare the rental
value of one region with property prices of a different region. This makes ABRSTM a powerful
tool to logically gauze the pros and cons of renting and buying a house.

Score Recommended Ac on
100 Buy (Rents are very high)

90 Buy (Rents are high)
87.5 Buy/Neutral. But it is recommended to buy as rents are very high

77.5 Buy/Neutral (Can afford both ownership and rent )
80 Can afford both ownership and Renting but because of
low Rent to Ownership Rent is recommended.

75 It is Advisable to buy but EMI can't be afforded. Have to Rent.

67.5 Rent/Neutral (Can afford both ownership and rent but rent/EMI ratio is low)

55 Can afford to Rent but can't afford to Buy.

50 Can't afford both ownership and renting

Table 4: ArthaYantra Buy vs. Rent Score Explanation

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Gross Income/ Delhi NCR Kolkata Mumbai Pune Hyderabad Bengaluru Chennai
Cities

8 Lakhs 55 75 65 65 65 55 55
10 Lakhs 55 75 65 65 77.5 55 55
12 Lakhs 55 75 65 77.5 90 55 55
15 Lakhs 55 87.5 65 90 90 67.5 55
20 Lakhs 55 100 65 90 90 80 67.5
25 Lakhs 55 100 65 90 90 80 80

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across seven major cities of India.

Delhi NCR: The low rental values compared to high property prices makes it a place where
renting can be easily afforded and the EMI associated with home loan in high. It is advisable
to rent for a professional with a salary range of 8 – 25 lakhs

Kolkata: The ABRS score of 75 for a salary range of 8-12 lakhs signifies the fact the rental
value is critically high but a professional in the salary range can't afford to buy. A
professional whose salary range is between 13 – 25 lakhs is better off owning a home than
renting it.

Mumbai: The score of 65 signifies that though the rents are high, it is advisable to rent
because the property prices are also high. The EMI payments to be made in case of
ownership are not affordable.

Pune: For a professional with a salary range of 8- 11 lakhs in Pune, it is advisable to rent. A
professional with a salary of 12- 15 lakhs falls in the neutral zone i.e. he can afford to buy and
it is advisable to buy but have to make few adjustments to the current lifestyle in order to
afford the additional amount for EMI payments. Professionals with a salary range more than
15 lakhs are advised to buy.

Hyderabad: For a professional with a salary range of 8- 9 lakhs in Hyderabad, it is advisable
to rent. A professional with a salary of 10- 11 lakhs falls in the neutral zone i.e. he can afford to
buy and it is advisable to buy but have to make few adjustments to the current lifestyle in
order to afford the additional amount for EMI payments. Professionals with a salary range
more than 12 lakhs are advised to buy.

Bengaluru: The score of 55 for a professional with a salary range of 8-14 lakhs signifies that the
monthly cost of renting is cheaper than that of buying by more than 70%. The low rental
prices also mean that though a professional with a salary more than 15 lakhs can afford to
buy a house, renting is a better option.

Chennai: The score of 55 for a professional with a salary range of 8-19 lakhs signifies that the
monthly cost of renting is cheaper than that of buying by more than 70%. The low rental
prices also mean that though a professional with a salary more than 20 lakhs can afford to
buy a house, renting is a better option.

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6. Other important numbers
Cities Delhi NCR Kolkata Mumbai Pune Hyderabad Bengaluru Chennai
5 years
growth of 72% 96% 97% 100% -15% 0% 209%
NHB
residex
Initial
Corpus
required 2,176,500 1,024,600 2,186,377 855,214 752,838 1,087,500 1,432,318
for
owning* (INR)

No.of
Years to
save for 8 5 8 4 4 5 6
the
corpus
Average
No.of
sq.ft per 9.19 19.52 9.15 23.39 26.57 18.39 13.96
INR
1lakh
Initial
corpus
required 181,370 178,333 245,660 120,000 31,313 121,250 149,550
for
renting**

Rent to
buy ratio 0.20 0.41 0.31 0.33 0.33 0.27 0.25

Break
Even 15+ 12 15 14 14 15+ 15+
year

*Ini al corpus required for owning = 20% of the Average property price (down payment for house loan)
**Ini al corpus required for ren ng= Amount equivalent to 10 months of rental value (Hyderabad which is 3 months)
*** Average out of pocket cost(Ren ng the house) / Average out of pocket cost (Owning the house)
The gross income of 8 lakhs per annum is considered.

Table 6 : Other important numbers

Copyright 2012


7. Conclusion
Based on the current real estate markets, Hyderabad and Pune are the best places to own
a house. The property prices and rental values in these two cities are low, thus making them
the most affordable places for a professional to rent or own a house. The larger residential
spaces offered by Hyderabad and Pune provide a better lifestyle option. The real estate
market of Kolkata favors the home owners because of its moderate property prices and
high rental value. Though the moderate property prices of Chennai and Bengaluru make a
strong case of ownership for professionals with higher salaries, the low rental values make
renting a better option. The high property prices and low rental values of Delhi NCR make
the decision to rent easier. Mumbai is the least affordable city for a professional because of
its high property prices and rental values.

The research addresses the fact that Buy vs. rent decision has a huge impact on the
personal finance of a professional. Buying a home is an integral part of every one's dream.
But a very calculated and merit based judgment is needed before taking the decision to
own the house. It is important to assess both home for rent as well as homes for sale columns
of real estate homes classifieds column before making a decision. The comprehensive
ArthaYantra Buy vs. Rent Score (ABRSTM) suggests the decision a professional should take
across the seven major cities of India based on the current rental values, property prices
and the salary. If a professional finds himself in the rent zone as per the ABRS but still wants to
buy a house, one has to make sure that his/her Emotional Premium attached with buying a
house is going to match the EMI premium being paid.

Copyright 2012


8. Limitations and Concerns:
The data is related to following localities of the Seven cities:

Delhi NCR: Golf course Road, Sohna Road, Golf course extension Road, Noida – Greater
Noida Express Highway, Noida City, Indirapuram, SafdarGunj Enclave, Rohini Sec – 13,
Delhi East, Delhi South, Vasant Kunj.

Kolkata: Alipore, PA Shah Road, EM bypass, Lake town, Behala,Howrah, Jodhpur Park,
Jadavpur, Salt Lake City.

Pune: Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri – Chinchwad,Kothrud.

Mumbai: Lower Parel, Wadala, Andheri, Ghatkopar, Ghodbunder Road, Kharghar,
Chembur, Borivali West, Bhandup West, Mira Road, Kalyan, Virar, Pokaran Road.

Hyderabad: Banjara Hills, Begumpet, Kondapur, Tellapur, Kukatpally, Miyapur, Rajendra
Nagar, L.B Nagar.

Bengaluru: Old Madras Road, Indira Nagar, Bellary Road, Hosur Road, Whiteﬁeld, Tumkur
Road, Kanakapur Road, Mysore Road.

Chennai: Adyar, Medavakkam, Tambaram, Anna Nagar, Porur, Sholinganallur, Perambur,
Kolathur, Chetpet, Ashok Nagar, Chromepet.

The property tax to be paid is considered as 1.5% of the property value. The property tax
calculation reforms need some stringent reforms to regulate the process. In most places
the value is calculated based on the rental value. The rental values being shown in the
related local governing bodies website varies from the actual rental prices.

The tax beneﬁts received under section 80C is considered as INR 1.2 lakh both in the case of
house ownership and renting.

Copyright 2012


9. Appendix
FIGURES:

Figure1: Graphical Representation of Buy Vs. Rent

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)

Figure 3: Average property price and rental values across seven major cities of India

Figure 4: No. of years required to save the corpus for down payment across seven major cities
of India

Figure 5: Average no. of sq ft per INR 1lakh across seven major cities of India

Figure 6: Break even horizon for the seven major cities of India

TABLE:

Table 1: Factors associated with home ownership and renting

Table 2: City wise ranking based on the affordability to rent and buy

Table 3: Rent to Buy ratio and Urgency to buy rank of seven major cities across India

Table 4: ArthaYantra Buy vs. Rent Score Explanation

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across seven major cities of
India.

Table 6 : Other important numbers

SOURCES:
 National Housing Board, India: www.nhb.org.in

 Jones Lang LaSalle: www.joneslanglasalle.co.in

 Makaan: www.makaan.com

 Magic Bricks: www.magicbricks.com

 Multiple Primary sources (100+)

Copyright 2012


ArthaYantra is a young and innovative company started by a group of alumni of the Indian School of
Business (ISB) Hyderabad. It provides integrated personal finance services using its unique
proprietary framework, Personal Financial Lifecycle Management (PFLM)TM, which helps clients
achieve their financial goals. ArthaYantra's vision is to provide independent, high quality,
customized financial planning solutions and their efficient execution to individuals. It employs
proprietary financial models and enable investments through well balanced passive investment
strategies. ArthaYantra's clientele includes individuals from India, US, Europe and Middle East.

Our Mission
To positively impact the future of our customers & their families.

For more information on this report please contact ArthaYantra Corporation Pvt. Ltd.
visit us online: www.arthayantra.com or Write to : contactus@arthayantra.com

Website: www.arthayantra.com

: h p://twi er.com/arthayantra

: h p://www.facebook.com/arthayantra

:h p://www.linkedin.com/company/artha‐yantra

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ArthaYantra A CFO FOR EVERYONE

Plot #319, Second Floor, Ayyappa Society, Madhapur, Hyderabad - 500081, AP, India.
Phone : +91- 040-66245874, Fax : +91-040-66245. www.arthayantra.com, contactus@arthayantra.com

ArthaYantra Buy vs. Rent Score (ABRS)

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