ArthaYantra Buy vs. Rent Score (ABRS)-Kolkata

ArthaYantra
A CFO FOR EVERYONE

BUY VS. RENT
A PERSONAL FINANCE PERSPECTIVE

Kolkata Edition
Buy Rent

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 20
7. Conclusion 21
8. Limitations and Concerns 21
9. Appendix 22

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Summary
Property cost vs Rental Value: The Residential Property prices in Jadavpur and Salt Lake
City are not being translated to their rental value. Though the average residential property
values of Jadavpur is higher than EM Bypass by 8%, the average rental value is less by
nearly 10%. The same case goes with PA Shah Road and Salt Lake City. Though their
average residential property values are identical, their average rental values differ by
nearly 27%.

Down payment: The years of saving required to afford the initial down payment i.e. 20% of
the property price determines how sooner we can buy a house. It takes at least 2 years to
save for the required corpus in Howrah. In Lake Town and Behala it takes 3 years and in EM
Bypass and Jadavpur it takes 4. In PA Shah Road, Jodhpur Park and Salt Lake City a
professional has to save for at least 5 years and it takes 9 years in Alipore to afford the down
payment amount required.

Area: The average number of square feet per INR 1 lakh determines the amount you need
to pay for the desired area of occupancy. The average number of sq ft of 52.63 per INR 1
lakh in Howrah makes it the place where you can get the highest area for the same
amount of money compared to other 8 localities. This implies that for a given price one can
get the largest space in Howrah followed by Lake Town, Behala, EM Bypass, Jadavpur, PA
Shah Road and Salt Lake City. Jodhpur Park and Alipore offer the least in terms of space.

Rent to Buy Ratio: The ratio compares the monthly cost of renting house to the monthly cost
of owning the same place. The ratio undermines the necessity and urgency with which the
house has to be bought. The rent to buy ratio of 0.49 shows that the rental values in PA Shah
Road are higher and makes it an “immediately buy when you can afford” place.

Annual out of Pocket Costs: The annual out of pocket costs in case of ownership include
the monthly EMI being paid including the maintenance charges and the amount of tax
being paid. 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 11 years for EM Bypass, Howrah, Lake Town
and PA Shah Road, 12 for Behala and 13 years for Alipore, Jadavpur, Jodhpur Park and Salt
Lake City. The tax beneﬁts received under the HRA allowance dominate the tax beneﬁts
received in case of ownership over the period of 15years.

ArthaYantra Buy vs Rent Score: ArthaYantra Buy vs. Rent Score (ABRS) not only aids in
making the rent vs. Buy decision but also explains the affordability and need to buy or rent
in a given place. The three important factors on which scale is based are: affordability to
rent, affordability to buy and a comparison of rent and EMI.

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Alipore : The rent to buy ratio of 0.39 meant that the rental prices are moderately high. A
salary range of 15-25 lakhs a professional can only rent as the property values are very high.

Behala : A professional with a salary range of 8-10 lakhs can afford to rent and buy. A
professional with a salary range of 11-25 lakhs is advised to buy as the rents are high.

EM Bypass : The ABRS score of 75 for a salary range of 8-10 lakhs signiﬁes the fact the rental
value is critically high but a professional in this salary range cannot afford to buy. A
professional whose salary range is between 13-25 lakhs is better off owning a home than
renting it.

Howrah : The rent to buy ratio of 0.39 meant that the rental prices are low. A salary range of
8-25 lakhs allows a professional to buy.

Jadavpur : The rent to buy ratio of 0.38 meant that the rental prices are low. The rent is low
compared to the EMI that has to be paid in case of buying a house. A salary range of 12-25
lakhs allows a professional to buy.

Jodhpur Park : The rent to buy ratio of 0.38 meant that the rental prices are low. The rent is
low compared to the EMI that has to be paid in case of buying a house. A salary range of
16-25 lakhs allows a professional to buy.

Lake Town : A professional with a salary range of 8-10 lakhs and 10-25 lakhs has an ABRS
score of 87.5 and 100 respectively. This signiﬁes that a professional with these salary ranges
should buy in this locality.

PA Shah Road : The rent to buy ratio of 0.49 meant that the average rental value of
residential property is high compared to the average property price. This makes PA Shah a
place to buy. The moderate prices and decent number of sq ft per INR 1 lakh make it a
place where in you need to buy a house as soon as you can afford it. The out of pocket
costs also in favor of buy with the breakeven being achieved at 11th year (fastest of the
nine localities).

Salt Lake City : A professional with a salary range of 8-12 lakhs is better of renting. A
professional with a salary of 13-15 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. The professionals with a salary range of
more than 15 lakhs are advised to buy.

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Buy Vs. Rent in Kolkata

Place Salary ABRS Score Sq feet No of Years
Place range per Lac ( ) to Buy
Lacs ( ) (1000 Sq feet)

Howrah 90
8 - 25 52.63 2
8 - 11 87.5
Lake Town
12 - 25 100 30.76 3
8 - 10
Behala 77.5
11 - 25
90 30.76 3
EM Bypass
8 - 10 75
11 - 12
13 - 25
87.5
100
23.52 4
Jadavpur 8 - 11 65
12 - 15
16 - 25
77.5
90
21.74
4
8 - 14 75
PA Shah Road
15 - 19
20 - 25
87.5
100
20.00 5
8 - 14 65
Salt Lake City
15 - 19
20 - 25
77.5
90
18.90 5
8 - 18 65
Jodhpur Park
19 - 22
23 - 25
77.5
90
16.47 5
8 - 14 40
Alipore
15 - 25 65 8.00 9

RENT NEUTRAL BUY

Figure 1: Graphical Representation of Buy Vs. Rent in Kolkata

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1. Introduction
Buying a home is one of the most important decisions in one's life. It is a tough decision to
make and emotions cloud the decision making process. Often buying a home is given a
high weightage by our 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 on the other
hand gives flexible lifestyle options, high level of mobility and is easy on the purse when
compared to the EMI to be paid.

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? There are numerous other
Questions that crop up when this topic is discussed. This research paper tries to find the
answers for these questions. As a part of this research we aim 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 in equities for the common horizon of 15 years, yields 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 provided 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 under section 80C. The tax benefits received
under section 24B i.e. the interest payments made towards house loan can be matched up
with HRA 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 nine major localities of Kolkata: Alipore, Behala, EM Bypass, Howrah,
Jadavpur, Jodhpur Park, Lake Town, PA Shah Road and Salt Lake City.

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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 aggregators is collated.
The primary research has been performed by collating information from over 100 real
estate agents across the localities 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 INR 1 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 main 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? ArthaYantra's Buy vs. Rent Score 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 home Factors associated with renting a home

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 and rental values are calculated for 1000 sq ft area ready to occupy
residential property.

 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.

 Property appreciation is not considered.

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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.

NHB Residex of Kolkata

350 Zone 9
300 Zone 10
250
200 Zone 11
150 Zone 12
100
Zone 13
50
Howarh
de
x
de
x
de
x
de
x
de
x
de
x
de
x
de
x
de
x
de
x x Bidhan Nagar
In In In In In In In In In In de
In
07 10 10 10 10 01
1
01
1
01
1
01
1 12 12 South Dumdum
20 20 20 20 20 2 2 2 2 20 20
ar u n e p ec ar un e p ec ar un
-M r-J -S t-D -M r-J l-S t-D -M -J
Ja
n
Ap Ju
n
O
c Jan Ap Ju O
c
Jan A pr

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

Kolkata as a city has recorded a raise of 96% in its NHB Residex value compared to the base
year of 2007. Zone 9 of Kolkata has recorded the highest raise in index by 172%. Zone 10
and Bidhan Nagar have followed up with a 153% raise when compared to the base year.
Howrah and Zone 13 recorded an index raise of 99% and 85% respectively. Zone 12, South
Dumdum and Zone 11 have also recorded a raise of 69%, 53% and 47% respectively, when
compared to their base year index. While Zones 9 and 10, Bidhan Nagar and Howrah have
outperformed the city average, Zones 11, 12, 13 and South Dumdum have
underperformed.

Alipore falls under Zone 9, Behala under Zone13 and EM Bypass under Zone 12. Howrah falls
under Howrah zone, Jadavpur under Zone 11 and Jodhpur Park under Zone 10. Lake Town
falls under South Dumdum and Salt Lake City falls under Bidhan Nagar.

It is evident that each of the localities under different zones 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 a high level perspective of the general movement of real estate in each of
the zones. We delve into each zone'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

Rs. 14,000,000 Rs. 45,000
Rs. 12,000,000 Rs. 40,000
Rs. 10,000,000 Rs. 35,000
Rs. 80,000,00 Rs. 30,000
Rs. 60,000,00 Rs. 20,000
Rs. 40,000,00 Rs. 15,000
Rs. 20,000,00 Rs. 10,000
Rs. 0.00 Rs. 5,000
Rs. 0.00
h n a s r ity k e
ra w al as pu oa
d ar or
ow To h p v C P ip
H ke Be By da R ke ur Al
La Ja ah La p
EM Sh lt dh
Sa Jo
PA

Locality
Average Price of Residen alProperty Average Rental Value

Figure 3: Average property price and rental values across nine major localities of Kolkata

The evident base effect in property prices that can be observed in the other cities is missing
in the case of Kolkata. While comparing the NHB Residex and current Property Prices of
Kolkata, one can observe a steady rise in the prices. Alipore scored high in the rise of NHB
Residex value as well as the property prices. Except Alipore the prices in all the other regions
are in affordable level for a professional with a yearly gross income of 12 lakhs. Though all
the regions of Kolkata recorded a steady rise in the property prices, still the property prices
remain moderate.

The most important factor that stands out from the rental value of the properties across the
nine localities is the anomaly of the property values not being translated to the
corresponding rental values. EM Bypass's average property price (INR 4,250,000) is less than
that of Jadavpur (INR 4,598,000) by 8%. But the Average rental value of EM Bypass (INR
16,500) is higher than that of Jadavpur (INR 15,000) by nearly 10%. The same case has been
observed with PA Shah Road and Salt Lake City. Though their average residential property
values are identical, the average rental value of PA Shah Road (INR 21,000) is higher than
that of Salt Lake City (INR 16,500) by 27%.

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Locality Affordability to Rent Rank Affordability to Buy Rank
Alipore 9 9

Behala 2 2

EM Bypass 5 4

Howrah 1
12 1

Jadavpur 4 5

Jodhpur Park 7 8

Lake Town 3 3

PA Shah Road 8 6

Salt Lake City 6 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: Locality 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 nine major localities
of Kolkata. Howrah stands out as the most affordable place for a professional to rent as well
as buy. Alipore stands out as the least affordable place in both scenarios. Behala and Lake
Town are the second and third most affordable places respectively. 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.

Jadavpur ranks 4th on the affordability to rent where as it ranks 5th on affordability to buy.
EM Bypass ranks 5th on the affordability to rent where as it ranks 4th on affordability to buy.
This means that the average property price in EM Bypass is less than that of Jadavpur but
the rental value is higher. Salt Lake City ranks 6th on the affordability to rent where as it ranks
7th on affordability to buy. Jodhpur Park ranks 7th on the affordability to rent where as it
ranks 8th on affordability to buy. PA Shah Road ranks 8th on the affordability to rent where
as it ranks 6rd on affordability to buy. This means that the average property price in PA Shah
Road is less than that of Salt Lake City and Jodhpur Park but the rental value is higher. This
signifies the fact that people of different localities 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 to make in order to
avail the facility of housing loan. It is often a substantial amount of money to be paid
upfront in order to own the house. While some of the professionals depend on their
extended family to provide for this amount, often they do need to save for it. Assuming a
20% of property price as the down payment and 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.

No.of Years Required to save corpus for
downpayment of buying a house

Alipore
Salt Lake City
Jodhpur Park
PA Shah Road
Locality

Jadavpur
EM Bypass
Behala
Lake Town
Howrah
1 2 3 4 5 6 7 8 9

Figure 4: No.of years required to save the corpus for down payment across nine major localities
of Kolkata

The average property prices translate to the number of year's 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 Howrah
in 2 years. In Lake Town and Behala a professional has to save for 3 years. In EM Bypass and
Jadavpur a professional has to save for 4 years. In PA Shah Road, Salt Lake City and
Jodhpur Park a professional has to save for at least 5 years to afford the down payment
amount required. To afford a house in Alipore a professional will need to save for 9 years. A
professional from EM Bypass and Jadavpur needs to save two fold to buy a house in
Alipore, while a professional from Howrah will have to save for 7 more years to afford a
house in Alipore. Figure 3 is in sync with the assigned affordability ranks for ownership.

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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 4 compares the average number of sq ft
that can be bought for 1 lakh rupees across the nine major localities of Kolkata.

Average No.of sqft per INR 1lakh

Alipore
Jodhpur Park
Salt Lake City
PA Shah Road
Locality

Jadavpur
EM Bypass
Behala
Lake Town
Howrah
10 20 30 40 50 60
No.of sq ft

Figure 5: Average no. of sq ft per INR 1lakh across nine major localities of Kolkata

Alipore, being the costliest locality to buy a home out of the nine localities considered,
offers the least space of 8 sq ft per INR 1 lakh. Even though Jodhpur Park is the second
costliest city offering a living space of 16.48 sq ft per INR 1 lakh, it offers twice the living
space for the same amount compared to Alipore. Howrah, being the cheapest city to buy
a home out of the nine localities considered offers the largest living area of 52.63 sq ft per
INR 1 lakh. This means that a professional who wants to own a home in Alipore and Jodhpur
Park has to spend seven times and three and half times more respectively than what he
spends in Howrah for the same no of sq ft. Lake Town and Behala are the next cheapest
localities to buy a home in. They provide a living space of 30.77 sq ft per INR 1 lakh. A
professional from Alipore will get four times more area in Lake Town and Behala for INR 1
lakh. EM Bypass offers the third largest living space of 23.53 sq ft per INR 1 lakh. Jadavpur
and PA Shah Road come in next at 21.75 sq ft and 20 sq ft per INR 1 lakh respectively. Salt
Lake City offers a living space of 18.90 sq ft for INR 1 lakh. Figure 4 attuned to the
Affordability to Buy Ranking mentioned above.

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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 i.e. monthly rental value + monthly
maintenance and average monthly cost of ownership i.e. monthly EMI being paid in case
of owning the house + monthly Maintenance charges.

Locality Average monthly Average monthly Rent yo Buy Ra o Urgency to
out of pocket out of pocket buy rank
cost(Ren ng the cost(Owning the
house) (INR) house) (INR)

Alipore 45,000 11,1539.8924 39% 5

Behala 12,000 29,740.37202 40% 4

EM Bypass 17,500 38,583.56341 45% 2

Howrah 7,000 17,802.06364 39% 6

Jadavpur 16,000 41,660.99401 38% 7

Jodhpur Park 21,000 54,669.32854 38% 8

Lake Town 13,000 29,740.37202 44% 3

PA Shah Road 22,000 45,215.95695 49% 1

Salt Lake City 17,500 47,780.48245 37% 9

*On a scale of 1 to 8 based on the monthly cost of renting and monthly cost of buying with 1 being buy as soon as
possible and 8 being renting is better than buying.

Table 3:Rent to Buy ratio and Urgency to buy rank of nine major localities across Kolkata

All localities in Kolkata have a high rent to buy ratio. This implies that it is favorable to buy
than rent in these localities, but one should also take into consideration the affordability to
buy ranking while buying a house. Even though Salt Lake City has the least rent to but ratio
value among all the localities it is still high. Renting is only 63% cheaper compared to buying
a house based on the monthly charges one bares in both the cases. It ranks 7th in the
affordability to buy rankings. PA Shah Road scores highest making the decision to buy
easier once in a position to afford the EMI payments and required down payment. It ranks
6th in the affordability to buy rankings. While Howrah places 6th in the urgency to buy rank,
it is the most affordable to buy. EM Bypass has the second highest rent to buy ratio at 0.45.
Buying a house costs INR 21,083 more than renting. It ranks 2nd in the urgency to buy
rankings but 4th in the affordability to buy rankings. Jodhpur Park ranks 8th in the urgency to
buy ratio with an out of pocket cost of INR 21,000 and INR 54,669 to rent or buy a house
respectively. It ranks 8th in the affordability to buy rankings. Only Jodhpur Park and Lake
Town rank the same in urgency to buy and affordability to buy rankings.

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4.5 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 paid and the amount of income tax being paid. The annual
out of pocket cost in case of ownership include the annual amount paid towards the EMI
payments of the house loan, annual maintenance and repair charges and the amount of
income tax being paid.

The income tax being paid is considered in calculations because most of the professionals
feel buying a home will do a world 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.

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 EM Bypass, Howrah, Lake Town and PA Shah Road happens after 11 years. The
costs matchup happens at 12 years for Behala. The costs matchup happens
approximately after 13 years in Alipore, Jadavpur, Jodhpur Park and Salt Lake City. The
planned length of stay in the house becomes an important aspect in deciding whether to
buy or rent.

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Break Even Horizon

Salt Lake City
PA Shah Road
Lake Town
Locality

Jodhpur Park
Jadavpur
Howrah
EM Bypass
Behala
Alipore
2 4 6 8 10 12 14

Figure 6: Break Even Horizon for the eight major localities of Kolkata

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5 ArthaYantra Buy vs Rent Score (ABRSTM)
The ArthaYantra Buy vs Rent Score (ABRS) is determined based on two most important
criteria: Can I afford to buy a home? If I can afford it, what is the additional monthly cost I
am bearing compared to renting. The affordability to buy and rent is determined taking into
account the monthly earnings excluding the taxes and payments towards any existing
loans. The rental price of the house is compared to its value to assess the proﬁtability
associated with both renting and owning the house. ABRS aids you in making the renting vs
buy decision by giving an explanatory score based on the rental value, Property value and
the current ﬁnancial state.

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

90 Buy (Rents are high)
87.5 Buy ( Rents are higher)

80 Can afford both ownership and Renting but because of low Rent to
Ownership Rent is recommended.

77.5 Buy/Neutral (Can afford both ownership and rent )

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)

65 Rent (Rents are high but can't afford to buy)

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 Alipore Behala EM Howrah Jadavpu Jodhpur Lake PA Salt
Income/ Bypass r Park Town Shah Lake
Cities Road City

8 Lakhs 40 77.5 75 90 65 65 87.5 75 65
10 Lakhs 40 77.5 75 90 65 65 87.5 75 65
12 Lakhs 40 90 87.5 90 77.5 65 100 75 65
15 Lakhs 65 90 100 90 77.5 65 100 87.5 77.5
20 Lakhs 65 90 100 90 90 77.5 100 100 100
25 Lakhs 65 90 100 90 90 90 100 100 100

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across nine major Localities
of Kolkata

Alipore : A professional with a salary range of 8-14 lakhs cannot afford to stay in this locality.
A professional with a salary range of 15-25 lakhs has an ABRS score of 65. This 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.

Behala : A professional with a salary range of 8-10 lakhs can afford to rent and buy. A
professional with a salary range of 11-25 lakhs is advised to buy as the rents are high.

EM Bypass : The ABRS score of 75 for a salary range of 8-10 lakhs signifies the fact the rental
value is critically high but a professional in this salary range cannot afford to buy. A
professional whose salary range is between 13-25 lakhs is better off owning a home than
renting it.

Howrah : The score of 90 signifies that though the rents are high, a professional with a salary
range of 8-25 lakhs should buy in this locality. The EMI payments to be made in case of
ownership are affordable.

Jadavpur : A professional with a salary range of 8-11 lakhs is better of renting. 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. The professionals with a salary range of more than
15 lakhs are advised to buy.

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Jodhpur Park : A professional with a salary range of 8-15 lakhs is better of renting even
though the rents are high. This is because he can't afford the EMI in this salary range. A
professional with a salary range of 16-20 lakhs falls in the neutral zone i.e. he can afford both
renting and buying. A professional with a salary range of 21-25 lakhs is advised to buy.

Lake Town : A professional with a salary range of 8-10 lakhs and 10-25 lakhs has an ABRS
score of 87.5 and 100 respectively. This signiﬁes that a professional with these salary ranges
should buy in this locality.

PA Shah Road : 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 this salary range cannot afford to buy. With
a salary of 15 lakhs a professional to should buy because the rents are higher. A professional
whose salary range is between 16-25 lakhs is better off owning a home than renting it.

Salt Lake City : A professional with a salary range of 8-12 lakhs is better of renting. A
professional with a salary of 13-15 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. The professionals with a salary range of
more than 15 lakhs are advised to buy.

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19


6 Key Factors
Here are some important numbers to look at before making the decision:

Localities Alipore Behala EM Howrah Jadav Jodhpur Lake PA Salt
Bypass pur Park Town Shah Lake
Road City
Initial
Corpus
required 2,500,000 650,000 850,000 380,000 919,600 1,213,800 650,000 1,000,000 1,058,000
for
owning* (INR)

No.of
Years to
save for 8 3 4 2 4 5 3 5 5
the
corpus
Average
No.of
sq.ft per 52.63 21.75 30.77 20 16.48 18.90 23.53 30.77 8
INR
1lakh
Initial
corpus
425,000 110,000 165,000 60,000 150,000 200,000 120,000 210,000 165,000
required
for
renting**

Average
out of 0.39 0.40 0.45 0.39 0.38 0.38 0.44 0.49 0.37

pocket
cost ***

Break
Even 13 12 11 11 13 13 11 11 13
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
*** (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

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7 Conclusion
Based on the current real estate markets, Howrah, Lake Town and Behala 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 Howrah, Lake Town and Behala provide a better
lifestyle option. The real estate market of PA Shah Road favors the home owners because of
its moderate property prices and high rental value. Though the moderate property prices
of Salt Lake City 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 Jodhpur Park make the decision to rent easier. Alipore is the least affordable
locality 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. The comprehensive ArthaYantra Buy vs. Rent Score (ABRS) suggests the
decision a professional should take across the nine major localities of Delhi 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 their
Emotional Premium attached with buying a house is going to match the EMI premium
being paid.

8. Limitations and Concerns:
The data is related to following localities of Kolkata:

Alipore, Behala, EM Bypass, Howrah, Jadavpur, Jodhpur Park, Lake Town, PA Shah Road
and Salt Lake City.

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.

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9. Appendix
FIGURES:

Figure 1: Graphical Representation of Buy Vs. Rent in Kolkata

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

Figure 3: Average property price and rental values across nine major localities of Kolkata

Figure 4: No. of years required to save the corpus for down payment across nine major
localities of Kolkata

Figure 5: Average no. of sq ft per INR 1lakh across nine major localities of Kolkata

Figure 6: Break even horizon for the nine major localities of Kolkata

TABLE:

Table 1 : Factors associated with home ownership and renting

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

Table 3 : Rent to Buy ratio and Urgency to buy rank of nine major localities of Kolkata

Table 4 : ArthaYantra Buy vs. Rent Score Explanation

Table 5 : ArthaYantra Buy vs. Rent scores for different salary ranges across nine
major Localities of Kolkata.

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+)

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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

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