Arthayantra buy vs. rent report 2016

www.arthayantra.com
BUY RENT
ArthaYantra
VS
REPORT
ABRS
ArthaYantra Buy Vs. Rent Report 2016

CONTENTS
1. Introduction
2. Methodology
3. Assumptions
4. Findings
4.1 Historical Data of NHB Residex
4.2 Analysis of property prices v/s rental values
4.3 Change in property rates & rental values
4.4 Aﬀordability-To-Buy and Aﬀordability-To-Rent Ranking
4.5 Purchasable Area for Rupees One Lakh
4.6 Initial Down Payment
4.7 Initial Corpus (security deposit) for Renting
4.8 Urgency to Buy ratio
5. ArthaYantra Buy vs. Rent Score ( ABRS)
6. Comparative Analysis of 8 Cities
7. Conclusion
8. Limitations
9. Sources & Appendix
Pg. No.
06
07
07
07
07
08
08
09
10
10
11
11
12
12-16
17
17
18

ArthaYantra Buy vs. Rent Report 2016
Citywise Snapshot
Years for
down payment
6.9
Sq-Feet
per Lakh
13.23 Buy
Rs. 20 to 25 lakhs
Neutral
Rs. 16 to 19 lakhs
Rent
Rs. 8 to 15 lakhs
CHENNAI
ABRS
55
ABRS
67.5
ABRS
80
Years for
down payment
5.7
Sq-Feet
per Lakh
16.75
Buy
Rs. 16 to 25 lakhs
Rent
Rs. 8 to 12 lakhs
Neutral
Rs. 13 to 15 lakhs
BENGALURU
ABRS
65
ABRS
77.5
ABRS
90
DELHI-NCR
Buy
Not Affordable
Sq-Feet
per Lakh
8.42
Neutral
Rs. 25 lakhs
Rent
Rs. 8 to 24 lakhs
Years for
down payment
10.2
ABRS
55
ABRS
67.5
HYDERABAD
Years for
down payment
3.4
Sq-Feet
per Lakh
29.67 Buy
Rs. 9 to 25 lakhs
Neutral
Rs. 8 lakhs
Rent
Affordable
ABRS
77.5
ABRS
90
Score Recommendation
100 Buy
90 Buy
87.5 Neutral: Recommended to buy
80 Neutral: Can afford to buy
77.5 Neutral: Both buying and renting are affordable.
75 Rent
67.5 Neutral: Can afford to Buy, paying EMI is more expensive
than renting, recommended to rent
<55 Cannot afford to buy or Rent
Figure: 01
Pg-03

ArthaYantra Buy vs. Rent Report 2016
Citywise Snapshot
Years for
down payment
15.1
Sq-Feet
per Lakh
5.26
Rent
Rs. 8 to 25 lakhs
Buy
Not Affordable
Neutral
Not Applicable
MUMBAI ABRS
55
Years for
down payment
6.0
Sq-Feet
per Lakh
15.59 Buy
Rs. 17 to 25 lakhs
Neutral
Rs. 14 to 16 lakhs
Rent
Rs. 8 to 13 lakhs
PUNE ABRS
55
ABRS
67.5
ABRS
80
Years for
down payment
5.3
Sq-Feet
per Lakh
18.03
Neutral
Rs. 12 to 14 lakhs
Rent
Rs. 8 to 11 lakhs
Buy
Rs. 15 to 25 lakhs
KOLKATA
ABRS
65
ABRS
77.5
ABRS
90
Years for
down payment
3.9
Sq-Feet
per Lakh
25.45
Buy
Rs. 10 to 25 lakhs
Neutral
Rs. 8 to 9 lakhs
AHMEDABAD
ABRS
90
ABRS
77.5
Rent
Affordable
Score Recommendation
100 Buy
90 Buy
87.5 Neutral: Recommended to buy
80 Neutral: Can afford to buy
77.5 Neutral: Both buying and renting are affordable.
75 Rent
67.5 Neutral: Can afford to Buy, paying EMI is more expensive
than renting, recommended to rent
<55 Cannot afford to buy or Rent
Pg-04

THE FOURTH ANNUAL
EDITION OF ARTHAYANTRA
BUY VS RENT RESEARCH
COVERS TOP 8 CITIES
ACROSS INDIA.
Summary
BENGALURU continues to be favorable for
renting rather than buying, even though
average property rents have increased by
10.08%. The garden city is an affordable
buy destination for people with an annual
income of Indian Rupees (INR) 16 lakhs or
above.
CHENNAI continues to be an expensive city
to buy a property. However, an increase in
property prices by 8.78% from last year
has had a negative effect on rental values.
Buying a property here is only suitable for
people with an annual income INR 20
lakhs or above.
DELHI-NCR is the second most expensive
city for both renting and buying a property.
The demand for real estate is still buoyant
and people with an annual income above
INR 25 lakhs can consider buying a
residential property.
HYDERABAD remains the most affordable
city for both buying and renting a
residential property. The market is yet to
pick up and still holds first rank in terms of
affordability to rent and affordability to buy
a residential property. Anyone with an
annual income of over INR 9 lakhs can
consider buying a residential property in
this city.
MUMBAI is the most expensive city for
both buying and renting a residential
property. Though the real estate market in
the city has had an upward trend, it is still
beyond the reach of a middle income
household. Even someone with an annual
income of INR 25 lakhs cannot afford to
buy a residential property. Therefore, it is
most suitable city for renting a house.
PUNE has seen an increase in both rental
& property prices. There has been an
upswing in the property prices as
compared to last two years. People with
an annual income above INR 17 lakhs can
consider buying a residential property.
KOLKATA is uniquely placed in our findings
as a city having very similar growth across
rentals and property prices. Inspite of this
growth, it is still an affordable city to rent
or buy when compared to Delhi and
Mumbai. People with an annual income
over INR 15 lakhs can buy a house in the
city of joy.
AHMEDABAD like Hyderabad, continues to
be an affordable city for both buying and
renting a residential property. We observe
a demand in rentals since last year. People
with an annual income of INR 10 lakhs and
above can consider buying a residential
property in this city.
Bengaluru
Chennai
Delhi-NCR
Hyderabad
Mumbai
Pune
KolkataAhmedabad
Pg-05Map not to scale

1. INTRODUCTION
The real estate sector is one of the most globally recognized sectors. In India, real estate is the
second largest employer after agriculture. The growth of this sector is well complemented by the
growth of the corporate environment and the demand for urban and semi-urban accommodations.
In line with trends in the real estate market, the residential sector, in particular, provides Indians
ample scope to choose whether to buy or rent a property in the city they live in. At the same time,
they do need a reliable tool to assess whether their current financial state coupled with the city’s
property prices & rental values guides them to arrive at a pragmatic and rational decision.
Buying a house is considered a significant milestone in one’s life, people work hard to realize this
important personal dream, both for investment as well as for emotional reasons. Thus, the idea of
property purchase will have multiple financial implications.
On the other hand, renting a property serves a great alternative to buying one. For urban
professionals, renting is often a convenient option because of the flexibility it offers. Some people
may prefer a lifestyle where they do not want to belong to one place for too long, some may have
transferrable jobs and for these people, renting/leasing a property works favorably.
Consider the below components that determine one’s decision of renting/leasing a
property vs. buying:-
CASH FLOWS
The intent of buying a property is determined by the amount of impact its purchase would have on
individual’s cash flow. To buy a property one has to go through the down payment for the loan, EMI
to be paid, property taxes and the regular maintenance and repair costs. Whereas, renting would
attract the monthly payment towards rent along with the maintenance cost besides the security
deposit. Rental values year-on-year should not be ignored as they tend to increase. The savings
after such fixed payments will determine whether owning or renting would be a feasible option.
TAX SAVINGS
The net savings after bearing the cost of ownership or renting has a direct impact on tax savings.
Separate sections of the Income Tax, such as Section24 B or Section 80C also determine the
reduction in net payment toward the EMI’s. On the other hand renting saves your taxable income as
the major or whole portion of the rent paid can be saved by claiming it under Section 10 as HRA. In
short, both options would help the tax savings; the comparative savings for the longer run would
give a real picture on what should be done.
So considering both the above conditions of owning a house vs. renting a house, the 4th Annual
ArthaYantra Buy v/s Rent (ABR) Report offers a qualitative as well as a quantitative approach for
individuals to decide what is best suited within their budget.
Taking a decision on real estate is way more complicated than expected. And in order to simplify
this complexity, the 4th Annual ABR Report deep dives into the trend of property prices and their
rental value over the past four years across 8 major cities in India. This quantitative methodology
offers individuals with an insight into the options of buying versus renting properties keeping the
best interest of their personal finances.
Pg-06

2. METHODOLOGY
As part of our research, data was captured from multiple sources like
from National Housing Board (NHB) of India, available real estate reports
and major real estate aggregators.
The methodology used for arriving at the results considers various key parameters
derived from the initial data collected which include price of the residential property,
rental values, years of saving for accumulating down payment, initial security deposit
amount while renting a property and lastly the purchasable area (number of square
feet) per INR 1.0 lakh.
The main idea behind this research is to quantify the buy versus rent decision from a
personal finance perspective. Two major 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 (ABRS) tries to address these questions and
come up with a comprehensive scoring system. The ABR Score not only tells if it is
better to buy or rent but also tells whether it's affordable to buy or rent.
3. ASSUMPTIONS
• The sale price and rental values are calculated for a ready to occupy 1,000 sq. ft.
residential property
• Baseline gross annual income for analysis is considered to be INR 8.0 lakhs
• Initial down payment amount = 20% of the house price
• Tenure for the home loan is considered to be 15 years
• Home loan lending rate is considered to be 9.75% per annum
• Average savings rate towards residential purchase is 25% of one’s annual income.
• Monthly EMI to be paid = 50% of monthly take home salary
• Property tax = 1.5% of the property value
• Property appreciation is not considered for EMI & down payment calculations
• Rental security deposit varies depending on the city
4. FINDINGS
4.1 Historical data for NHB Residex
National Housing Board India’s Residential Index (NHB
Residex) tracks the movement of prices in the
residential housing segment across India. Figure 02
shows the historical NHB Residex values since its
inception in 2007.
Chennai remains unchanged with steepest rise in the index value by
264% from the base year (2007) and a 19.74% increase in index
value over the past four years i.e. from 2012. Pune comes next to
Chennai with a rise in index value by 151% since 2007 and a 38.67%
increase in index value since 2012 i.e. the year of the first ABR
report. This shows that the prices of residential properties are
rapidly growing when compared to last year both at Chennai &
Pune.
On the other hand, Hyderabad has seen de-growth in real estate
prices by 3% since the base year 2007. Mumbai occupies the third
position in real estate growth rate with rise in the index value by
138% from the base year (2007)
Cities like Ahmedabad, Kolkata, Delhi and Bengaluru have seen a
positive trend in real estate growth with rise in the index values by
115%, 112%, 90% and 15% respectively from base year.
400
350
300
250
200
150
100
50
0
Hyderabad
Chennai
Pune
Kolkata
Mumbai
Bengaluru
Delhi-NCR
Ahmedabad
2007
Jan-M
ar 2011
Jan-M
ar 2013
Apr-Jun
2011
Jul-Sept 20011
Oct-Dec 2011
Jan-M
ar 2012
Apr-Jun
2012
Jul-Sep
2012
Oct-Dec2012
Jan-M
ar 2015
Apr-Jun
2013
Jul-Sept 20013
Oct-Dec 2013
Jan-M
ar 2014
Apr-Jun
2014
Jul-Sep
2014
Oct-Dec2014
NHB Residex Trend - 8 Cities
Figure: 02
Pg-07

4. FINDINGS
4.2 Trend analysis of Property Prices v/s Rental values
The key parameter in determining whether to buy or rent a home is the property cost
vis-à-vis the rental value. In this study, we compare property prices with rental values for
1,000 sq. ft., ready to occupy house across selected eight cities. The figure below shows
our findings:
Mumbai (INR 1.91 crores), Delhi-NCR (INR 1.18 crores) & Chennai (INR 75.6 lakhs) have
been very expensive cities for buying, whereas the rentals have undergone a marginal
change for the past two years. With rising inventory levels in these cities indicates that
the supply that is available is unaffordable to many. So, people are left with renting as
an option over buying.
Coming to Bengaluru, inventory remains at the same levels given that buying is not being
considered the top priority, people prefer to rent, and so we observe constant increase
in rental values over the past four years.
When we look at last two year trend at Hyderabad & Ahmedabad, both property prices &
rental values haven’t undergone a significant change as compared to the other 6 cities.
Since 2012, cities like Mumbai and Pune have seen
aggressive growth in their property prices by 73.91% and
49.97% respectively. Even though property prices are
high in Delhi-NCR, we observe that there is marginal
increase of 6.37% since 2014 which could be due to the
rise in number of incomplete projects & a near stagna-
tion in property prices.
Kolkata is the second city after Mumbai which has seen
significant increase in the property rates since last year
i.e. 11.27%. Hyderabad & Ahmedabad have seen a
negative growth in the property rates since 2014 making
them look attractive as buy opportunities.
4. FINDINGS
4.3 Change in Property Rates
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
Thousands
Buy
Rent
35
30
25
20
15
10
5
0
Bengaluru
Chennai
Delhi-NCR
Hyderabad
M
um
bai
Pune
Kolkata
Ahm
edabad
Average Property Price vs Rent
33
16 18
12
19
5,968.47
7,559.51
11,875.88
3,370.51 6,412.73
5,546.81
3,929.38
16
22
11
19,012.30
Change in prices: 1-year over 4-year trend
Price Change (from last year) Price Change (from 2012)
-2.55% 9.76%
Bengaluru
8.78% 5.55%
Chennai
6.37% 9.13%
Delhi-NCR
-0.42% -10.46%
Hyderabad
16.04% 73.91%
Mumbai
7.96% 49.97%
Pune
11.27% 8.27%
Kolkata
-4.46% -20.70%
Ahmedabad
Pg-08
Figure: 03
Figure: 04

4. FINDINGS
4.3 Change in Rental Values
Ahmedabad has seen a negative growth in
the property rents since 2012, thus placing
it high on the affordability-to-rent.
Hyderabad has seen a fair increase in the
rental values despite drop in property
prices, which makes this city affordable for
buying a property.
Bengaluru is more favourable towards
renting than buying a property inspite of
seeing a drop in property prices due to its
high-value real estate.
Rental Change - 1 year vs 4 years trends
Change ( last year) Change (from 2012)
0.6
0.5
0.4
0.3
0.2
0.1
0
-0.1
-0.2
-0.3
-0.4
Bengaluru
Chennai
Delhi-NCR
Hyderabad
M
um
bai
Pune
Kolkata
Ahm
edabad
4. FINDINGS
4.4 Affordability-to-Buy and Affordability-to-Rent ranking
Cities are given Affordability-to-Buy (ATB) rank and Affordability-to-Rent (ATR) rank by
considering income factors of an individual, expected EMI to be paid, and renting a
property. The rankings aim to help Indian families to take a sound financial decision on
buying or renting a home.
Since 2012, Hyderabad and Ahmedabad have retained their ATB ranking. Cities like Mumbai and
Delhi-NCR stand to be very expensive both in terms of buying and renting a property and this has
been consistent trend year-on-year. Chennai continues to be at 6th position like last year in ATB
ranking while there is step up in the ATR ranking from 5th to 4th position making it better placed
for renting. Pune, over the last four years, has come down in its ATB ranking due to a constant
increase in property prices while it retains the 3rd position for ATR ranking. Bengaluru has
become more attractive in ATB ranking i.e. from 5th position in 2014 to 4th position in 2015 but
remains at 6th position on the ATR ranking. Kolkata remains at 3rd position for ATB but has seen
a drop in its ATR ranking from 4th to 5th position.
Affordability-to-Buy (ATB) trend 2012-15
Bengaluru
2015
2014
2013
2012
4
5
4
4
6
6
6
5
7
7
7
6
1
1
1
1
8
8
8
7
5
4
3
2
Chennai AhmedabadDelhi-NCR Hyderabad Mumbai Pune Kolkata
3
3
5
3
2
2
2
--
Affordability-to-Rent (ATR) trend 2012-15
Bengaluru
2015
2014
2013
2012
6
6
3
3
4
5
4
4
7
7
6
6
1
2
1
1
8
8
8
7
3
3
2
2
Chennai AhmedabadDelhi-NCR Hyderabad Mumbai Pune Kolkata
5
4
7
5
2
1
5
--
Figure: 05
Pg-09
Figure: 06

4. FINDINGS
4.5 Purchasable Area for Rupees One Lakh
For an Indian middle class family, one primary factor that affects property buying
decision will be the total sq. ft. they get for the allocated budget. Thus, as a part of this
analysis, the area covered (number of sq. ft.) per one lakh Indian Rupees spent will be a
dependable parameter.
We observed that with change in property prices over the last four years impacts the area
covered per one lakh Indian Rupees.
Amongst the 8 cities covered, the drop in
property prices in Bangalore (16.75 sq. ft.) and
Ahmedabad (25.45 sq. ft.) has enabled
increase in area covered as compared to last
year. When we look at the 4-year trend, except
for the cities of Hyderabad and Ahmedabad, all
other cities have seen a considerable decline
in the sq. ft. covered.
4. FINDINGS
4.6 Initial Down Payment
Before purchasing a house, an average middle class household works hard to create the
corpus i.e. initial down payment. Although the EMIs takes care of 80% of home loan,
accumulating the down payment amount is a very important aspect.
With a recent drop in home loan interest rates by RBI, buying a home has become more
attractive. However, the rate cuts won't lead to any significant rise in sales without
making ready the initial down payment. For this analysis we’ve assumed the savings rate
of 25% of one’s annual income (pre-taxes), the time required to accumulate the corpus
for the down payment is represented in the figure below:
Households in Mumbai would take 15.1 years
to accumulate the down payment to purchase a
1,000 sq. ft. house. The time required is 1.8
years more than last years. Over the period of 4
years, time required for down payments
increased by 5.5 years which makes it a
challenging task for house purchase in
Mumbai.
Over the past four years, cities like Delhi-NCR ,
Pune, Bengaluru, Chennai and Kolkata have
seen marginal increase in accumulation of
corpus amount. Whereas, Ahmedabad and
Hyderabad have seen reduced number of years
for corpus buildup.
Ahmedabad
Kolkata
Pune
Mumbai
Hyderabad
Delhi-NCR
Chennai
Bengaluru
0.00 5.00 10.00 15.00 20.00
Sq. Feet per lakh: 4-year trend (2012-15)
25.00 30.00 35.00
2015 2014 2013 2012
AhmedabadKolkataPuneMumbai
Years to downpayment (2012-15)
HyderabadDelhi-NCRChennaiBengaluru
2012 2013 2014 2015
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Figure: 07
Figure: 08
Pg-10

4.8 Urgency-to-Buy (UTB) Ranking
Urgency-to-Buy (UTB) is a ranking that enables people to take an objective decision to
either buy or rent. The UTB ratio indicates what extra payment one has to pay every
month if the property is purchased instead of rented. This ratio helps in understanding
whether the rental yields are in line with the property prices in a city. The average
monthly cost of renting is derived from the sum of rents and maintenance cost whereas
monthly cost of buying is calculated by adding maintenance cost with the EMI. This ratio
is a very good means to understand if property prices are inﬂated.
CHENNAI
months
10
BENGALURU
months
10
MUMBAI
months
10
HYDERABAD
months
3
DELHI-NCR
months
3
AHMEDABAD
months
2
KOLKATA
months
3
PUNE
months
6
4. FINDINGS
4.7 Initial Security deposit for Renting
In order to acquire a rental property one has to pay a security deposit as advance which
is calculated as (number of months)*(monthly rental value). Thus, the advance amount
needs to be accumulated before moving in and this varies from city to city depending on
the rental agreement between the landlord and the tenant. Following are the average no.
of months of rent required as an initial deposit amount across 8 cities:
BENGALURU
Avg. out of pocket cost (Rent) Rs.19,568
Avg. out of pocket cost (Buy) Rs. 51,582
Rent-to-Buy Ratio 0.37
Urgency to Buy Ranking 3
CHENNAI
Avg. out of pocket cost (Rent) Rs. 17,288
DELHI-NCR
Avg. out of pocket cost (Buy) Rs. 1,01,647
HYDERABAD
Pg-11
Figure: 09 Figure: 10

5. ARTHAYANTRA BUY VS. RENT SCORE (ABRS)
ArthaYantra’s Buy vs. Rent Score (ABRS) is an effort to seamlessly integrate the various
decision parameters like Affordability-To-Buy, Affordability-To-Rent and Urgency-To-Buy
considered for purchase or renting a house.
The property price and rental value of the place determines if one should rent or buy the
place. They have an impact on the cash flows of a household (be it rent or EMI), the tax
benefits availed and other lifestyle decisions.
ABRS is a powerful tool to logically compare rentals and/or property prices across cities.
In a way, one can arrive at the pros and cons of renting and/or buying a house in a
particular city/region. As a part of this research report we have considered the average
property prices and rental values of the localities and calculated the ABR Score across
different salary groups.
MUMBAI
Avg. out of pocket cost (Buy) Rs. 1,62,127
PUNE
KOLKATA
AHMEDABAD
*Maintenance cost of INR 1,000 per month added to all cities.
Mumbai has the least UTB ranking which means that renting a home is the best
option here. Kolkata and Hyderabad have shown similar trend in Urgency to buy
despite difference in their property prices.
87.5
90
100
80
77.5
67.5
<55
Buy
Buy
Neutral: Recommended to buy
Neutral: Can afford to buy
Neutral: Both buying and renting are affordable.
75 Rent
Neutral: Can afford to Buy; As paying EMI is more expensive than renting,
Renting is recommended
Cannot afford to buy or Rent
RECOMMENDATIONSCORE
Income(INR)
8 lakhs
10 lakhs
12 lakhs
15 lakhs
20 lakhs
25 lakhs
Bengaluru Chennai Delhi-NCR Hyderabad Mumbai Pune Kolkata Ahmedabad
65
65
65
77.5
90
90
55
55
55
55
80
80
55
55
55
55
55
67.5
77.5
90
90
90
90
90
55
55
55
55
55
55
55
55
55
67.5
80
80
65
65
77.5
90
90
90
77.5
90
90
90
90
90
Pg-12
Figure: 11

Bengaluru
2012
18.39
5.3
Sq.Feet per lakh
Years to downpayment
16.01
5.9
16.33
5.8
16.75
5.8
2013 2014 2015
NHB Residex - Bengaluru
88 92 93 100
Jan-Mar 2011 Apr-Jun 2011 Jul-Sept 2011 Oct-Dec 2011
92 100 98 106
115
Jan-Mar 2015 Change from base
year 2007 : 15%
Change from
year 2012 : 25%
109 108 107 111
107 108 109 113
100 100 100 100
4 6 3
Affo
rdability to
rent
Ur
gency to b
uy
Affor
dability to
buy
2012 2013 2014 2015
Chennai
6 4 6
Affo
rdability to
rent
Ur
gency to b
uy
Affo
rdability to
buy
NHB Residex - Chennai
218 248 271 296
100 100 100 100
304 309 312 314
310 303 318 330
Jan-Mar 2014 Apr-Jun 2014 Jul-Sept 2014
349 355 362 366
Oct-Dec 2014
Jan-Mar 2015
364
Change from base
year 2007 : 264%
Change from
year 2012 : 19.74%
13.96
6.7
Sq.Feet per lakh
13.15
7.0
14.3
6.5
13.23
6.9
6 COMPARISON WITH PREVIOUS YEARS
6.1. Bengaluru - Rising Rental Yields
The IT capital of India has seen buoyant growth in the job market leading to an increased demand for rental
houses inspite of a drop in the property prices. It remains to be the most popular IT job destination vis-à-vis
Pune, Hyderabad & Chennai for IT/ITES professionals hailing from tier-2 and tier-3 cities of India. Over the past
four years, though the property prices have grown by 9.76%, on year-on-year comparison, the property prices
have dropped by 2.55% since 2014. This drop is because of real estate developers finding it difficult to sell
units and thus bringing in a price correction.
The city has seen steeper growth in rental values as compared to the property prices. This shows a drop of
city’s Affordability-to-Rent rank from 3rd last year to 6th position this year. In terms of the Affordability-to-Buy
rank (4th in 2015), it still not in the top 3. The years required for down payments have decreased slightly to 5.67
years this year leading to a marginal increase in area covered per one lakh rupees.
ABRS suggests that a person having an average annual income over INR 15 lakhs can plan to buy a residential
property in the city, while some areas like Hosur Road and Whitefield look affordable for other income groups.
6.2. Chennai – Affordable renting over buying
Chennai, a hub for both manufacturing units & services enterprises, continues to witness a growth (5.5%) in
real estate prices since 2012 while the rentals values increased by 8.89%, in line with inflation, for the same
period.
Of the 8 cities, Chennai, besides Mumbai & Delhi-NCR, remains to be an expensive destination for property
purchase making it occupy the 6th position (since 2013) on the Affordability-to-Buy ranking. On the other
hand, due to marginal drop (1.7% since 2014) in rental values, the city remains affordable for renting.
Chennai’s Affordability-to-Rent ranking is 4th, a step-up from its previous year.
There has been a slight increase in the years needed to accumulate the initial down payment while the
purchasable area per one lakh rupees has reduced by 8%.
The ABR Score of Chennai recommends a buy for people having average annual incomes of INR 20 lakhs and
above. Nevertheless, areas like Medavakkam and Chrompet are still attractive buys for people with average
annual incomes below INR 20 lakhs.
Pg-13
Figure: 12
Figure: 13

Delhi - NCR
NHB Residex - Delhi-NCR
7
7
7Affordability
to rent
Affordability
to buy
Urgency
to buy
2012
2013
9.1
9.5
8.5
10.1
2014
2014
8.9
9.7
8.4
10.2
Sq.Feet per lakh
100 100 100 100
126 147 154 167
168 172 178 195
202 199 190 196
199 193 189 189
Jan-Mar 2015
190
Change from base
year 2007 : 90%
Change from
year 2012 : 13.10%
Hyderabad
NHB Residex - Hyderabad
1 1
Affordability
to rent
Urgency
to buy
Affordability
to buy
1
2012
26.5
3.8
2013
23.9
4.1 3.4 3.4
2014
29.5
2015
29.6Sq.Feet per lakh
6.3. Delhi - NCR - Rents are increasing
The National Capital Region (NCR) remains to be the second most expensive region to own a home in India. The
average rental value of Delhi, over the last four years, has increased by 20% whereas the average property
prices increased by 9.1% for the same period. Being a highly preferred city for both education & jobs in North
India, Delhi-NCR experiences high amount of immigration from neighboring states making rentals values
steadily increase year-on-year.
On the Affordability-to-Rent as well as Affordability-to-Buy ranking, Delhi-NCR holds the 7th position. So, a
person aspiring to own a “Dream House,” with an annual earning of INR 8 lakhs, requires a little over 10 years
(10.2 years) to accumulate the down payment corpus besides living with 6% lesser carpet area when compared
to 2014.
The ABRS proposes Delhi-NCR to be a rental city for individuals having average annual income between INR 8
lakhs & INR 25 lakhs. And areas like Noida, Greater Noida Expressway and Indirapuram (Ghaziabad) are
favorable for renting despite increased travel time to work locations
6.4. Hyderabad – The Most Affordable Market
Since the inception of ABRS Report in 2012, Hyderabad has been rated as the most affordable city both in terms of
renting and buying a residential property. With a relatively stagnant real estate market, this city has become
attractive destination for purchasing a residential property. Over the past 4 years, the property prices declined by
10.46% whereas the rental values have increased by 6.3% for the same period. People belonging to any income
groups can lead a comfortable lifestyle here.
To an extent, the bifurcation of Andhra Pradesh & the formation of Telangana State hasn’t positively impacted the
real estate market in Hyderabad. Nonetheless, this city keeps its 1st position in both Affordability-to-Rent &
Affordability-to-Buy ranking. Also, an individual will take 3.4 years to accumulate the initial down payment, the
lowest among the 8 cities.
ABRS suggests that a person having an average annual income of INR 9 lakhs and above can plan to buy a
residential property across most of the real estate development areas in and around the city.
100 100 100 100
83 91 84 79
86 85 84 90
88 84 88 93
95 93 95 95
Jan-Mar 2015
97
Change from base
year 2007 : -3%
Change from
year 2012 : 12.79%
Pg-14
Figure: 15
Figure: 14

6.5. Kolkata – Steady trend
In the city of joy rental values have followed the same trend as property prices between 2012 and 2015. Over the
past year, property prices and rental values have grown by 11.27% and 11.48% respectively.
The Affordability-to-Buy ranking remains at 3rd position like in 2014 while the Affordability-to-Rent ranking slipped
to 5th position from 4th position (2014) indicating that the city is becoming a little more expensive to rent. The
years required for accumulating the initial down payments has increased slightly to 5.30 years. Also, we observe
there is 10.13% decrease in purchasable area per one lakh rupees over last year.
ABRS suggests that a person having an average annual income of INR 15 lakhs and above can purchase a
residential property in the city, while some areas like Howrah and Behola look affordable for other income groups.
6.6. Mumbai – Zooming real estate price
This city retains the title of being the most high-priced place to buy a home as well as most expensive place to rent.
The property prices zoomed by 74% since 2012 whereas it had a growth of 16% from last year’s findings.
Compared to the 2012, the average rentals has increased by 14.14%.
Being the financial & commercial capital of India, the city has increased demand for real estate prices despite the
fact that the prices are now beyond the reach of a salaried professional having average annual income of INR 25
lakhs.
In terms of Affordability-to-Buy & Affordability-to-Rent ranking the city comes at the bottom of the table at 8th
position. The years of saving required to create the down payment corpus is 15.1 years which is a good 1.8 years
over 2014. On other hand, due to increased prices the area covered for every lakh rupee spent also shrunk to 5.26
sq. ft. which is 13.9% less over 2014.
The ABR Score for individuals with a salary range of INR 8 lakhs and INR 25 lakhs remains at the bottom with a score
of 55 making Mumbai unaffordable to own a property in India. Although, some areas like Virar and Kalyan can offer
some low cost homes for professionals under the annual salary range of INR 25 lakhs.
Mumbai
NHB Residex - Mumbai
Jan-Mar 2015
8 8
Affordability
to rent
Urgency
to buy
Affordability
to buy
8
175 181 194 193
190 197 198 217
222 221 222 222
229 233 238 240
238
2012
9.5
9.6
2013
7.5
11.3
2014
6.10
13.3
2015
5.26
15.12
Sq.Feet per lakh
100 100 100 100
Change from base
year 2007 : 138%
Change from
year 2012 : 25.26%
NHB Residex - Kolkata
Affordability
to rent
Urgency
to buy
Affordability
to buy
Kolkata
5 23
Jan-Mar 2014 Apr-Jun 2014 Jul-Sept 2014
Jul-Sept 2015
Oct-Dec 2014
211 194 191 190
Jan-Mar 2007100 Jan-Mar 2007100 Jan-Mar 2007100 Jan-Mar 2007100
191 196 191 209
197
206 211 209 215
212
189 199 196
Change from base
year 2007 : 112%
Change from
year 2012 : 10.99%
19.5
5.0
2012 20152013 2014
15.6
6.0
20
4.8
18.03
5.31
Sq.Feet per lakh
Pg-15
Figure: 17
Figure: 16

6.7. Pune – Both real estate and rental increase
Over the past 4 years, Pune had seen a 32% rise in rentals and a 50% rise property prices. Among the 8 cities, Pune,
now stands at 5th position in Affordability-to-Buy ranking and 3rd position in terms of Affordability-to-Rent
ranking.
Pune, an educational hub and a vibrant job destination for core engineering & IT/ITES professionals, has been in
demand for both house purchase and rentals. The number of years required to create the down payment corpus
for Pune has increased to 6 years from 5.6 years in 2014. For the past 4 years, the purchasable area has reduced by
33.3%.
Individuals earning an average annual income of INR 17 lakhs and above can afford to buy a home. Some areas like
Hadapsar and Hinjewadi were found to have cheaper property rates and prove to be affordable for the individuals
having average annual income between INR 14 to INR 17 lakhs.
6.8. Ahmedabad – Waiting to be found
In Ahmedabad, the real estate is growing at slower pace compared to rest of the 8 cities, thus, making this city
affordable for buying and renting a residential property. Over the past three years, though the property prices
have grown by 13%, on year-on-year basis, the property prices have dropped by 4% since 2014.
Even though the city has seen sharper growth in rental values as compared to the property prices, there is a
drop in city’s Affordability-to-Rent ranking from 1st (2014) to 2nd position this year as Hyderabad remains to be
most affordable rental city. In terms of the Affordability-to-Buy rank, Ahmedabad stands at 2nd position this
year, it is still among the most affordable cities to buy. The years required for accumulating the down payment
corpus are 3.9 years this year and the purchasable area per one lakh rupees is 25.45 sq. ft., which is second
highest amongst the 8 cities.
ABRS advocates that a person having an average annual income of INR 10 lakhs & above can buy a residential
property in this city, while some areas like Vastral and Vatva look affordable for other income groups.
NHB Residex - Pune
Pune
23.3
4.3
2012 20152013 2014
18.5
5.2
16.8
5.6
15.5
6.03
Sq.Feet per lakh
Affordability
to rent
Urgency
to buy
Affordability
to buy
3 55
Jan-Mar 2015
148 150 169 184
181 200 201 205
221 219 219 235
232 241 242 247
251
100 100 100 100
Change from base
year 2007 : 151%
Change from
year 2012 : 38.68%
NHB Residex - Ahmedabad
Ahmedabad
Affordability
to buy
Affordability
to rent
Urgency
to buy
2 2 4
165 Jan-Mar 2011 169 Apr-Jun 2011 163 Jul-Sept 2011 167 Oct-Dec 2011
215 Oct-Dec 2015
2013 2014 2015
20.18
4.8
24.32
4.1
25.45
3.90
Sq.Feet per lakh
Change from base
year 2007 : 115%
Change from
year 2012 : 11.98%
Pg-16
Figure: 19
Figure: 18

7 Conclusion
The current economic scenario along with the ongoing trend in the realty
market make the Buy v/s Rent decision a little more complex for individuals.
Among the top 8 cities researched in this report, Mumbai and Delhi-NCR
clearly stand out as cities where buying a home has gone beyond the reach of
individuals earning even up to INR 25 lakhs per annum.
The purchasable area per one lakh rupees has increased for the cities like
Hyderabad and Ahmedabad, making them attractive destination for buying a
residential property. While the rest of the cities have seen decrease in
purchasable area per one lakh rupees, thus making us to conclude that the
real estate market, by and large hasn’t seen significant growth inspite of the
interest rate cut by RBI and tax slab changes in the recent past.
Builders might not be passing on the benefits of lower interest rates to the
end user and are holding on to their prices, while developers continue to
launch spacious units. This has led to a mismatch in what the market wants
and what is being developed/offered. In all, it discourages the price-sensitive
individuals from taking a ‘buy’ decision on residential properties. Also, it
implies that there is a need for price correction as sales are declining and
leading to a pile up of inventories.
As a cost-effective alternative, Hyderabad and Ahmedabad continue to be the
most sought after cities for both renting and buying for people having annual
earning of INR 10 lakhs or more. However, in Pune and Bengaluru, the salary
threshold to buy a home starts when the annual income is around INR 20
lakhs. These cities today offer a good buying alternative for Mumbai and
Delhi-NCR based professionals earning similar annual salaries
The economic value for a person in buying a home across the selected 8 cities
is being lessened given a combination of factors like steep rise in property
prices year-on-year, preference to rent over buy, reduced purchasable area
and longer duration to accumulate the initial corpus.
Buying a home without clear economic benefits can be detrimental to the
financial well-being of the buyer. We recommend that ABRS should be used as
the mainstay tool to arrive at a more objective decision on whether to buy or
rent a property.
8 Limitations
In each of the eight cities, data for analysis has been collected for the
below mentioned localities:
BENGALURU: Old Madras Road, Indira Nagar, Bellary Road, Hosur Road, Whitefield,
Tumkur Road, Kanakapur Road, Mysore Road, Lavella Road, Benson Town, Vĳaya Nagar.
CHENNAI: Adyar, Medavakkam, Tambaram, Anna Nagar, Porur, Sholinganallur, Perambur,
Kolathur, Chetpet, Ashok Nagar, Chromepet, Thriuvanmiyur,Nehru Nagar and
Nungambakkam.
DELHI-NCR: Golf Course Road, Sohna Road, Golf Course Extension Road, Noida & Greater
Noida Express Highway, Noida City, Indirapuram, Safdarjung Enclave, Rohini Sector 13,
Delhi East, Delhi South, Friends Colony, Shalimar Bagh, Vasant Kunj, Dwarka, Mayur
Vihar Phase 1.
HYDERABAD: Banjara Hills, Begumpet, Kondapur, Tellapur, Kukatpally, Miyapur, Rajendra
Nagar, L B Nagar, Tolichowki, Himayatnagar, Tarnaka, Uppal, Srinagar Colony.
MUMBAI: Lower Parel, Wadala, Andheri, Ghatkopar, Ghodbunder Road, Kharghar,
Chembur, Borivali West, Bhandup West, Mira Road, Kalyan, Virar, Pokaran Road, Malabar
Hills, Matunga East,Bandra West, Mulund, Dahisar.
PUNE: Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri Chinchwad, Shivaji
Nagar, Pimple Saudagar, Baner, Kharodi, Pashar, Chinchwad, Kothrud.
KOLKATA: Alipore, Behola, EM Bypass, Howrah, Jadavpur, Jodhpur Park, Lake Town,
Maniktala, Bhavanipur, Dhakuria, Salt Lake City.
AHMEDABAD: Motera, Gota, Satellite, Maninagar, Thaltej, Bodakdev, Vatva, Ambawadi,
Chandkheda Gam, Vejalpur, Shilaj, Vastral.
• 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 80 C is taken at INR 1.5 lakhs
• The tax benefits under section 24 B for home buyers is considered as
INR 2.0 lakhs
• The HRA benefits in case of renting is considered as per the taxation
rules based on average rental prices
• However, tax calculation for the previous years is taken as per rules pertaining
to the respective previous years
Pg-17

www.arthayantra.com
e-mail: care@arthayantra.com
Ph.: +91 40 66 588 259
ArthaYantra Corporation Pvt. Ltd. Registered and Corporate Address: 3rd floor , Sai Galleria, Plot No. 472, Road no. 36, Jubilee Hills,
Hyderabad, India 500 033 CIN: U74900TG2007PTC053246 Ph.: +91 99590 21949 e-mail: enquiries@arthayantra.com website: www.arthayantra.com
9. Sources and Appendix
Sources
• National Housing Board, India: www.nhb.org.in
• Makaan: www.makaan.com
• Commonfloor: www.commonfloor.com
• Magic Bricks: www.magicbricks.com
• 99 Acres: www.99acres.com
• Housing: www.Housing.com
Appendix - Figures
• Figure 01 : City wise Snapshot
• Figure 02: NHB Residex trend-8 cities
• Figure 03: Avg. Property price and rental values across 8 major cities
• Figure 04: Change in property prices 1 year over 4-year trend
• Figure 05: Rental change - 1 year versus 4 year trend
• Figure 06: Affordability-to-Buy and Affordability-to-Rent ranking trends
• Figure 07: Square feet per lakh: 4 year trend (2012-15)
• Figure 08: Years to down payment: 2012-15
• Figure 09: Initial rental security deposit
• Figure 10: Urgency-to-Buy ranking
• Figure 11: Arthayantra Buy vs Rent Scorecard
• Figure 12: Bengaluru
• Figure 13: Chennai
• Figure 14: Delhi-NCR
• Figure 15: Hyderabad
• Figure 16: Kolkata
• Figure 17: Mumbai
• Figure 18: Pune
• Figure 19: Ahmedabad
• Figure 20: Important numbers to look at before making a decision
Important Numbers to look at before making a decision
8 Year NHB Index Growth
Initial Corpus
No of Years
Avg. sq. feet per lakh
Initial Corpus for renting
Rent-to-buy ratio
Bengaluru
15%
11,93,694
5.7
16.75
1,85,681
0.37
264%
15,11,902
6.9
13.23
1,62,883
0.25
90%
23,75,175
10.2
8.42
65,287
0.22
-3%
6,74,102
3.4
29.67
33,273
0.39
138%
38,02,459
15.1
5.26
3,25,555
0.20
112%
11,09,361
5.3
18.03
54,541
0.39
151%
12,82,546
6
15.59
95,055
0.29
115%
7,85,875
3.9
25.45
23,183
0.35
Chennai Delhi-NCR Hyderabad Mumbai PuneKolkata Ahmedabad
Pg-18
Figure: 20
Pg. No.
03, 04
07
08
08
09
09
10
10
11
11, 12
12
13
13
14
14
15
15
16
16
18

Arthayantra buy vs. rent report 2016

Recommended

Recommended

More Related Content

Similar to Arthayantra buy vs. rent report 2016

Similar to Arthayantra buy vs. rent report 2016 (20)

Recently uploaded

Recently uploaded (20)

Arthayantra buy vs. rent report 2016