Buy vs Rent

Years of fight over Coffee or Toffee continues in Real estate to Buy or Rent although the article is old but throws light on real estate price in different cities yr 2013. In past Rental Yield is around 3-4% but going forward this yield might increase in selected cities with bargain price deals ?? one must do due diligence whether investing for rental income will be profitable ? 

Article is all about Buy vs Rent for own use w.r.t to Area(Estate) not for investment. Don't base old data to take decision on your buy or rental as RE have dramatically changed in last 4years and post Demonetization real estate Landscape have changed drastically.

Source : Arthayantra 

https://www.arthayantra.com/buy-vs-rent-report-2013-bengaluru-edition?landingPage=Homepage_CLB_5StarFunds&campaign=CDN&campaignId=Homepage_CLB_5StarFunds

Property cost vs Rental Value:The Residential Property prices in Kanakapur Road andTumkur Road are not being translated to their rental value. Though the average residential property values of Kanakapur Road and Hosur Road are identical, the average rental value is less by nearly 20%. The same case goes with Tumkur Road and Whitefield. Though their average residential property values are identical, their average rental values differ by nearly 50%.

Down payment:The years of saving required to afford the initial down payment i.e. 20% ofthe property price determines how sooner we can buy a house. In Mysore Road it takes 3 years to save for the initial corpus. It takes at least 4 years to save for the required corpus in Bellary Road, Hosur Road, Whitefield, Tumkur Road and Kanakapur Road. A professional will have to save for 5 years in Old Madras Road. In Indiranagar a professional has to save for at least 10 years to afford the down payment amount required.

Area:The average number of square feet per INR 1 lakh determines the amount you needto pay for the desired area of occupancy. The average number of sq ft of 33.33 per INR 1 lakh in Mysore Road makes it the place where you can get the highest area for the same amount of money compared to other 6 localities. This implies that for a given price one can get the largest space in Mysore Road followed by Hosur Road, Kanakapur Road, Whitefield, Tumkur Road, Bellary Road and Old Madras Road. Indiranagar offers the least in terms of space.

Rent to Buy Ratio:The ratio compares the monthly cost of renting house to the monthly costof 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 0.40 shows that the rental values in Whitefield are higher and makes them an “immediately buy when you can afford” place. The ratio of 0.32 for Bellary Road and Kanakapur Road gives ownership of house an advantage over renting.

Annual out of Pocket Costs:The annual out of pocket costs in case of ownership include themonthly 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 Whitefield, 12 for Hosur Road, 13 for Mysore Road, 14 for Kanakapur Road, 15 for Bellary Road and Tumkur Road and above 15 years for Indiranagar and Old Madras Road. 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 inmaking 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.

Bellary Road:The rent to buy ratio of 0.32 meant that the rental prices are moderately highand it is advisable to buy. A professional with a salary range of 8-10 lakhs is better of renting in this locality. A professional with a salary of 11-14 lakhs falls in the neutral zone and a professional with a salary range of more than 15 lakhs are advised to buy.

Hosur Road:The rent to buy ratio of 0.38 meant that the average rental value of residentialproperty is high compared to the average property price. This makes Hosur 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 is also in favor of buy with the breakeven being achieved at 12thyear (second fastest of the eight localities).

Indiranagar:The highest in terms of average property prices. The rent to buy ratio of 0.15meant that the average rental value of residential property is very less compared to its higher prices. The least number of sq ft per INR 1 lakh(among the eight localities) make it a place to rent. A professional with a salary of 8-25 lakhs cannot afford to buy in this locality, therefore renting is recommended.

Kanakapur Road:The rent to buy ratio of 0.32 meant that the rental prices are moderatelyhigh and it is advisable to buy. A professional with a salary range of 8-9 lakhs is better of renting in this locality. A professional with a salary of 10-11 lakhs falls in the neutral a professional with a salary range of more than 11 lakhs are advised to buy.

Mysore Road:The first most affordable locality for a professional. The rent to buy ratio of 0.36meant that the rental prices are moderately high and it is advisable to buy. The years required to save for down payment is 3 and one can get around 33.33 sq ft per INR 1 lakh. The affordable gross salary zone also starts from INR 10 lakh.

Old Madras Road:The second highest in terms of average property prices. The rent to buyratio of 0.27 meant that the average rental value of residential property is high, but can be considered less when compared to its higher prices. Renting is the best option.

Tumkur Road:A rent to buy ratio of 0.27 and moderately high property prices and cheaperrental values makes it a place to rent. A professional with a salary range of 8-12 lakhs should rent. The low rental prices also meant that though the professional with a salary more than 12 lakhs can afford to buy a house renting is a better option.

Whitefield:The rent to buy ratio of 0.40 meant that the average rental value of residentialproperty is high compared to the average property price. This makes Whitefield 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 11thyear (fastest of the eight localities).