Gone are the days when millennials blindly followed elders’ advice and bought a house. Though buying a house was beneficial in the yesteryears, in this era of job insecurity, unpredictable interest rates and high return centric investment planning, it might not be the best move.
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Buying a home is a decision governed more by emotions than finances. When compared to renting, buying a house is 4 times more expensive. Yet, many citizens would rather buy a house than rent it. Why?
Home is a castle, a safe haven where you live with your family. Home gives security to your family. What if your spouse doesn’t earn and something untoward happens? At least your family will have a substantial asset. They can save on rent or sell the house. In this article, you will read 5 home truths which will give you grounds to question, understand and take a measured decision on buying or renting a house.
As mentioned earlier, buying a house is 4 times costlier than renting a place in India. On an average, home loans in India have an interest of 8.5% per year. There is in sharp contrast to the quantum of rental yields vis-a-vis home loan interest rates. Rental yields (as per June 2017 numbers) in various major cities in India are:
Rental yield is lower in India compared to advanced countries like Canada, U.K. and Germany. In fact rental yield there is more than the home loan interest rates. The difference between the Home Loan interest rate and rental yield in India is very high. This is an indicator of overvaluation of Indian residential properties.
While in case of renting a place, you will have to pay a one-time security deposit and monthly rent, the costs involved are much higher in buying a property. It is a well-known truth that buying a house is not child’s play. You will have to apply for a Home Loan which brings along a huge debt. The eligibility criteria of Home Loans are stringent. Plus, you will have to arrange for the down-payment and commit to paying EMIs for a long time. It takes almost half of your working life to repay the home loan. Yes, home is an investment and asset.
But, can you overlook the fact that you will be paying a great deal of money in the form of interest to the bank? The truth is almost half the home loan repayment amount, goes in paying off the interest. Can you afford it?
Nowadays, employees never know when they have to shift to another location, that too for a relatively long period of time. Also, given that millennials, whether married or not, love to explore new places, this is inevitable. How wise is it to block your savings in a home, an illiquid asset?
Buying a house is a long-term commitment. It goes without saying that people’s needs change with time. Can you change your home in a hurry if the need arises? Renting, on the other hand, is an immensely flexible option.
Technology has made it possible to browse through hundreds of quality properties, listed on various online property aggregators. You can filter out your requirements and preferences and check-out the best ones. Selling a house is also a task. It is not easy as the valuation is vague and hardly matches the market.
Job markets these days are highly unstable. Job security is a myth. Home Loans demand a fixed, high and regular availability of funds. In times of financial crisis and loss of job, how do you plan on meeting the home loan EMIs? Say, if you live on rent, you always have an option to move into a place costing less.
Even though illiquid, home is an asset. Your family grows to love the home. It is a safe haven for your family. After retirement or in your absence, the family will have a roof above their heads. If your spouse doesn’t earn, and something happens to you, will your family be able to afford the rent? Had you bought or constructed a house they would have an asset at their disposal.
Now that you know the 5 facts on home truths, you are in a position to brainstorm and decide what’s best for you.
Be Wise, Get Rich.
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