Owning a home versus living on rent: Which is a better long-term option?

October, 2018

When it comes to finding a long-term accommodation, we look at what makes better sense – living in a rented house or buying a property – and the factors that one should consider before opting for each

When it comes to living on rent versus living in one’s own home, people who advocate the former often argue that a rental home costs less, as compared to owning a home. Those who favour owning a house, cite the freedom that it offers. While owning a home is typically the dream of every Indian, sky-rocketing property prices in the recent past have led people to opt for renting, rather than buying, says Ajay Jain, executive director – investment banking and head real estate group, Centrum Capital Ltd.

“However, if one is certain about the city in which one is going to stay in the future and has the necessary funds for the down payment and stable future cash flows, it is highly recommended to own a home. Owning a home forces savings, in the form of home loan EMI payments, which most people would otherwise spend, if they rent a property,” adds Jain.

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Advantages of home ownership over rental accommodations

The main benefits of living in one’s own home, rather than a rented home are:

A sense of security and pride in home ownership.

You will not have to face increasing rentals.

When you buy a house with a loan, you are already aware of the EMI required to be paid over the long term. Hence, the future costs are predictable and more stable.

There is less likelihood of interference in your life, when you live in your own home.

How to decide whether to buy a home or live on rent

Experts advise that youngsters can consider buying a home in the early stages of their career, if they have a commitment to stay in a particular city. Even though it may seem difficult to manage the EMIs initially, after 5-10 years when their salaries increase, while the EMIs still remain the same, it would be a relatively lower proportion of your salary. Moreover, the property prices would have also appreciated multi-fold.

“Landlords in most states also tend to restrict the number of years that a tenant can occupy their house, due to the weak protection provided by the law to the landlords. With lower interest rates and the government subsidy for first-time buyers of affordable homes, owning a home is now possible for many more people,” opines Amit Oberoi, national director, knowledge systems, Colliers International India.

Own home versus rented home: Financial implications

Case 1: Let us assume that a person lives in a 3-BHK rented home and pays a rental of Rs 20,000 per month. The average rental appreciation is five per cent per annum.

Case 2 A person buys a 3-BHK home for Rs 40 lakhs on a home loan for 20 years.
Assuming that a person has occupied the home for 40 years, here’ a look at the financial calculations: 

In the example above, the cost of living in a rental property for one’s whole life, would be much higher than living in one’s own home. Moreover, the capital value of a home also increases over a period of time, whereas, you get no such benefit in a rental home.

Why owning a home may be a better choice over a rented home

Owning a house could also generate additional income, in the form of rentals or from paying guests

Rentals may seem cheaper compared to the EMI in the short run but in the long run, it is far higher than the cost of the house and the rental cost cannot be recovered.

A home owner can mortgage the property but a rental property cannot be mortgaged by a tenant.

A tenant may have to shift out of a rented home anytime, at the request of the owner.

Also read: How to improve your credit score before applying for a home loan 

Buy 2 BHK in Ambernath near Thane Mumbai To Know More Visit Squarefeet Group in Thane Website

Source - housing.com

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How home buyers can raise ‘margin money’ to purchase property

There are various ways in which home buyers can raise the margin money, which can vary from 10% to 25%, depending on the loan amount

While opting for a home loan, lenders will not sanction a loan for the entire cost of the house. Moreover, as per the RBI’s directions, lenders are not allowed to take into account the stamp duty and registration charges, while computing the cost of the property. Consequently, a portion of the total amount, has to be financed with the buyers’ own funds and is called ‘margin money’. The percentage of margin money varies from 10% to 25%, depending on the loan amount. There are various ways in which borrowers can raise this margin money.

By liquidating past savings, or taking a loan against securities

For a majority of home buyers, this is the main source to finance the margin money. The savings may be in different forms (funds in bank accounts, fixed deposits, investments in shares and mutual funds, investments in National Savings Certificates, etc.) and depending on the requirement, the same may have to be liquidated.

At times, the market price of some of your investments in shares or mutual funds may not be good. In such cases, one can try and avail of a loan or overdraft facility against the security of such assets, instead of selling the same at a loss. Please note that all the shares/mutual funds may not qualify, for the overdraft facility. Lenders, generally, have a list of the shares or mutual fund schemes against which they lend.

Loan on your life insurance policies

If you have purchased life insurance policies, which are not pure term plans, you can get a loan against the policy, subject to certain conditions on the number of years for which the premiums have been paid, the minimum loan amount, etc. These loans are relatively cheaper.

Withdrawal from provident fund/public provident fund accounts

Although EPF and PPF are meant for retirement, one can also use these funds to buy a house. If you have completed five years of contribution to your provident fund, the rules allow the employee to partially withdraw money from the account. Likewise, if you have contributed for at least six financial years to your PPF account, you are allowed to withdraw a part of the funds, without giving any reason.

Loans from friends and relatives

One can also borrow money from friends and relatives. This may only be possible, if you enjoy good relations with them or if you have helped them in the past.

Personal loans

As a last resort, you can take a personal loan to fund your margin money. However, you need to be careful about the timing of the loan. If you have availed of the personal loan before the home loan, your personal loan will reflect in your credit report and this will impact your home loan eligibility, as the home loan lender will take into account the EMIs of your personal loan. Conversely, if you apply for a personal loan after the home loan, it may be difficult to get a sanction, as the home loan lender would have already taken into account your maximum loan eligibility. So, you need to time the applications such that they do not cross each other.

The rate of interest on personal loans are very high, as compared to home loans. Moreover, you need to make a realistic assessment of your future cash flow, to ensure that you can service both loans. A default in the payment of EMIs, will spoil your credit score and your future ability to borrow.

Also read: How to improve your credit score before applying for a home loan

Buy 2 BHK in Ambernath near Thane Mumbai To Know More Visit Squarefeet Group in Thane Website

Source - housing.com

You may also contact us at - +91-22-25452903, 66543333 or Email us at - sales@squarefeetgroup.in

1-BHK Makes A Comeback

October, 2018

The 1-BHK makes its way back into our lives as many opt for it due to favourable market conditions and affordable EMIs

Although it has been overused, the term ‘upwardly mobile’ is a strong driving force in the real estate market, and people who have lived in small homes for most of their lives are daring to dream big.

One of the most important driving factors is the fact that the average Indian earns a net income of Rs 40,000 per month, which demonstrates this mobility; this along with the usual frantic SOS sent out to family and friends in order to help rustle up just enough for a downpayment to book their square feet of heaven.

These factors along with the fact that there has never been a better time for home loan borrowers to make the move. The comfortable Easy Monthly Instalments (EMI) of a 1-BHK, which doesn’t paralyse your quality of life for almost a decade, has made this category one of the most sought-after.

Anita Chitale (29), who is shifting from Mumbai to Pune in order to realise her family’s dream of owning their first home, says, “I grew up in the heart of Mumbai, our living quarters, thanks to my dad’s job. However, now he is retiring soon, and since my sister’s income as a beautician and mine as a teacher would not allow us to afford a house in the city, we did not want to stay and spend our money on rent,” says Chitale, adding, “So we decided to purchase a 1-BHK on the outskirts of Pune, near Kothrud.”

The trend hasn’t gone unnoticed by developers. In fact, as the dust settles on demonetisation and with the economy picking up in tandem with the one-year completion of RERA, there have been significant launches in the compact housing segment in cities like Mumbai, Delhi and Bengaluru.

The trend is not only limited to those who live in one-room houses, but also to those who rent 1-BHK apartments and want to switch to owning their own property such as Jishu Malekar. A resident of Mumbai, this 35-year-old illustrator lived with his family on rent for almost five years before they made the move from Delhi to Mumbai. “I lived on rent in a good housing society, but we knew that we had to buy our own home. The earlier I did it, the better it would be for me,” he says.

While on the other hand, people like Ashok Kamble (45), who bought a 1-BHK in his hometown (Kolhapur) after saving up for almost 15 years, says, “I have three kids and was the only earning member of my family. I lived in a one-room house at Thane, which my employer gave me, free of cost. Saving up all these years finally enabled me to take the plunge and buy a 1-BHK back in my hometown.” He adds, “After I retire, I will shift there with my wife, and hopefully my kids will be well-settled by then.”

Also read: How to improve your credit score before applying for a home loan

Book your budget flats in Mumbai At 1 BHK Flats in Ambernath To Know More Visit Squarefeet Group in Thane Website

Source - timesgroup.com

You may also contact us at - +91-22-25452903, 66543333 or Email us at - sales@squarefeetgroup.in

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