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Our article ‘Should
you buy a house or stay on rent?’ has generated a lot of
response. While some visitors have agreed with our stand, others have
differed. In this note, we respond to some of the points of
disagreement.
1. A rent of Rs 13,500 is high for a property
worth Rs 2,500,000
A large number of readers believed that there was a mismatch between
the assumed rent amount and the property price. Property prices and the
rent that they can fetch not only vary from one city to another, but
also vary between different localities in the same city. Factors like
the location, amenities available and quality of construction, among
others often come into play in determining the rent (as also the price
of property) that a given property can yield.
The discussion in the article pertained to a
property in Mumbai. The numbers chosen by us were not hypothetical. On
the contrary, they were actual numbers for a house property in the
western suburbs of Mumbai, which has recently been put up on rent
Of course, the numbers (for both the rent as well as
the property) would vary in different locations across cities. While
evaluating the trade-off between staying on rent and buying a house
property, individuals would do well to consider rates that are
applicable to their area of residence, thereby making the discussion
relevant for them.
But yes, to reiterate, generally there tends to be a
predictable rent to property price relationship.
2. Rent is constant over a 20-Yr period
The uptick in rent paid is vital to the discussion and we have not
ignored the same. We have assumed that the rent of the house increases
every year by 5%, and the calculations take the same into account.
Again, the rise in rent payouts could vary significantly from one
location to another. However the assumption made by us would certainly
qualify as a reasonable one if not accurate.
3. Appreciation in the value of property not
taken into account
We have discussed appreciation in the value of the property; however we
have chosen not to quantify it. The reason being that factoring in the
same would have definitely tilted the discussion in favour of buying a
property. Contrary to what some of the feedback suggests, we were keen
on presenting both the options in an unbiased manner.
In our note, we did make a mention that the
appreciation in the price of the property needs to be factored in, even
though we have not ventured to estimate that gain. The article
explicitly mentions “while staying on rent would be a pure
expenditure, buying a house should be regarded as an investment, as an
asset is created for the home buyer. The asset’s value is likely to
increase over the course of time (a vital factor that we have not
considered)”.
4. No final conclusion given
As visitors would appreciate, the nature of the topic under discussion
is such that there can be no single conclusion. A “one size fits
all’ approach wouldn’t work here. Whether an individual should buy
a house or stay on rent will to a large extent depend on his personal
choice. Many factors, both financial as well as non-financial (which
would vary for each individual), need to be considered while making a
decision.
However, our in-house view on the stated matter has
been explicitly mentioned in the article. We quote “At Personalfn,
we maintain that every individual must own property (for residential
purpose), as the same has a vital role to play from an asset allocation
perspective. To that end, buying a property should be taken up on
priority, and discretion can be used in terms of the location and size
of the property”.
The underlying intention behind this article was to
educate individuals of the various factors that need to be considered
while making that perennial choice – to stay on rent or buy a house.
There is a need to understand that a plethora of factors, most of them
subjective in nature, will come into play while making this choice.
Hence making a number of assumptions would be in order. On our part, we
ensured that realistic assumptions are made, wherever necessary.
We fully appreciate that the factors could vary
significantly for various individuals and they would do well to take
into consideration their individual needs and conditions to arrive at a
conclusion that would be applicable (and exclusive) to them.
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