 | « Back to article | Print this article |
Experts say you should be certain of living in a city and locality for a long time before purchasing a home.
A decade ago, tenants in key cities like Bengaluru, Mumbai, Pune, Chennai, Hyderabad and Delhi-NCR would rent nine times before buying a home.
Today, the younger generation purchases after renting only four to five times, according to NoBroker, a no-brokerage property site.
In Bengaluru, the median age of first-time home buyers has dropped from 42 to 34 in three years, with millennials and Generation Z increasingly opting for homeownership over renting.
Rising rentals driving the shift
One factor behind this shift is rising rentals.
"With rent surging by over 30 per cent in major cities in the past couple of years, buyers are increasingly motivated to purchase homes," says Amit Agarwal, CEO, NoBroker.
Home loans have made it easier to buy at a younger age.
"This shift is due to the increased availability of mortgages, which are more accessible and cost-effective compared to a decade ago," says Vivek Rathi, national director-research, Knight Frank India.
Increasingly, tenants regard paying rent as a waste of money.
"Many tenants view rent as an expense, while they see EMI as a SIP (systematic investment plan) for building a stable asset like real estate," says Santhosh Kumar, vice chairman, ANAROCK Group.
Current home loan interest rates range between 8.35 and 9.50 per cent, not inexpensive but not exorbitant either. "Home loans offer more attractive tax benefits than rental housing," says Kumar.
With more double income households, disposable incomes have increased, making home purchases possible for many couples. Weigh the pros and cons carefully before deciding to buy.
Lock in the price
Buying locks in the price of acquiring this asset.
"Owners also benefit from price appreciation. Prices have historically risen in line with inflation, plus an extra one or two percentage points," says Rathi.
Over time, the house becomes a valuable asset that can be passed on to the next generation.
"Owning property also creates the potential to earn rental income," says Agarwal.
Beyond financial benefits, homeownership provides stability and emotional satisfaction.
"With ownership comes the freedom to personalise and renovate without a landlord's restrictions," says Agarwal.
Significant financial commitment
Purchasing a home often requires a significant loan, which is a major financial commitment.
Younger couples with limited resources may find it hard to invest in higher return assets like equity mutual funds in their early years.
Instead of earning a return on their investment and gaining from compounding, they end up paying interest to the lender.
Real estate is also illiquid. "Selling your home and accessing its value can take time," says Agarwal.
Owning a home also limits mobility, which is critical for younger people seeking career opportunities in different cities or countries.
Is now the right time to buy?
Experts say you should be certain of living in a city and locality for a long time before purchasing a home.
Some financial metrics can help gauge whether it is the right time to buy.
"It's better to buy when the gap between the cost of buying and renting is small," says Rathi.
Renting cost, reflected in rental yield, stands at around 3 per cent, while buying cost, seen in mortgage rates, hovers near 9 per cent.
With a six percentage point gap, renting currently seems the better option, according to Rathi. However, the argument for buying right away is equally compelling.
According to ANAROCK Research, the average property price rose 25 per cent year-on-year in the first half (H1) of 2024, from Rs 6,470 per sq. ft. in H1 2023 to Rs 8,070 per sq. ft. in H1 2024.
"With prices continuing to rise, now is a good time to buy if you are looking for self-use," says Kumar.
The longer you wait, the more the acquisition cost increases.
Even if conditions are not perfect, buying a home for personal use remains a sound decision. Besides, if you own the house for decades, the timing will appear irrelevant in retrospect.
Are you financially ready?
EMI to take-home salary: Banks typically lend 4 to 4.5 times your annual take-home pay.
"Total EMIs, including other debts, shouldn't exceed 40 to 50 per cent of your income," says Adhil Shetty, CEO, BankBazaar. Consider a longer loan tenure or a co-applicant to manage EMIs.
Ideal down payment: Banks usually require a 10 to 20 per cent down payment.
"For a Rs 1 crore home, the down payment should be at least Rs 20 lakh," says Jinal Mehta, founder, Beyond Learning Finance.
Ideally, you should cover 30 per cent of the home's cost, including additional expenses like brokerage and stamp duty out of your own pocket.
"This 30 per cent should be in liquid assets like fixed deposits or liquid funds," says Kavitha Menon, a Sebi-registered investment adviser.
Credit score: A minimum credit score of 620 is required for most loans. A score of 700 or higher gets better rates, while 740 or more gets you the best rates.
Check your credit report for errors and improve your score before applying.
Disclaimer: This article is meant for information purposes only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products/investment products mentioned in this article to influence the opinion or behaviour of the investors/recipients.
Any use of the information/any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.
Feature Presentation: Ashish Narsale/Rediff.com
