Rental values in key micro-markets of the top 7 cities have gone up to a significant 72% between 2021-end and H1 2024, while capital values saw lower growth, as more and more Indians migrate to urban centres and evaluate their options, according to Anarock.
Cities like Bengaluru, Pune, Kolkata and Chennai, saw average residential rental values rising more than the capital values, areas in NCR, MMR and Hyderabad saw the reverse trend – capital values appreciated more than the rental values.
“Such data can be a key parameter – though by no means the only one – used to determine whether it is more advantageous to buy a property or opt for renting,” said Prashant Thakur, regional director and head, research – Anarock Group.
“Not every individual who migrates to a certain city for job opportunities intends to put down permanent roots there. Others may be drawn to the city’s urban ethos and decide to make it their home, while yet others may perceive value in investing in a property there regardless of whether they will settle down there or not,” Thakur said.
Other factors that drive such a decision are financial wherewithal, job growth prospects, stage of life, size of family, and personal preferences.
An individual in Bengaluru with a stable job who is paying a monthly rent of Rs 50,000 for a standard 2 BHK worth Rs 1.2 crore may grapple with the rent or buy dilemma.
“If the individual opts to buy the property via a home loan, has the financial wherewithal to make a 20% down payment and borrows the remaining amount over a 10-year tenure at 9.5% interest rate, such a purchase if definitely profitable. Instead of spending a huge amount on rent, the individual can pay monthly EMIs and ultimately own the physical asset after a ten-year period,” Thakur said.
However, current trends indicate that the security of owning a physical asset cannot be discounted. This trend came strongly to the fore during the coronavirus pandemic, when more Indians – including rent-favouring millennials – took a hard look at what they could fall back on when things go south.
Amid a rising aversion to high-risk investments, an increasing number of tenants see rent as an expense, and EMIs as SIPs towards a non-volatile asset.
The sentiment favouring homeownership is also supported by relatively cheaper home loan interest rates currently averaging between 8.75% and 9.5%.
“There is a lot to unpack when deciding whether to buy or rent a home, and investment rationale alone will not guide all such decisions,” Thakur said.
