Rent or buy a home? That is the question.

If Shakespeare lived in modern India, it’s a fair bet that he would make Hamlet’s soliloquy less about suffering the slings and arrow of outrageous fortune and more about the question that faces so many Indian youth today – whether ‘tis better to rent an apartment, or to buy a house.

The dilemma is a relatively new one. Before liberalization created the white-collar IT industry and grew the financial sector exponentially, most of us grew and lived close to home, and even those who emigrated to the larger cities typically planned to return home sooner or later. Even if not, housing remained largely affordable for anyone with a decent job.

Far away from home

But legions of young Indians now work in one or the other of India’s mega-cities, and the freedom and opportunity they encounter there means that they have little incentive to return to the smaller towns they came from for the length of their career at least. Unfortunately, the real-estate market has skyrocketed as well, and even an upper-management executive can no longer expect to afford a house in South Mumbai, Greater Kailash or JB Nagar without forking over a large part of his or her salary towards loan instalments.

Now conventional wisdom would have it that, regardless of the financial outgo, it makes sense to buy a house. After all, it ‘creates an asset’, and when the term of paying the loan is over, one is left with a house to call one’s own. But that does not account for the run up in prices that has occurred since the late nineties – and the stagnation of rents. As the trend of real estate being seen as an ‘investment’ option rather than as a ‘place to live’ took off, vast sums of money poured into the market from Non-resident Indians – and Indians using un-taxed, or ‘black’ money.

Distorting the market

These properties were purchased by people with no intention of ever living in them – in short, by ‘investors’, rather than genuine buyers. They looked for super-profits – prices doubling in a year, quadrupling in five, but reality proved to be a little different. While certain localities did provide astounding returns, for the most part, the real estate prices did not grow any faster than alternate investment avenues. Builders continued to build, adding to the supply of real estate even as exorbitant pricing kept genuine buyers from actually purchasing what had already been bought by investors. Stuck with housing stock that they were not getting the expected returns for, these investors had no choice but to put the apartments out on rent.

And therein, as it is said, lies the rub.

Today, buying an apartment of about 750 sq. feet in Bandra West (one of the most upscale localities in Mumbai) will cost a minimum of four crores (INR 4,00,00,000). That’s a monthly loan instalment of four lakhs (INR 4,00,000) a month. The same apartment can be rented for about INR 75,000 (maybe even less). On the other hand, by paying an instalment of INR 75,000 towards a home loan, a person could get a loan of about seventy lakhs, which would get him or her a flat in a distant suburb like Vasai.

A young investment banker, earning close to 2 lakhs a month, recently told this writer he had no intention of ever doing anything but living on rent. At a fraction of what he would have to pay as a home loan instalment, he pointed out, he could enjoy the lifestyle of living in the city, rather than the far suburbs, close to office, at a walking distance from Mumbai’s famed beach-front, and a stone’s throw from the finest hotels and pubs in the city. What more, after all, could a young man want?

No strings attached

Both the choices have their pros and cons, of course. Nothing is ever cut-and-dried. Living a life on rent means a person never lays down roots. Landlords can evict you at short notice, and the rent you pay is gone forever, creating no asset for later use. At the same time, it usually means having fewer possessions, avoiding liabilities and giving yourself the freedom to make more daring choices. After all, quitting your job to pursue that start-up dream, or to write poetry, or anything else, is a lot harder when you owe your Bank seventy per cent of your next paycheque for a house you spend less than half your day in.

So perhaps, just perhaps, if you’re a young man or woman in your first job, or a newlywed couple, wait a while to buy. Check the rentals in the area you want to live in. Lifestyle is important, flexibility is important. Creating a so-called asset that makes you little more than bonded labour is optional.

Article by Kunal