ArthaYantra

A CFO FOR EVERYONE

BUY VS. RENT

A PERSONAL FINANCE PERSPECTIVE

Delhi Edition
Buy Rent

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Table of Contents

Summary 1. Introduction 2. Methodology 3. Assumptions 4. Findings

4.1 Historical data of Real estate prices 4.2 Property Cost vs Rental Value 4.3 Down Payment 4.4 Area 4.5 Rent to Buy Ratio 4.6 Break Even Horizon

3 6 7 8

9 10 12 13 14 15 17 19 20 21 22

5 ArthaYantra Buy vs Rent Score (ABRSTM) 6. Other Important Numbers 7. Conclusion 8. Limitations and Concerns 9. Appendix

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Summary
Property cost vs Rental Value: The Residential Property prices in Rohini Sec-13 and Sohna Road are not being translated to their rental value. Though the average residential property values of Sohna Road is higher than Noida City by 26%, the average rental value is less by nearly 23%. The same case goes with Rohini Sec-13 and Golf Course Road. Though their average residential property values are identical, their average rental values differ by nearly 17%. Down payment: The years of saving required to afford the initial down payment i.e. 20% of the property price determines how sooner we can buy a house. It takes at least 4 years to save for the required corpus in Indirapuram and Faridabad (Sector 86). In Noida City and Noida-Greater Noida Expressway it takes 5 years and in Sohna Road and Golf Course Extension Road it takes 6. In Delhi East and Rohini Sec-13 it takes a professional 7 and 9 years respectively. It takes 10 years to save for a house in Golf Course Road. In Delhi South and Vasant Kunj a professional has to save for at least 11 years to afford the down payment amount required. A professional needs to save for 12 years to buy a house in Safdarjung Enclave. Area: The average number of square feet per INR 1 lakh determines the amount you need to pay for the desired area of occupancy. The average number of sq ft of 28.72 per INR 1 lakh in Faridabad (Sector 86) makes it the place where you can get the highest area for the same amount of money compared to other eleven localities. This implies that for a given price one can get the largest space in Faridabad (Sector 86) followed by Indirapuram, Noida-Greater Noida Expressway, Noida City, Sohna Road, Golf Course Extension Road, Delhi East, Rohini Sec-13, Golf Course Road and Delhi South. Vasant Kunj and Safdarjung Enclave offer the least in terms of space. Rent to Buy Ratio: The ratio compares the monthly cost of renting house to the monthly cost of owning the same place. The ratio undermines the necessity and urgency with which the house has to be bought. The rent to buy ratio of 0.34 and 0.33 for Indirapuram and NoidaGreater Noida Expressway respectively gives ownership of house an advantage over renting. Annual out of Pocket Costs: The annual out of pocket costs in case of ownership include the monthly EMI being paid including the maintenance charges and the amount of tax being paid. The values have been calculated and compared across the average loan tenure of 15 years. The year at which the annual costs match determines the minimum stay period in the house. The minimum stay period is 14 years for Indirapuram, 15 for NoidaGreater Noida Expressway, Noida City and Faridabad and above 15 years for Delhi East, Delhi South, Golf Course Extension Road, Golf Course Road, Rohini Sec-13, Safdarjung Enclave, Sohna Road and Vasant Kunj. The tax benets received under the HRA allowance dominate the tax benets received in case of ownership over the period of 15years. ArthaYantra Buy vs Rent Score: ArthaYantra Buy vs. Rent Score (ABRS) not only aids in making the rent vs. Buy decision but also explains the affordability and need to buy or rent in a given place. The three important factors on which scale is based are: affordability to rent, affordability to buy and a comparison of rent and EMI.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Delhi East : The rent to buy ratio of 0.23 meant that the rental prices are higher compared to EMI to be paid in case of ownership. The low rental values compared to high property prices makes it a place where renting can be easily afforded and the EMI associated with home loan is high. It is advisable to rent for a professional with a salary range of 8 25 lakhs. Delhi South : The rent to buy ratio of 0.16 meant that the rental price are low compared to the EMI to be paid, so it is advisable to rent. The years required to save for down payment (11 years) and the property prices being the third costliest locality (out of the twelve).A professional with a salary range of 8-25 lakhs is advised to rent. Faridabad (Sector 86) : The place with least average rental value and average property price. The rent to buy ratio of 0.31 meant that it is advisable to buy. The lower property prices and highest number of sq ft per INR 1 lakh (among the twelve localities) makes it a place to buy. Golf Course Extension Road : The rent to buy ratio of 0.18 meant that the average rental value of residential property is very less compared to its higher prices. Renting house is a better option. A professional with a salary range of 8-20 lakhs can't afford the locality but a professional with a salary range of 21-25 lakhs can afford to buy but because of the low rents it is advised to rent. Golf Course Road : The fourth highest in terms of average property prices. The rent to buy ratio of 0.18 meant that the average rental value of residential property is very less compared to its higher prices. Renting house is a better option. The low rental values compared to high property prices makes it a place where renting is recommended for a salary range of 8 25 lakhs. Indirapuram : The rent to buy ratio of 0.34 meant that the rental prices are moderately high and it is advisable to buy. The years required to save for down payment (4 years, which is least among the twelve localities) and the property prices being in an affordable range makes it the second most affordable locality (out of the twelve). Noida City : The rent to buy ratio of 0.31 meant that the rental prices are moderately high and it is advisable to buy. But a professional with a salary range of 8-12 lakhs is better of renting, whereas a professional with a salary range of 13-25 lakhs can buy a house in this locality. Noida-Greater Noida Expressway : The rent to buy ratio of 0.33 meant that the rental prices are moderately high and it is advisable to buy. The years required to save for down payment (5 years) and the property prices being in an affordable range make it the third most affordable locality (out of the twelve). Rohini Sec-13 : The rent to buy ratio of 0.16 meant that the average rental value of residential property is very less compared to its higher prices. ArthaYantra Buy vs Rent score of 55 signies that though the rents are high, it is advisable to rent because the property prices are also high. Safdarjung Enclave : The highest in terms of average property prices. The rent to buy ratio of 0.18 meant that the average rental value of residential property is very less compared to its higher prices. Renting is the best option.
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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Sohna Road : The average residential property values of Sohna Road is higher than Noida City by 26%, the average rental value is less by nearly 23%. A rent to buy ratio of 0.20 and moderately high property prices makes it a place to Rent. Vasant Kunj : The second highest in terms of average property prices. The rent to buy ratio of 0.18 means that the average rental value of residential property is very less compared to its higher prices. Renting is the best option.

Buy Vs. Rent in Delhi

Place

Place
Faridabad (Sector 86)

Salary range Lacs ( )

8-9 10 - 11 12 - 25 8-9 10 - 11 12 - 25 8 - 10 12 - 15 20 - 25 8 - 12 13 - 15 20 - 25 8 - 19 20 - 24 24 - 25 8 - 20 21 - 25
8 - 25

ABRS Score

Sq feet per Lac ( )

No of Years to Buy (1000 Sq feet)

Indirapuram

Noida-Greater Noida Expressway Noida City

Sohna Road

65 77.5 90 65 77.5 90 65 77.5 90 65 77.5 90 55 67.5 80 55 67.5 55

28.72

4 4 5 5 6 6 7 9 10 11 11 12

26.67

21.05

19.61

15.63

Golf Course Extension Road

13.07

Delhi East

10.60

Rohini Sec-13

8 - 25

55

7.48

Golf Course Road

8 - 25 8 - 25

55

7.14

Delhi South

55

5.81

Vasant Kunj

8 - 25 8-9 10 - 25

55 30 55

5.43

Safdarjung Enclave

5.09

RENT

NEUTRAL

BUY

Figure 1: Graphical Representation of Buy Vs. Rent in Delhi

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

1. Introduction
Buying a home is one of the most important decisions in one's life. It is a tough decision to make and emotions cloud the decision making process. Often buying a home is given a high weightage by our family, friends and society at large. People associate the advantages of housing security, physical asset creation and property appreciation with home ownership. Renting is associated with expenditure. However, renting on the other hand gives exible lifestyle options, high level of mobility and is easy on the purse when compared to the EMI to be paid. From a personal nance perspective there is always a tussle between buying a home and renting it. Is it prudent to buy? Is there an upside to taking a place on rent? How the lifestyle is going to be affected? What is the impact of the locality chosen? There are numerous other Questions that crop up when this topic is discussed. This research paper tries to nd the answers for these questions. As a part of this research we aim to objectively address the major factors which impact the decision of buying or renting. The common assumption that the residential property always appreciates is inconsistent. The appreciation of a residential property is dependent on several factors. So one can't actually determine the rate at which the residential property is going to appreciate or depreciate. A school of thought supporting the rent argument says the amount invested in a home when invested in equities for the common horizon of 15 years, yields the same or better rewards. The real estate market scenario is similar to that of equity markets because it is unpredictable. The other common assumption held is buying a home eventually results in increased tax savings. But provided the fact that the EMI payments accounting for principal payment of home loan come under the same section as Provident fund and required risk cover for self and family, one can't enjoy major tax benets under section 80C. The tax benets received under section 24B i.e. the interest payments made towards house loan can be matched up with HRA allowance in case of renting. So a professional shouldn't base the decision of buying a house on the tax savings he/she is going to receive. So eventually the three factors which play a predominant role in making the decision are: Current Property price which determines the EMI to be paid, current monthly Rental value and the current gross income. Monthly rent or the EMI being paid shouldn't end up consuming most of the salary which in turn affects the lifestyle. It is not a good nancial decision to buy if the rental value is low compared to the EMI to be paid in case of ownership. As a part of this research we aim to provide a quantitative answer to the question of buying vs. renting a home. We analyzed the costs associated with owning a house and renting a house across twelve major localities of Delhi: Delhi East, Delhi South, Faridabad (Sector 86), Golf Course Extension Road, Golf Course Road, Indirapuram, Noida City, Noida-Greater Noida Expressway, Rohini Sec-13, Safdarjung Enclave, Sohna Road and Vasant Kunj.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

2. Methodology
Property prices and rental prices of various residential properties were collected from multiple data sources to generate the primary and secondary data for the analysis. The public data sources including the data by National Housing Board (NHB) of India, data from various real estate reports and data from major real estate aggregators is collated. The primary research has been performed by collating information from over 100 real estate agents across the localities considered. The methodology used for arriving at results considers various key parameters derived from the initial data collected: Price of the residential property and their rental value. Various important factors like the years of saving required for a professional to accumulate the corpus for down payment and the number of square feet per INR 1 lakh are derived from the average property price. The main idea behind this research was to quantify the buy vs. rent decision from a personal nance perspective. The main factors which drive the decision are: how much more money does a professional need to shell out for buying a home compared to renting it? Can the professional afford this additional amount? ArthaYantra's Buy vs. Rent Score tries to address these questions and come up with a comprehensive scoring system. The scoring system not only tells whether it's better to buy or rent but also tells whether it's affordable to buy or rent. Factors associated with buying a home Down payment for home loan No. of Years required to save for down payment EMI on home loan Monthly property maintenance charges Annual repairs Annual property tax Income tax savings under section 80c and 24 b Table 1: Factors associated with home ownership and renting Factors associated with renting a home Security Deposit Monthly Rent Yearly increase in rent Monthly property maintenance charges Income tax savings under HRA exemption

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

3. Assumptions
The sale price and rental values are calculated for 1000 sq ft area ready to occupy residential property. 20% of the cost of the house is considered as the required down payment to buy a house. The loan tenure is 15 years. The lending rate for the loan is 10.50%. Average savings rate is 25%. The minimum gross income required to buy a house is calculated by considering 50% of monthly take home salary= Monthly EMI to be paid. The gross income of the professional increases 10% annually. 1.5% of the property value is considered as the property tax to be paid. 10% annual increase in rent is considered. Property appreciation is not considered.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4. Findings
4.1 Historical data of Real estate prices
National Housing Board India's Residential Index (NHB Residex) tracks the movement of prices in the residential housing segment across India. Figure 1 shows the historical NHB Residex values since its inception in 2007.

NHB Residex of Delhi

250 200 150 100 50

In x de
ar 1 20 0 In x de

Zone A Zone B
x de ep 1 20 0 x de ec 1 20 0 x de ar 11 20 A x de un 11 20 J x de ep 11 20 O x de ec 11 20 J x de ar 1 20 2 x de Ap u r-J n 12

0 20

Ja

M n-

-J pr

un

1 20

In

In

In

In

In

In

In

In

20

Zone C Zone D Zone E Zone F Zone G

Ju

S n-

-D ct

an

-J pr

-S ul

-D ct

an

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)

Delhi as a city has recorded a raise of 72% in its NHB Residex value compared to the base year, 2007. Zone C has recorded the highest raise in the index value by 132%. Zones G has followed up with an 83% raise. Zones A and E have recorded a raise of 77% in their index when compared to the base year 2007. Zones B, F and D have recorded a raise of 58%, 35% and 23% respectively. Four zones have outperformed the city average while three zones have underperformed. Safdarjung Enclave falls under Zone B, Vasant Kunj under Zone C and Rohini Sector under Zone E. Golf Course Road, Sohna Road, Golf Course Extension Road, Noida-Greater Noida Expressway, Noida City and Indirapuram fall under Zone D. Delhi East and Delhi South fall under Zones F and G respectively. It is evident that each of the zones have different real estate markets and different expectations from real estate. The effort is to identify the places that are most affordable for a professional, given the current scenario. It is important to look at these graphs to get a high level perspective of the general movement of real estate in each of the zones. We delve into each zone's prospect in the later sections. The relative nature of the index hides many interesting facts.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.2 Property cost Vs. Rental Value

The graph compares the property price and rental value of 1000 sq ft ready to occupy house across twelve localities of Delhi. The bar graph depicts the average property price in the locality and the line graph depicts the average rental value in the locality.

Comparisons of Average Rents and Average Property Prices

Rs. 25,000,000.00 Rs. 20,000,000.00 Rs. 15,000,000.00 Rs. 10,000,000.00 Rs. 5,000,000.00 Rs. 0.00
o ct r8 6) ir u ap ra m rN oi da N oi da C ity h na rs R oa d si on R oa d D el E hi as t i ni c Se f ol -1 3 r se R oa d h el o iS ut h a K nt f un ju j En cl av e

Rs. 35,000,00 Rs. 30,000,00 Rs. 25,000,00 Rs. 20,000,00 Rs. 15,000,00 Rs. 10,000,00 Rs. 5,000,00 Rs. 0.00
e e d at In re ay G - w da ss oi e N xpr E ou s Va ng

Fa

rid

a ab

(S

So fC

t Ex

en

oh

ou

Sa

r da

Locality Average Price of Residen alProperty Average Rental Value

G ol

Figure 3: Average property price and rental values across twelve major localities of Delhi

The most important thing that strikes out while assessing the current residential property prices and NHB Residex is the base effect. Vasant Kunj's property prices (INR 18,408,500) as per NHB Residex have grown by 132% but still remain less than that of Safdarjung Enclave (INR 119,648,000) which appreciated by only 58%. Rohini Sec-13 whose property prices (INR 13,262,000) doubled as per NHB Residex are identical with that of Golf Course Road (INR 14,000,000) which recorded a 23% raise in its index value. This means that the property prices of Vasant Kunj and Rohini Sec-13 in the base year 2007 were less compared to other localities. The most important factor that stands out from the rental value of the properties across the twelve localities is the anomaly of the property values not being translated to the corresponding rental values. Noida City's average property price (INR 5,100,000) is less than that of Sohna Road (INR 6,400,000) by 26%. But the Average rental value of Noida City (INR 13,250) is higher than that of Sohna Road (INR 10,750) by nearly 23%. The same case has been observed with Rohini Sec-13 and Golf Course Road. Though their average residential property values are identical, the average rental value of Golf Course Road (INR 21,000) is higher than that of Rohini Sec-13 (INR 18,000) by 17%.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Locality
Delhi East Delhi South Faridabad (Sector 86) Golf Course Extension Road Golf Course Road Indirapuram Noida City Noida-Greater Noida Expressway Rohini Sec-13 Safdarjung Enclave Sohna Road Vasant Kunj

Aordability to Rent Rank

8 10 1 4 9 2 6 5 7 12 3 11

Aordability to Buy Rank

7 10 1 6 9 2 4 3 8 12 5 11

*On a scale of 1 to 7 with 1 being most affordable and 7 being least affordable based on the average property prices.

Table 2: Locality wise ranking based on the affordability to rent and buy

The above table shows the affordability to rent rank and the affordability to buy rank based on the average property prices and average rental values across the twelve major localities of Delhi. Faridabad (Sector 86) stands out as the most affordable locality to buy and rent. Safdarjung Enclave stands out to be the least affordable place in both scenarios. Indirapuram is the second most affordable place and Vasant Kunj is second least affordable place. Golf Course Road and Delhi South take the 9th and 10th place respectively in both scenarios. This means that the high/low property prices of the above mentioned 6 localities are translated to their relative rental prices. Sohna Road ranks 3rd and 5th on the affordability to rent and affordability to buy rankings respectively. Noida-Greater Noida Expressway ranks 5th and 3rd on the affordability to rent and affordability to buy rankings respectively. This means that the average property price in Noida-Greater Noida Expressway is less than that of Sohna Road but the rental value is higher. Golf Course Extension Road ranks 4th and 6th on the affordability to rent and affordability to buy rankings respectively. Noida City ranks 6th and 4th on the affordability to rent and affordability to buy rankings respectively. This means that the average property price in Noida City is less than that of Golf Course Extension Road but the rental value is higher. Rohini Sec-13 ranks 7th and 8th on the affordability to rent and affordability to buy rankings respectively. Delhi East ranks 8th and 7th on the affordability to rent and affordability to buy rankings respectively. This means that the average property price in Delhi East is less than that of Rohini Sec-13 but the rental value is higher. This signies the fact that people of different localities have different expectations from their real estate markets.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.3 Down payment

A critical decision in purchasing a home is the down payment required to make in order to avail the facility of housing loan. It is often a substantial amount of money to be paid upfront in order to own the house. While some of the professionals depend on their extended family to provide for this amount, often they do need to save for it. Assuming a 20% of property price as the down payment and saving rate of 25% for a professional with a gross income of 8 lakhs, based on the current average property prices, the time required to save the corpus determines how sooner one can afford to buy a home.

No.of Years Required to save corpus for downpayment of buying a house

Safdarjung Enclave Vasant Kunj Locality Delhi South Golf Course Road Rohini Sec-13 Delhi East
Golf Course Extension Road

Sohna Road Noida City

Noida-Greater Noida Expressway

Faridabad (Sector 86) Indirapuram

12

Figure 4: No. of years required to save the corpus for down payment across twelve major localities of Delhi

The average property prices translate to the number of year's professional needs to save for the required corpus for down payment. Based on the above stated assumption and average property prices a professional can afford the down payment required to buy a house in Indirapuram and Faridabad (Sector 86) in 4 years. In order to own a house in Noida City and Noida-Greater Noida Expressway a professional has to save for 5 years. A professional will need to save for 6 years to buy a house in Sohna Road and Golf Course Extension Road. To buy a house a professional will need to save for 7 and 9 years in Delhi East and Rohini Sec-13 respectively. A professional can afford the down payment required to buy a house in Golf Course Road in 10 years. In order to own a house in Delhi South and Vasant Kunj a professional has to save for 11 years. To save for the down payment of a house in Safdarjung Enclave a professional will need to save for 12 years. Figure 3 is in sync with the assigned affordability ranks for ownership.

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4.4 Area
The area of residential occupancy is an important aspect of life style. It determines the size of the home that is provided for the family. Figure 4 compares the average number of sq ft that can be bought for 1 lakh rupees across twelve major localities in Delhi.

Average No.of sqft per INR 1lakh

Safdarjung Enclave Vasant Kunj Locality Delhi South Golf Course Road Rohini Sec-13 Delhi East
Golf Course Extension Road

Sohna Road Noida City

Noida-Greater Noida Expressway

Indirapuram Faridabad (Sector 86)

5 10 15 20 25 30 35

Figure 5: Average no. of sq ft per INR 1lakh across twelve major localities of Delhi

Safdarjung Enclave being the costliest locality offers a space of 5.09 sq ft per INR 1 lakh. Faridabad (Sector 86) being the cheapest locality offers a space of 28.72 sq ft per INR 1 lakh. Indirapuram offers a space of 26.67 sq ft per INR 1 lakh. This means that for the same amount of living area, a professional who wants to buy a house in Safdarjung Enclave has to spend at least 5 times the amount he spends in Faridabad and Indirapuram. A professional gets 21.05 sq ft and 19.61 sq ft space for INR 1 lakh in Noida-Greater Noida Expressway and Noida City respectively. Sohna Road and Golf Course Extension Road offer a space of 15.63 sq ft and 13.07 sq ft per INR 1 lakh respectively. A professional gets a living space of 10.60 sq ft per INR 1 lakh in Delhi East. Rohini Sec-13 and Golf Course Road offer a space of 7.48 sq ft and 7.14 sq ft per INR 1 lakh respectively. The second and third costliest localities, Delhi South and Vasant Kunj offer a space of 5.81 sq ft and 5.43 sq ft per INR 1 lakh respectively. Figure 4 attuned to the Affordability to Buy Ranking mentioned above.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.5 Rent to Buy Ratio

The rent to buy ratio explains the additional monthly payments to be paid in case of ownership compared to renting. The ratio also helps in understanding whether the property prices are being translated to the rental value or not. The ratio is calculated based on the average monthly cost of renting i.e. monthly rental value + monthly maintenance and average monthly cost of ownership i.e. monthly EMI being paid in case of owning the house + monthly Maintenance charges.
Locality Average monthly out of pocket cost(Ren ng the house) (INR) 19,470 24,290 10,000 12,500 22,000 11,750 14,250 14,000 19,000 32,000 11,750 29,500 Average monthly out of pocket cost(Owning the house) (INR) 84,400.138 15,3173.6374 31,787.57082 68,650.41413 12,4804.6795 34,161.96771 46,100.27609 43,005.1591 11,9162.7233 17,4751.0244 57,596.42489 16,3789.8887 Rent yo Buy Ra o Urgency to buy rank

Delhi East Delhi South Faridabad (Sector 86) Golf Course Extension Road Golf Course Road Indirapuram Noida City Noida-Greater Noida Expressway Rohini Sec-13 Safdarjung Enclave Sohna Road Vasant Kunj

23% 16% 31% 18% 18% 34% 31% 33% 16% 18% 20% 18%

5 11 4 10 9 1 3 2 12 8 6 7

*On a scale of 1 to 8 based on the monthly cost of renting and monthly cost of buying with 1 being buy as soon as possible and 8 being renting is better than buying.

Table 3: Rent to Buy ratio and Urgency to buy rank of twelve major localities across Delhi

Rohini Sec-13 and Delhi South has the least rent to buy ratio. This signies the fact that the higher property prices of the localities are not being translated to the rental value in these localities. Renting a house is cheaper than owning a house by at least 84%. Golf Course Extension Road, Golf Course Road, Safdarjung Road and Vasant Kunj also have low rent to buy ratios. Indirapuram has the highest rent to buy ratio compared to other localities. The urgency to buy rank assigned signies the fact that higher the rent to buy ratio, the sooner a professional needs to buy a home in the locality. With a rent to buy ratio of 0.34 and the average monthly out of pocket cost of Owning house being moderate, rents being relative higher Indirapuram ranks high in the urgency to buy ratio. Noida-Greater Noida Expressway and Noida City are also ranked high on urgency to buy rank. Faridabad and Delhi East rank 4th and 5th respectively in the urgency to buy rank. The 6th and 7th position in the urgency to buy rank is taken by Sohna Road and Vasant Kunj respectively. Safdarjung Enclave takes the 8th position in the urgency to buy rankings.. The 10th position in the urgency to buy rank is taken by Chembur.
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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.5 Break Even Horizon

Ignoring the price escalations of the residential property, one important question to be answered is the breakeven horizon i.e. how long a new home buyer would have to own the home to justify the decision of buying instead of renting in nancial sense. Figure 5 shows the graphs of the annual out pocket costs incurred in case of ownership and renting based on the average property prices and average rental prices across the twelve localities. The annual out of pocket cost in case of renting include the annual amount paid towards the rent, the annual maintenance charges paid and the amount of income tax being paid. The annual out of pocket cost in case of ownership include the annual amount paid towards the EMI payments of the house loan, annual maintenance and repair charges and the amount of income tax being paid. The income tax being paid is considered in calculations because most of the professionals feel buying a home will do a world good for their tax savings. The idea is to compare the tax benets received in case of buying a home and renting the home. The payments made towards the principal amount of the home loan are considered under section 80C. The payments made towards interest on home loan are considered under section 24b. In case of renting one can claim tax benets under house rent allowance. The provident fund received and required risk coverage for self and family also come under section 80C. These items do ll up most of the 80C part. Out of the EMI payments being made, in the initial years most of the amount accounts for interest payments rather than the principal amount. By the time the payment towards principal increases, one can also expect the salary of the professional to increase in turn increasing the Provident fund being received. So, the tax benet under section 80C in case of ownership doesn't actually add much of advantage. Though the tax benets in case of ownership are higher during the initial years, renting the same place gives better tax benets over the next few years. The benets of renting are higher especially in the regions where the costs of ownership and renting don't match up during the average loan tenure of 15 years. The breakeven year i.e. the year at which the annual cost of owning house is equal to the annual cost of renting the same place is calculated over the average loan tenure i.e. 15 years. The matchup of cost of ownership and renting in Indirapuram is 14 years. The cost matchup in Noida-Greater Noida Expressway, Noida City and Faridabad is 15 years. It takes more than 15 years in Delhi East, Delhi South, Golf Course Extension Road, Golf Course Road, Rohini Sec-13, Safdarjung Enclave, Sohna Road and Vasant Kunj. The planned length of stay in the house becomes an important aspect in deciding whether to buy or rent.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Break Even Horizon

Current Average stay 7 years

Vasant Kunj Sohna Road Safdarjung Enclave Rohini Sec-13

Noida-Greater Noida Expressway

Locality

Noida City Indirapuram Golf Course Road

Golf Course Extension Road Faridabad (Sector 86) Delhi South Delhi East
2 4 6 8 10 12 14 16

Figure 6: Break Even Horizon for the twelve major localities of Delhi

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

5 ArthaYantra Buy vs Rent Score (ABRSTM)

The property price and rental value of the place speaks volumes about why one should rent or buy the place. They have an impact on the amount of money being spent on the house (be it rent or EMI), the tax savings being received and many other important things. But one can't only rely on the rent to buy ratio and make the decision to buy without assessing his affordability. Similarly a decision to buy a house just because one can afford the EMI is not advisable. ArthaYantra came up with a unique scoring system called ArthaYantra Buy vs. Rent Score (ABRS) which is an effort to seamlessly integrate the above two aspects. We even added another layer of parameter, the rental value. So given a locality, based on the income of the professional ABRS describes a suitable action from wide range of options spanning from why one can't rent to why one has to rent though he/she can afford to buy to why one should buy. As a part of this research report we have considered the average property prices and rental values of the localities and calculated the ABRS score across different salary ranges. In this research, the scope of the scoring system is conned to rental value and price of the corresponding property of the same region. It can be extended to compare the rental value of one region and property prices of a different region. This makes ABRS a powerful tool to logically gauze the pros and cons of renting and buying a house.

Score
100 90 87.5 80

Recommended Ac on
Buy (Rents are very high) Buy (Rents are high) Buy ( Rents are higher) Can afford both ownership and Renting but because of low Rent to Ownership Rent is recommended. Buy/Neutral (Can afford both ownership and rent ) It is Advisable to buy but EMI can't be afforded. Have to Rent. Rent/Neutral (Can afford both ownership and rent but rent/EMI ratio is low) Rent (Rents are high but can't afford to buy) Can afford to Rent but can't afford to Buy. Can't afford both ownership and renting. Table 4: ArthaYantra Buy vs. Rent Score Explanation

77.5 75 67.5 65 55 <50

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Gross Delhi Income/ East Cities

Delhi Farid South abad (Sect or 86)

Golf Course Extensi on Road

Golf Indir Noida NoidaCour apur City Greate se r Noida am Roa Express d way

Rohini Safdar Sohna SecRoad jung 13 Encla ve

Vasant kunj

8 Lakhs 10 Lakhs 12 Lakhs 15 Lakhs 20 Lakhs 25 Lakhs

55 55 55 55 55 55

55 55 55 55 55 55

65 77.5 90 90 90 90

55 55 55 55 55 67.5

55

65

65 65 65 77.5 90 90

65 65 77.5 77.5 90 90

55 55 55 55 55 55

30 55 55 55 55 55

55 55 55 55 67.5 80

55 55 55 55 55 55

55 77.5 55 55 55 55 90 90 90 90

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across twelve major Localities of Delhi.

Delhi East : The low rental values compared to high property prices makes it a place where renting can be easily afforded and the EMI associated with home loan in high. It is advisable to rent for a professional with a salary range of 8 25 lakhs. Delhi South : The score of 55 signies that though the rents are high, it is advisable to rent because the property prices are also high. The EMI payments to be made in case of ownership are not affordable. Faridabad (Sector 86) : A professional with a salary of 8 lakhs is better of renting even though the rents are high. This is because he can't afford the EMI in this salary range. A professional with a salary range of 9-11 lakhs falls in the neutral zone i.e. he can afford both renting and buying. A professional with a salary range of 12-25 lakhs is advised to buy. Golf Course Extension Road : A professional with a salary range of 8-20 lakhs can afford to rent but can't afford to buy in this locality. A professional with a salary range of 21-25 lakhs can afford to buy but because of the low rents is advised to rent. Golf Course Road : The low rental values compared to high property prices makes it a place where renting can be easily afforded and the EMI associated with home loan in high. It is advisable to rent for a professional with a salary range of 8 25 lakhs. Indirapuram : A professional with a salary of 8 lakhs is better of renting even though the rents are high. This is because he can't afford the EMI in this salary range. A professional with a salary range of 9-11 lakhs falls in the neutral zone i.e. he can afford both renting and buying. A professional with a salary range of 12-25 lakhs is advised to buy.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Noida City : A professional with a salary range of 8-12 lakhs is better of renting. A professional with a salary range of 13-15 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but have to make few adjustments to the current lifestyle in order to afford the additional amount for EMI payments. The professionals with a salary range of 16-25 lakhs are advised to buy. Noida-Greater Noida Expressway : A professional with a salary range of 8-11 lakhs is better of renting. A professional with a salary of 12-15 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but have to make few adjustments to the current lifestyle in order to afford the additional amount for EMI payments. The professionals with a salary range of more than 15 lakhs are advised to buy.

Rohini Sec-13 : The score of 55 signies that though the rents are high, it is advisable to rent because the property prices are also high. The EMI payments to be made in case of ownership are not affordable. Safdarjung Enclave : A professional with a salary of 8 lakhs cannot afford this locality. He will not be able to pay the rents nor will he be able to afford the EMI payments. A professional with a salary range of 9-25 lakhs can afford the rents in this locality but can't afford the EMI associated with home loans. Sohna Road : The score of 55 for a professional with a salary range of 8-15 lakhs signies that the monthly cost of renting is cheaper than buying by more than 70%. The low rental prices also meant that though the professional with a salary more than 16 lakhs can afford to buy a house renting is a better option. Vasant Kunj : The low rental values compared to high property prices makes it a place where renting can be easily afforded and the EMI associated with home loan in high. It is advisable to rent for a professional with a salary range of 8 25 lakhs.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

6 Key Factors
Here are some important numbers to look at before making the decision:
Cities Delhi East Delhi South Farida bad (Secto r 86) Golf Course Extensi on Road Golf Indira Noida Noida- Rohini Course pura City Greater SecRoad m Noida 13 Expres sway 50
696,300 1,530,000 2,800,000 750,000 1,020,000 950,000 2,672,400 3,929,600 1,280,000 3,681,700

Safda rjung Encla ve

Sohna Vasant Road kunj

Initial Corpus required 1,886,200 3,441,600 for owning (INR) *

No of Years to save for the corpus Average No.of sq.ft per INR 1lakh Initial Corpus required for renting ** Average out of pocket cost *** Break Even Year

10

11

11

12

10.60

5.81

28.72

13.07

7.14

26.67

19.61

21.05

7.48

5.09

15.63

5.43

184,700

232,900

90,000

115,000

210,000

107,500 132,500

130,000

180,000

310,000

107,500

285,000

0.23

0.16

0.31

0.18

0.18

0.34

0.31

0.33

0.16

0.18

0.20

0.18

15+

15+

15

15+

15+

14

15

15

15+

15+

15+

15+

*Ini al corpus required for owning = 20% of the Average property price (down payment for house loan) **Ini al corpus required for ren ng= Amount equivalent to 10 months of rental value *** (Ren ng the house) / Average out of pocket cost (Owning the house) The gross income of 8 lakhs per annum is considered.

Table 6: Other important numbers

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

7 Conclusion
Based on the current real estate markets, Faridabad (Sector 86) and Indirapuram are the best places to own a house. The property prices and rental values in these two localities are low, thus making them the most affordable places for a professional to rent or own a house. The larger residential spaces offered by Faridabad (Sector 86) and Indirapuram provide a better lifestyle option. The real estate market of Noida City favors the home owners because of its moderate property prices and high rental value. Though the moderate property prices of Sohna Road make a strong case of ownership for professionals with higher salaries, the low rental values make renting a better option. The high property prices and low rental values of Rohini Sec-13 make the decision to rent easier. Safdarjung Enclave is the least affordable locality for a professional because of its high property prices and rental values. The research addresses the fact that Buy vs. rent decision has a huge impact on the personal nance of a professional. Buying a home is an integral part of every one's dream. But a very calculated and merit based judgment is needed before taking the decision to own the house. The comprehensive ArthaYantra Buy vs. Rent Score (ABRS) suggests the decision a professional should take across the thirteen major localities of Delhi based on the current rental values, property prices and the salary. If a professional nds himself in the rent zone as per the ABRS but still wants to buy a house, one has to make sure that their Emotional Premium attached with buying a house is going to match the EMI premium being paid.

8. Limitations and Concerns:

The data is related to following localities of Delhi: Delhi East, Delhi South, Faridabad (Sector 86), Golf Course Extension Road, Golf Course Road, Indirapuram, Noida City, Noida-Greater Noida Expressway, Rohini Sec-13, Safdarjung Enclave, Sohna Road and Vasant Kunj. The property tax to be paid is considered as 1.5% of the property value. The property tax calculation reforms need some stringent reforms to regulate the process. In most places the value is calculated based on the rental value. The rental values being shown in the related local governing bodies website varies from the actual rental prices. The tax benets received under section 80C is considered as INR 1 lakh both in the case of house ownership and renting.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

9. Appendix
FIGURES:
Figure1: Graphical Representation of Buy Vs. Rent in Delhi Figure2: Historical values of National Housing Board India Residential Index (NHB Residex) Figure 3: Average property price and rental values across twelve major localities of Delhi Figure 4: No. of years required to save the corpus for down payment across twelve major localities of Delhi Figure 5: Average no. of sq ft per INR 1lakh across twelve major localities of Delhi Figure 6: Break even horizon for the twelve major localities of Delhi

TABLE:
Table 1 : Factors associated with home ownership and renting
Table 2 : Locality wise ranking based on the affordability to rent and buy Table 3 : Rent to Buy ratio and Urgency to buy rank of twelve major localities across

Delhi Table 4 : ArthaYantra Buy vs. Rent Score Explanation Table 5 : ArthaYantra Buy vs. Rent scores for different salary ranges across twelve major Localities of Delhi. Table 6 : Other important numbers

SOURCES:
National Housing Board, India: www.nhb.org.in Jones Lang LaSalle: www.joneslanglasalle.co.in Makaan: www.makaan.com Magic Bricks: www.magicbricks.com Multiple Primary sources (100+)

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

ArthaYantra is a young and innovative company started by a group of alumni of the Indian School of Business (ISB) Hyderabad. It provides integrated personal nance services using its unique proprietary framework, Personal Financial Lifecycle Management (PFLM)TM, which helps clients achieve their nancial goals. ArthaYantra's vision is to provide independent, high quality, customized nancial planning solutions and their efcient execution to individuals. It employs proprietary nancial models and enable investments through well balanced passive investment strategies. ArthaYantra's clientele includes individuals from India, US, Europe and Middle East.

Our Mission
To positively impact the future of our customers & their families.
For more information on this report please contact ArthaYantra Corporation Pvt. Ltd. visit us online: www.arthayantra.com or Write to : contactus@arthayantra.com Website: www.arthayantra.com : h p://twi er.com/arthayantra : h p://www.facebook.com/arthayantra :h p://www.linkedin.com/company/arthayantra

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ArthaYantra
A CFO FOR EVERYONE

Plot #319, Second Floor, Ayyappa Society, Madhapur, Hyderabad - 500081, AP, India. Phone : +91- 040-66245874, Fax : +91-040-66245. www.arthayantra.com, contactus@arthayantra.com