Should I buy Apartment in The Eastern Park or keep on paying rent?

Humans always love to own things, but when it comes to buying our own house, we have multiple doubts. As per a recent survey taken by one of the top-rated Business newspapers- there are two primary reasons, in India, for not buying a home-

  1. 1. Not having enough money to afford a home
  2. 2. The myth that It's better to pay rent than EMI

So, the biggest question is, what’s the right thing financially- Paying EMI or Rent? Is it better to pay rent than pay EMIs?

Difference between owning a house and living in rented accommodation

Before deciding on the financial aspect of this problem, let's first look over the difference between both situations.

Points of difference

Own House

Rented House

Ownership

Buying a house will make you an Owner of the property, which provides you with a sense of security and privacy. You can make any alterations to your house without any permission.

You will not become the owner of the house. You can’t do any modifications in the rented home without the consent of the landlord.

Financial Side

EMI paid to buy a home is not an expense. It's an investment in your asset.

Rent is a monthly expense, and you can’t get it back.

Paperwork

Registry and documentation is a tough thing in the case of Kothi. The most important thing is vetting of ownership of the seller

Since flats are made after proper approval of RERA, its very easy to do documentation of the flat.

Monthly Expense

EMI is a fixed amount and it never changes

Rent increases every year by almost 5-10%

Flexibility to change

You can make any alteration to your home in case there is a need.

You cannot change anything without the permission of your landlord

Flexibility to change Location

You cannot change your house once you buy with your money or loan you can’t change anytime. Whether you don’t like the environment or any other problem.

You can always take a new home on rent in case you require bigger space or in case your requirements had changed

Maintenance

You are the house owner and thus you have a responsibility for the maintenance, Improvement, and repairs.

When renting a property, your landlord is responsible for all maintenance, improvement, and repairs.

It's clear that despite a couple of disadvantages of owning a home, it's better to buy your own home. It provides freedom and a sense of extra security.

Financial Implications of owning your home, compared to staying in a rented apartment

It's financially prudent to buy your own home than stay on rent. There are specific reasons for that.

  1. 1. Fixed amount of EMIs - When you buy a house with a loan, you already know the EMI required to be paid over the long term. Hence, the future costs are predictable and more stable. Whereas, in the case of rent, usually, there is an annual incremental clause. This rental amount increases every year. Usually, the thumb rule of such an increment is 10% per annum.
  2. 2. Returns on monthly payment - When you pay to rent, it’s an expense, and you don’t make anything in return. But when you pay EMI, you are investing in your own home. Traditionally real estate is considered the best investment, and in the past, it has delivered super average returns due to the Indian situation of a high population and fewer homes.
  3. 3. Difference between EMI and Rent amount - In case you can get a home at EMI which is near to your rent amount, it's financially prudent to buy your own home. By paying a small amount of EMI per month, you can own a house property

How buying a flat at The Eastern Park is better than paying rent

At Eastern Park, our research team has analyzed this whole situation based on the current status of the real estate market. We have surveyed rent at major localities on Chandigarh Road. Those are

Area

Rent in ₹

32 Sector

16000

Vardhman Park

15000

33 Feet road

12000

Rahon road

12000

GK estate

12000

Source- Property Brokers


However, if you want to buy your apartment at The Eastern Park, you can buy it by paying Rs 51000 and the balance by opting for a home loan EMI. Below is the tentative EMI schedule for purchasing a flat at The Eastern Park

Configuration

1 BHK

2 BHK

Tenure

30 Years

30 Years

EMI before Subsidy

15442

27672

Assumption- 80% LTV, ROI 9.00%


How in longer term EMI becomes better than Rent

Below is the table to showcase, that everything except EMI keeps changing in the future.

Today

In 5 years

In 10 years

In 20 years

Your income in ₹ (Assumed 10% annual growth rate)

50,000

80,000

1,29,000

3,36,000

Home Rent in ₹ (Assumed 7% annual growth rate)

10,000

14,025

19,671

38,696

2 BHK home EMI ( 9.00% ROI, 80% LTV, 30 Years tenure)

27672

27672

27672

27672

Home Value in ₹ (Assumed 7% annual growth rate)

42,99,000

56,35,112

79,03,506

1,55,47,452

All %age assumptions are as per general market accepted rules.


All %age assumptions are as per general market accepted rules. Actual might be different from it. If you notice the above table- it clearly shows that, like your income, monthly home rent also increases every year. As per the last 20 years' track, house property generally goes up at 7% CAGR. And thus, despite paying ₹ 38696 rent after 20 years, you won’t make anything in return.

However, if you pay an EMI of ₹ 27672 per month, you could own a home whose price would have increased by then.