buy vs rent 2015 | buy vs rent report - 8 cities-2015

ArthaYantraA CFO FOR EVERYONE

A Research initiative by ArthaYantra

Table of Contents

C

Summary

1. Introduction 5

2. Methodology 6

3. Assumptions 7

4. Findings

4.1 Historical Data of NHB residex 8

4.2 Property Cost vs Rental Value 9

4.3 Affordability to buy and Affordability to rent ranking 11

4.4 Area Covered 12

4.5 Down Payment 13

4.6 Urgency To buy ratio 14

4.7 Cash Flow Break Even analysis 15

5 ArthaYantra Buy vs. Rent Score (ABRS) 17

6. Comparison with previous years 19

7. Conclusion 27

8. Limitations 28

9. Appendix 29

10.Sources 29

Copyright 2014Cwww.arthayantra.com

The current edition of Buy vs Rent research covers 8 major cities across India.

Ahmedabad: Ahmedabad is now the cheapest city to rent a property unlike the previous nd

year.It also stands 2 in affordability to buy ratio. Buying a home would be a better option for individuals with income above 12 lacs.

Bengaluru: Over the years the city of Bangalore is favored for renting than buying which is clearly indicated by higher increase in rents as compared to the property prices. The average property rents increased by 37.51% whereas property prices increased by 12.64%.

thIt stands 4 in term of affordability to rent amongst the 8 cities. It is suitable for professionals having income more than 15 lacs to buy the property in the city.

Chennai: Chennai experienced a decline in property prices in the last 3 years whereas the threntals have increased by 10%. Due to the price shift, the affordability to rent has gone to 6

thfrom the last year's rank of 4 .More or less the property prices remained stagnant with a marginal decline by 3%. Suitable for professionals with income 20 lacs or above.

Delhi NCR: City with a population consisting of mostly migrants have become expensive to rent as people prefer to rent as compared to buy. The rentals have increased by 29.05% which is the second highest after Bangalore. Due to higher rentals the affordability to rent

th th thrank has gone down to 7 from 6 . The affordability to buy rank remains 7 as the city has the second highest property rates in the county. It is recommended to rent the property for all the professionals.

Hyderabad: Hyderabad maintains the reputation of being the most affordable place to buy a property. The 10% decline in property prices assist in keeping the affordability to buy at the top most rank. However the rentals increased marginally upwards in the past 3 year's period. Recommended to buy for all the professionals having income above 8 lacs.

Kolkata: During the past three years the property prices in Kolkata slipped by 2.7% . The rents also went down by 8.5% making the city more affordable to rent and as well as buy as

rdcompared to previous year. The city is now 3 in affordability to buy rank. It has now become affordable for professionals with income of 12 lacs or more to buy a home .

Mumbai: Mumbai remains the most expensive city to either buy or rent a home for the third consecutive year. Over the period of 3 years the property prices have increased by as much as 49.9% which is the highest amongst all the cities. The property trend does indicate increase in demand to buy but it is highly recommended to rent for all the professionals.

Pune: Pune have seen second high increase in property prices after Mumbai at 38.9% rise in past 3 years. The rents have also increased by 21.2%. Such high increase in prices has

th rdchanged the affordability to buy rank to 5 from the last years 3 . Also the affordability to th

rent rank slipped to 4 . Professionals with salary below 15 lacs are recommended to rent the property.

Summary

Copyright 2014C www.arthayantra.com Page No:3

BUY Vs. RENT: A PERSONAL FINANCE PERSPECTIVE


Buy vs. Rent : A National Snapshot

Years to accumulateDown payment (20%)

MUMBAI

Sq.ft/Lakh ( )


HYDERABADAHMEDABAD DELHI NCR CHENNAI KOLKATA BENGALURU PUNE

29.5416.8316.3220.0614.328.976.10 24.31

6.59.713.3

Figure 1: National snapshot

Bengaluru

BuyNeutral

Rent

8-12 lacsRent

13-16 lacsNeutral

17-25 lacsBuy

8-18 lacsRent

19-25 lacsNeutral

Chennai

Delhi8-25 lacsRent

8 lacsNeutral

9 lacs -25 lacsBuy

Hyderabad

Mumbai8-25 lacsRent

8-15 lacsRent

16-25 lacsNeutral

Pune

Kolkata

Ahmedabad

8-10 lacsRent

11-13 lacsNeutral

14-25 lacsBuy

8-10 lacsRent

11-25 lacsNeutral

4.8 5.8 5.6 4.1 3.4

Infographic data having national snapshot for all the cities

Over the years buying has become an 'Indian Dream'. A lot of sentiments are attached

when it comes to owning a home for the family. However, with the increasing real estate

prices and cost of raw materials makes them think twice before taking such decisions. Also

with the buying decision there are multiple factors like income tax savings, property tax etc.

which needs to be considered. The purchase of a property is also looked as a means of

capital appreciation and for a lot of Indians it's a safe haven for investments. But the reality

might be different from what they think especially in post 2008 era.

Other alternative to buying is the renting of the property, which does not expensive as

buying initially. To a lot of professionals, renting could be a more feasible option as it

provides flexibility to rent a property as per their lifestyle as some people do not intend to live

in a city for a longer period of time or in case of someone whose profession does not allow

them to settle down in one city for a long time. For too long buying or renting a home has

been a qualitative question. ABRS report makes it into clear quantitative framework on buy

vs rent decision.

1) Cash Flows

The first and foremost decision would depend on the impact on the cash flows each option

would have. To buy a property one has to go through the down payment for the loan, EMI

to be paid, property taxes and the regular maintenance and repair costs. Renting would

attract the monthly payment towards rent along with the maintenance cost. The

incremental rents in the subsequent years should not be ignored as the rents are most likely

to increase year on year. The savings after such fixed payments would derive whether

owning or renting would a feasible option.

2) Tax Savings

The net savings after bearing the cost of ownership and renting would have major impact

on the tax savings for each of the decision. For some cases it becomes a deciding factor as

the tax savings through Section 24 B and Section 80 C of income tax would reduce the net

payments towards the EMI's. On other hand, renting would also save your taxable income

as the major or whole portion of the rent paid can be saved by claiming it under Section 10

as HRA. In short both options would help the tax savings; the comparative savings for the

longer run would give a real picture on what should be done.

Taking a decision on real estate can become more complicated than it looks, in order to

simplify that Arthayantra is presenting the third Version of Buy vs. Rent report for 8 major

cities in India which deeply analyzes the changes in trends of the property prices and their

rental values over the past three years. It also studies how convenient it would be for

working professionals to buy or rent a property considering various aspects and help them

take a sound financial decision.

1. Introduction



Property price 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 the 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 is to quantify the buy vs. rent decision from a personal

finance 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. This year also saw a 50% increase in the localities covered city. This has been

done to increase the coverage area and reduce error rate.

2. Methodology



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.

3. Assumptions



4.1 Historical data for NHB Residex

In the Indian real estate growth story, Chennai typically is not spoken about. However, the

NHB index which indicates real estate price growth across Indian cities shows Chennai

index at 349 which has been seen the highest growth since its inception in 2007.

Pune is at distant second place having experienced an increase of 132 basis points. On the

other hand, financial capital Mumbai's real estate prices increased by 129 basis points.

Cities like Delhi, Ahmedabad and Kolkata's index value have doubled (99, 109 and 106

basis points respectively) during the 7 year period starting from 2007. For the home buyers,

Hyderabad proves to be the cheapest as it has shown negative growth ( - 5 basis points)

followed by Bangalore whose Real estate index increased by just 7%.

With the given analysis of real estate price trends the report aims to provide brief study of

the real estate price change during last 3 years (2012 – 2014) and facilitate the decision

making for the buyers of home.

4. Findings

Figure 2: Historical values of National Housing Board India Resident Index ( NHBResidex)



4.2 Property cost Vs. Rental Value

The average property prices in the city of Delhi ( Rs. 1.1 Crore) are almost equal to the

average property prices of Kolkata and Pune combined( Rs. 59.4 and Rs. 49.9 lacs).

Mumbai remains the city with the highest residential real estate prices followed by Delhi.

These two cities are the least affordable for a middle class home seeker. Chennai which rd

showed highest increment in real estate prices as per NHB residex has the 3 highest

property prices ( Rs. 69.5 lacs) in these 8 cities.

As far as the average rents are concerned, Mumbai has the average rent of Rs. 32250

which corresponds with the property rates as the highest when compared to other 7 cities.

Ahmedabad comes out as city with most affordable rentals with Rs. 10250 marginally lesser

than Hyderabad (Rs. 10640). Interesting fact is that some cities having comparatively lower

property rates have higher rents. Kolkata whose average property prices were lower as

compared to Pune has higher rent as compared to the latter (Rs.16308 vsRs.14545). The

rentals are even closer to cities like Chennai (Rs. 16567) and Bangalore (Rs.16758). These

factors make buying a home more attractive in Kolkata than renting. Hyderabad remains

the most suitable city to either buy or rent a property with the second lowest average rent

and lowest property prices.

The key parameter in determining whether to buy or rent a home is the property cost vis-à-

vis the rental value. In this study Arthayantra compares property prices and rental values of

1000 sq feet ready to occupy house across eight major cities. The diagram below shows the

findings -

Figure 3: Average Property price and rental values across 8 major cities



35

30

25

20

15

10

5

0 0

4000

2000

6000

8000

10000

12000

14000

Banga

lore

Che

nnai

Delhi

Hyd

erab

ad

Mum

bai

Pune

Kolka

ta

Ahmed

abad

Average Property Prices Average Rental Value

Average Property Price vs Rent

16000

18000

Change in Property Rates (2012‐2014)

Cities like Bangalore, Chennai and Delhi had incremented rentals more than

proportionately compared to the property price rise. Bangalore has seen the largest

increase in rentals at 37.5% over the last three years. This growth dwarfs the asset growth in

the city. Delhi has the second highest growth; even here hare have shown increase in

rental yields when compared to the asset appreciation. This indicates that the

professional's behavior is more inclined to buying than renting.

The change in rentals in other cities was unlike the pattern which was shown in the property

price changes. Hyderabad indicated a marginal increase in rental of 1.93% as compared

to the decline which was shown in the property prices except Kolkata which

complimented the property price change pattern in past 3 years with a decrease of 8.5%.

Trends in the last 3 years period starting 2012 have shown a different picture as depicted by

the 7 year growth index in NHB. Out of the 7 cities(Ahmedabad was not a part of our

research for 2012)Mumbaihas experienced highest gain in the real estate prices in the years

2012-2014 with 49.87% increase, followed by Pune (38.91%) and Bangalore (12.64%).

Chennai which had the highest rise is sixth amongst the seven cities with a negative growth

of -2.97% during last 3 years. Hyderabad also showed negative trend in past 3 years

emerging as the city with the cheapest real estate prices. The decline in value was also

seen in Kolkata. The 3 year trend clearly shows that each market is behaving differently.

From ainflation adjusted growth perspective, most cities in India has lost value. The only

ones that are in the positive territory are Mumbai and Pune. Despite Mumbai being

expensive, people living there prefer buying more than renting



-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

-20.00%

Banga

lore

Chenn

ai

Delhi

Hyder

abad

Mum

bai

Pune

Kolka

ta

Change in Property Prices 2012-14

12.64%

Change

-2.97% -2.69%

2.59%

-10.08%

49.87%

38.91%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

-20.00%

Banga

lore

Che

nnai

Delhi

Hyd

erab

ad

Mum

bai

Pune

Kolka

ta

Change in Rental Value 2012-14

37.51%

Change

10.75%

-8.55%

29.05%

1.93%

13.07%

21.21%

4.3 Affordability to buy and Affordability to Rent ranking

After the introduction of Ahmedabad in the year 2013, the city has now replaced

Hyderabad as the most affordable place to rent as per the new ranking. Mumbai easily

managed to maintain its familiar position as the most expensive to either buy or rent for the th

second straight year whereas Chennai became more expensive to rent at 6 rank pushing th

Delhi further below to 7 rank. Kolkata after going through a negative growth phase in

property prices have become more economical for both buy and rent as compared to the

last year.

When it comes to affordability to buy, most of the cities managed to maintain same

position as on last year except Kolkata and Pune who replaced each other at 3 and 5

respectively.

Assuming the income factors for a middle class family and their savings ratio and factoring

in with the rental and buying prices of properties in the 8 cities, Hyderabad comes to be the

most affordable city to buy a property for the third straight year. The decline in the buy

prices and a marginal increase in rental prices helped the city to remain on top in terms of

affordability.



CITIES 2012 2013 2014

HYDERABAD 1 1 1

Bangalore 4 4 4

Delhi 6 7 7

Chennai 5 6 6

Kolkata 3 5 3

Pune 2 3 5

Mumbai 7 8 8

Ahmedabad NA 2 2

Table 1 ( Affordability to buy rank) Table 2 ( Affordability to rent rank)

Affordability to buy trend 2012‐2014 Affordability to rent trend 2012‐14

CITIES 2012 2013 2014

HYDERABAD 1 1 2

Bangalore 3 3 3

Delhi 6 6 7

Chennai 4 4 6

Kolkata 5 7 5

Pune 2 2 4

Mumbai 7 8 8

Ahmedabad NA 5 1

4.4 Area Covered

Mumbai being the costliest city amongst all has the least coverage per lac which is just 20%

of Hyderabad which proves to be the most economical city. It remains the most

economical for the third consecutive years. Kolkata improvised significantly by providing

28% more area as compared to previous year. Ahmedabad becomes second most

economical covering 20.5% more area as compared to 2013. Pune becomes expensive

year on year as the area covered reduced by 9% from the previous year. Professional from th

Delhi would get half of the area in Bangalore which stands5 when it comes to the area

covered. From lifestyle perspective consumer from Hyderabad Ahmedabad, Kolkata

Bangalore tends to have large house to buy as well as rent.

For every middle class Indian spender, quantity and economy is one of the biggest factors

behind every purchase decision. Just like the mileage of a vehicle i.e Kilometers covered

per liter of fuel is very essential, area covered per lac rupees spend for a home is also very

important aspect to consider. This would facilitate the investor to make a decision

especially when they want a place for a joint family and sometimes even a nuclear family.

With the change in property prices during the past three years the area covered per lac

rupee spent also changes accordingly. This change in comparison with the previous 2 years

is depicted in the below figure.

Figure 4: Number of square feet covered per one lakh of amount paid



No. of sq ft/ Lakh

Mumbai

Bangalore

Ahmedabad

Chennai

Kolkata

Hyderabad

Delhi

Pune

0 5 10 15 20 25 30

No.of Years

24.3220.18

20.0615.69

16.84

6.107.50

9.15

9.198.588.96

14.3913.1513.96

16.3316.01

18.39

18.55

19.52

23.39

23.9526.57

29.55

2014

2013

2012

Professionals living in Hyderabadwould take least amount of time (3.4 years) to

accumulate the down payments for the home loan followed by Ahmedabad (4.1 Years).

Overall the required number of years has been reduced in all cities comparedto the

previous year's findings except Pune and Mumbai. Delhi has shown some improvement

from the last year as the number of years has fallen by .4years from the previous value of

10.1 years. Similar improvement can be seen in Kolkata with a change of1.2 years. Time

taken to accumulate the down payment amount in Mumbai is more than thrice of

Hyderabad. The Mumbaikars would have to wait for a very long time to by their dream

home. Despite this uphill task, most people are becoming house owners. This is largely

driven by the ability of the professional to finance their home from friends and family

instead of just relying on savings, loans etc. This has also pushed the personal finance

situation of many families to the brink.

Figure 5: Number of years required to save the corpus for down payment

Taking a loan is the only option left for working professionals to fulfill their dream to buy a

home. The banks have also tightened the rules by approving loan equivalent to 80% of the

value of property. This forces the homebuyers to arrange for the down payment for the

loan.Assuming the savings rate of 25% of income( post income tax and property tax of Rs

1.5%) and the income increment of 10% year on year, the time required to accumulate the

corpus for the down payment is presented in the below figure –

4.5 Down payment



Years

to

save

money

for

downpayment

Mumbai

Bangalore

Ahmedabad

Chennai

Kolkata

Hyderabad

Delhi

Pune

0 2 4 6 8 10 12 14

No.of Years

4.14.8

4.8

5.6

4.3

6.05.0

5.2

13.311.3

9.510.1

9.7

6.57.0

6.7

5.85.9

5.3

3.44.1

3.8

9.6 2014

2013

2012

Mumbai has the least Rent to Buy ratio .22 which means that renting home is 78% cheaper

than buying. Delhi which had a lowest ratio in the previous year has bettered its position to

7. Kolkata has the highest ratio of .37 which would enable the home buyer to take the

decision to buy if they can afford the EMI cost per month.

Urgency to buy ratio is a ranking that enables professionals to take an objective decision to

either buy or rent. The urgency to buy ratio indicates what extra payment one has to pay

every month if the property is purchased instead of rented. This ration helps in

understanding whether the rental yields are in line with the property prices in a city. The

average monthly cost of renting is derived from the sum of rents and maintenance cost

whereas monthly cost of buying is calculated by adding maintenance cost with the

monthly EMI's. It is a good means to understand if property prices are inflated.

4.6 Urgency to Buy Ratio


Table 3 : Urgency to buy rank


CITIES Average out of Pocket Cost

(Ren�ng home)

(`)

Average out of Pocket Cost

(Buying home)

(`)

Rent to Buy Ra�o

Urgency to

Buy Ra�o

(2014)

Urgency to

Buy Ra�o

(2013)

Urgency to

Buy Ra�o

(2012)

AHMEDABAD 11,249 37,369 0.28 4 1

BENGALURU 17,758 55,163 0.31 3 5 5

CHENNAI 17,567 62,452 0.27 6 7 6

DELHI NCR 24,406 99,729 0.24 7 8 7

HYDERABAD 11,638 30,930 0.36 2 3 3

KOLKATA 17,308 45,084 0.37 1 2 1

MUMBAI 33,250 145,883 0.22 8 6 4

PUNE 15,545 53,528 0.28 5 4 2

*Maintenance cost of Rs 1000 per month added to all.

Cash flow break even analysis explores the cash outflow for buy vs rent. The intersection of

cash outflows due to rent or buy in the future is the break-even point.

The study will also give another dimension to the buying or renting decision. The city where

the breakeven year comes before the loan tenure expires is supposed to be more suited for

buying whereas the city where the breakeven year is not attained before 15 years, renting

would be more suitable. In comparison with the last year, a lot of changes have occurred in

the tax treatment of ownership of the property which is also been taken into account.

For example the interest component of the EMI is subject to deduction u/s 24B and the

principal part u/s 80C of Income tax act. In case of renting, benefit is available under house

rent allowance. Using these parameters one can identify the time period where the cost of

renting would be equal to the cost of buying within the loan tenure. The recent change

introduced due to finance bill will also have some impact on the decision.

4.7 Cash Flow Break Even Analysis



Table 4: Factors associated with home ownership and renting

Factors considered for buying Factors considered for renting

Down payment

EMI

Maintenance cost

Tax benefit u/s 24 B ( Savings on interest paid)

Tax benefit u/s 80 C ( Savings on principal repaid

Rent

Maintenance Cost

Tax Benefit u/s 10 ( HRA )


Figure 6: Break Even Horizon for eight major cities of India


Hyderabad

Ahmedabad

Bangalore

Kolkata

Chennai

Mumbai

Pune

Delhi

0 5 10 15 20

No.of Years

15+

15+15

15+

15+15+

15+

15+

1414

1414

1211

11

13

15+

15+

15+15+

15+

1515

2014

2013

2012

Hyderabad having the low rentals is the most suitable city for buying with the breakeven

year of 13 years. This was mainly due to drop in property prices during the past three years.

Kolkata comes second where the break -even year is 14.This is mainly due to drop in the

property prices. Ahmedabad would be more suitable for renting as of now due to very low

rents. For the rest of the cities the time taken to equalize the cost of renting to buying is over

15 years which makes them more suitable for renting. This indicated more inclination

towards renting.

The property price and rental value of the place determines if 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 confined 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.

5. ArthaYantra Buy VS. Rent Score (ABRS)

Score Recommended Ac�on

100 Buy

90 Buy

87.5 Neutral / Recommended to Buy

80 Neutral / Can afford both Buying and Renting. Renting is recommended

77.5 Neutral / Recommended to Buy

75 Rent

67.5 Neutral / Recommended to Rent

<55 Can not afford to Buy or Rent

Table 5: ArthaYantra Buy vs. Rent Score Explanation



Table 5: ArthaYantra Buy vs. Rent scores for different income levels across eight major cities of India.


Income Ahmedabad Bengaluru Chennai Delhi NCR Hyderabad Kolkata Mumbai Pune

8 Lakhs 55 65 55 55 77.5 65 55 55

10 Lakhs 67.5 65 55 55 90 65 55 55

12 Lakhs 80 65 55 55 90 77.5 55 55

15 Lakhs 80 77.5 67.5 55 90 90 55 67.5

20 Lakhs 80 90 80 55 90 90 55 80

25 Lakhs 80 90 80 67.5 90 90 55 80


Over the last 3 years, Bengaluru has seen relatively higher growth in the rental rates

compared to the property prices. Rental values in the area increased by 37.51% compared

to 12.64% increase in the property prices. The NHB Residex value for the Jan – March 2014

quarter is recorded at 107, which is 2 base points less than the index value recorded during

the same quarter of last year. Among the 8 cities, Bengaluru is ranked as third most

affordable place to rent and fourth affordable place to buy a property. The years of saving

required for the down payment in Bengaluru has moved down marginally to 5.8 from 5.9

when compared to last year. A new home buyer in Bengaluru, now gets 2.00% more carpet

area compared to the previous year, but, gets lesser carpet area by 11.20% when

compared to 2012.The city being the most preferred one for the immigrants as it provides

favorable working opportunities to them, renting is been more prominent option rather

than buying the property. This is well indicated by the superior increase in rentals as

compared to the property prices in past few years.The ABRS values of Bangalore recorded

during this year increased to 90 making the professionals who fall under salary range of 20

lacs, affordable to buy a property when compared to the values recorded during the

previous year.For professionals under 20 lacs income, Bangalore is the city where renting is

more optimal financially. There are micro markets such as Mysore Road and Old Madras

Road where it affordable to buy even at salary below 20 lacs. However, professionals have

to make lifestyle compromises and adjust to the higher commitment. The breakeven year

where the cost of owning equals the cost of renting is more than 15 years for professionals

having annual income of less than the recommended salary range for buying. The last

year's figure was 15 years.

Bengaluru - Rising Rental Yields



Bengaluru

Years to save downpayment

Affordability to Rent:Rank 3

65

2014:2012:

Rent

Purchase Price in

Lakhs

Urgency to Buy:Rank 3

61.2454.37

2014:2012:

Sq.Ft / Lakh

Affordability to Buy:Rank 4

16.3318.39

2014:2012:

Buy

6. Comparison with previous years

The NHB Residex value for the Jan – March 2014 quarter is recorded at 349, which is 39 base

points higher than the index value recorded during the same quarter of last year. Rental

value of the areas over the three periods has increased by 10.75% whereas the property

prices have decreased by 2.97%. Among the 8 areas, Chennai is ranked as 6th affordable

place to rent and as well as buy. With respect to affordability of renting, Chennai's ranking

has increased to 6 when compared to previous years ranking of 4, which means it has

become more costly when compared to the earlier years. On the other hand, affordability

to buy remains on the same place but the years of saving has come down to 6.5 from 7

compared to last year due to decline in the real estate prices and increment in the savings

due to change in tax benefit structure. A new home buyer in Chennai, now gets 9.43% more

carpet area when compared to last year and 3.08% more area when compared to 2012.

The ABRS values of Chennai recorded during this year increased to 80 making the

professionals who fall under salary range of 20 – 25 lakhs, either to buy a property/rent it out

compared to the values recorded during the previous year. However, in case if one having

income below that recommended level choose to buy a home in Chennai can choose

areas like Sholinganallur and Kolathur where the property prices were much lower than the

average price in the city and hence would be more affordable to buy.The breakeven

year is more than 15 matching the last years number.

Chennai - Plateau Market



Chennai



67

2012:

Rent

Purchase Price in

Lakhs


69.4971.62

2014:2012:

Sq.Ft / Lakh


14.3913.96

2014:2012:

Buy

Delhi continues to be second most expensive city to own a home in India. The NHB Residex

value for the Jan – March 2014 quarter is recorded at 199, which is 3 base points lesser than

the index value recorded during the same quarter of last year. The average rental value of

Delhi over the last three years has increased by 29.05% whereas the average property

prices increased by just 2.59% over the same period. Due to the increase in the rental

values, Delhi stands at 7th place in the most affordable place to rent category. For an

Individual with annual income of 8 Lakhs to buy a “Dream House” will require 9.70 years to

accumulate fund for the down payment. A new home buyer in Delhi, now get 4.43% more

carpet area compared to the previous year, but, will end up getting less area by 2.50%

when compared with 2012. The ABRS score for professionals with a salary range of 8 – 25

lakhs remains in between 55 – 67.50 making it a place to rent for majority of such individuals.

The residents are preferring areas in the NCR region which have comparatively lower

prices. The areas like Greater Noida Expressway and Indirapuram (Gaziabad) have the

lowest prices in the region but living in these areas would increase the travel time to the

workplace and hence could cause inconvenience. The breakeven year figure also

suggest the same for the earning professionals.

Delhi - Rents are increasing



Delhi



109

2014:2012:

Rent

Purchase Price in

Lakhs


111.64108.82

2014:2012:

Sq.Ft / Lakh


8.969.19

2014:2012:

Buy

Hyderabad continues to be the most affordable real estate market among the major cities

of India. The NHB Residex value for the Jan – March 2014 quarter is recorded at 95, which is 7

base points higher than the index value recorded during the same quarter of last year.

Rental values in the area increased by 1.93% over last 3 years but reduced by 11.35% when

compared last year. On the other hand, property prices are continuing to decline by 5% on

an average in the past 3 years, making Hyderabad the most affordable to place to buy a

property among the 8 cities picked up for this study, but, moves down to 2nd place in the

most affordable place to rent a home category. The saving required to afford buying a

property in Hyderabad has declined to 3.40 years from 3.80 years in 2012. Based on the

previous year prices, a middle professional needed to save for 4.10 years. A new home

buyer in Hyderabad, now gets 23.38% more carpet area compared to the previous year

and 11.22% when compared to 2012.The ABRS score for professionals with annual income

of 10 Lakhs has increased to 90 from 77.50 as recorded in the previous year, making

Hyderabad the most affordable place to buy among the eight places studied. The most

affordable regions in the city are Uppal and Rajendra Nagar. The home buyers would

recover the cost in less than 15 years which shows a green flag to buy the property.

Hyderabad – The Affordable Market



Hyderabad



34

2014:2012:

Rent

Purchase Price in

Lakhs


33.8437.64

2014:2012:

Sq.Ft / Lakh


29.5526.57

2014:2012:

Buy

Real estate in Kolkata scored negative both in terms of property prices and rental

prices.The fall is the steepest amongst all the cities . The average rental value and property

value of the place has decreased by 8.55% and 2.69% respectively over the last 3 years.

However, the NHB Residex value for the Jan – March 2014 quarter is recorded at 206, which

is 9 base points higher than the index value recorded during the same quarter of last year.

Among the 8 cities, Kolkata is ranked as 5th affordable place to rent and 3rd affordable

place to buy a property. The years of saving required to afford buying a property in Kolkata

has decline to 4.80 from last year's stats of 6.00. Based on 2014 analysis, a new home buyer in

Kolkata now gets 28.59% more carpet area compared to the previous year, but, when

compared to 2012, the carpet area has just increased by 2.77%. The ABRS score of 77.50

suggests that, for an individual whose annual salary is 12 Lakhs is considered to be in a

Neutral Zone, mostly advised to rent. The professional whose salary range is between 13 – 25

lakhs is better off owning a home than renting it. These values remain in sync with the values

recorded in the previous year. However the break even figure went to 14 years as

compared to 11 years in 2013, but it would not make much impact on the

recommendation to buy the property. The outer regions of city like Howrah and Jadhavpur

offer lower real estate prices which could be affordable for the individual's having lower

income.

Kolkata – Contraction in rentals



Kolkata



55

2014:2012:

Rent

Purchase Price in

Lakhs


49.8551.23

2014:2012:

Sq.Ft / Lakh


20.0619.52

2014:2012:

Buy

Mumbai still remains the costliest real estate market in India for 3 consecutive years. The NHB

Residex value for the Jan – March 2014 quarter is recorded at 229, which is 7 base points

higher than the index value recorded during the same quarter of last year. While the rental

prices have increased by 13.07% in the last 3 years, whereas, the property prices have

increased by a whopping 49.87%. Among the 8 cities, Mumbai stands as least affordable

place in case of both renting and owning a house. The Mumbai resident still prefer to buy

even if they have to travel far for work which indicates the annual increment in property

prices to be far higher than the increase in annual rents. The years of saving required to

afford buying a property in Mumbai has increased to 13.30 from 9.60 when compared to

2012 stats. Based on the previous year prices, a middle professional needed to save for

11.30 years. A new home buyer in Mumbai now gets 18.67% lesser carpet area compared

to the previous year and 33.33% less area when compared to 2012. The ABRS for individuals

with a salary range of 8 – 25 lakhs remains at the bottom with a score of 55 making Mumbai

the costliest places to own a property in India. This is largely due to higher increase in the

property value compared to increase in rental value.The recommendation is well

supported by the break even figure of 15+ years. For the income group of 20-25 lacs areas

like Mira Road and Kalyan could be affordable to buy.

Mumbai – Zooming real estate price



Mumbai



1310

2014:2012:

Rent

Purchase Price in

Lakhs


163.83109.32

2014:2012:

Sq.Ft / Lakh


6.19.15

2014:2012:

Buy

Pune still largely remains a buyer's market with the property prices increasing at a higher

rate than rental rates. The rental prices in the area have increased by 21.21% over the last 3

years when the property prices have increased by 38.91%. The NHB Residex value for the

Jan – March 2014 quarter is recorded at 232, which is 11 base points higher than the index

value recorded during the same quarter of last year. Compared to the earlier years, Pune

has become costlier, both in renting as well as owning the property. Among the 8 cities,

Pune, now stands at fourth most affordable place to rent while it stand fifth in terms of

affordability to buy compared to last year's ranking of second and third respectively. Being

the neighbor of the most expensive city (Mumbai) and due to comparatively lower

property prices it became a hot destination for the property purchase during the past 2-3

years. It is well represented by the increase in property prices. The vast improvement in job

opportunities in the past also contributed a lot to the property prices as lot of professional

were keen to buy the property and intended to settle down in the city. The years of saving

required to afford buying a property in Pune has increased to 5.60. Based on the previous

year prices, a middle professional needed to save for 5.20 years. A new home buyer in Pune

now gets 9.27% lesser carpet area compared to the previous year and 28% less area when

compared to 2012.Due to the rise in the property prices, the ABRS values of Pune recorded

during this year decreased to 80 making the professionals who fall under salary range of 20 –

25 lakhs, either to buy a property/rent it out as opposed to 90 for professionals earning more

than 15 lakhs during the last year. The incremental rates also had an impact on the break-

even year which is not looking achievable during the loan tenure which is unlike the last

year figure of 15. Some areas like Hadapsar and Kondhwa were found to have cheaper

property rates and proven to be affordable for the individuals having income between 10-

20 lacs per annum.

Pune – Both real estate and rental increase



Pune



64

2014:2012:

Rent

Purchase Price in

Lakhs


59.3942.76

2014:2012:

Sq.Ft / Lakh


16.8423.39

2014:2012:

Buy

Ahmedabad was the new addition in the last year's buy vs rent report by ArthaYantra. The

NHB Residex for Jan – March 2014 quarter has increased by 17 points to end up at 209

compared to last year's value of 192 in the same quarter. Among the 8 cities, Ahmedabad is

the second most affordable place to own a house after Hyderabad and stands at the top

of the table when it comes to renting a home. This year, middle income individual needs to

save for at least 4.10 years to afford the down payment for the house compared 4.80 year's

last year. The city also offers good value for buyer's money who can get around 24.32 sq. ft.

for every 1 lakh spent which is 4.14 sq. ft. more compared to last year. The ABRS value of 87.5

and higher for individuals who earn more than 12 lakhs per annum signifies that such

individuals should opt for buying a property over renting in Ahmedabad.However , the

significant decline in rentals shows a different picture altogether as the break even

becomes difficult during the loan tenure. Amongst all the regions Vastral and Vejalpur were

the most affordable places to own a home.

Ahmedabad – Waiting to be found



Ahmedabad



45

2014:2013:

Rent

Purchase Price in

Lakhs


41.1249.55

2014:2012:

Sq.Ft / Lakh


24.3220.18

2014:2012:

Buy

The ABRS calculator does provides assistance in making a rational decision while

purchasing a property but there are factors which are region specific and are very

important to understand. A lot of cities have indicated indifferent behavior from what the

statistics suggests but such decision are driven by factors which cannot be generalized for

all the cities. Mumbai being the most expensive and unaffordable city to buy is still

preferred by the individuals for buying the property. Delhi and Bangalore have become a

popular choice for renting which is clearly justified by the immigrant population

contributing to the increased demand for the rental properties. Pune also lies in the same

category but being the nearest to the costliest city in the country it is looked as an

alternative residential place which to an extent, increased the property prices in the city.

Ahmedabad and Hyderabad has emerged as a heaven for the salaried individuals as the

prices are very much as per their income levels.

The changing market scenario which might have some favorable impact on the interest

rates for the loans could make buying a bit easier in the coming years as the rate of interest

are expected to go down. The positive outlook on the future of Indian markets would also

impact the job markets and hence the income levels, which might increase the possibilities

to of property buying. Acquiring a property involves long term commitments and

adjustments. Any decision taken in haste could cause long term impact on the personal

finances. It is very important to analyze both sides of buying and renting before going

forward.

7. Conclusion



The data is related to following localities of the eight cities:

Delhi NCR: Golf course Road, Sohna Road, Golf course extension Road, Noida – Greater

Noida Express Highway, Noida City, Indirapuram, Faridabad, Safdarjung Enclave, Rohini

Sec – 13, Delhi East, Delhi South, VasantKunj, Friends Colony, Shalimar Bagh, VasantKunj,

Dwarka, MayurVihar Phase 1.

Kolkata: Alipore, PA Shah Road, EM bypass, Lake town, Behala, Howrah, Jodhpur Park, Jadavpur, Salt Lake City,Maniktla,Bhavanipur,Dhakuria, Behola.

Pune: Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri–Chinchwad, Kothrud,

Kasbapeth, Kharodi,Pashar,Chinchwad.

Mumbai: LowerParel, Wadala, Andheri, Ghatkopar, Ghodbunder Road, Kharghar,

Chembur, Borivali West, Bhandup West, Mira Road, Kalyan, Virar, Pokaran Road, Malabar

Hills, MatungaEast,BandraWest, Mulund, Dahisar.

Hyderabad: Banjara Hills, Begumpet, Kondapur, Tellapur, Kukatpally, Miyapur, Rajendra

Nagar, L.BNagar, Tolichowki,Himayatnagar,Tarnaka,Uppal, Srinagar Colony.

Bengaluru: Old Madras Road, Indira Nagar, Bellary Road, Hosur Road, Whitefield, Tumkur

Road, Kanakapur Road, Mysore Road, Lavella Road, Benson Town, Vijaya Nagar,

Madibana.

Chennai: Adyar, Medavakkam, Tambaram, Anna Nagar, Porur, Sholinganallur, Perambur,

K o l a t h u r , C h e t p e t , A s h o k N a g a r , C h r o m e p e t , T h r i u v a n m i y u r , N e h r u

Nagar,Numgambakkam.

Ahmedabad : Motera,Gota, Satellite,Maninagar,Thaltej, Bodakdev, Vatva,Ambawadi,

Sola Road, Chandkheda Gam, Vejalpur, Shilaj, Vastral.

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 benefits received under section 80 C is considered as INR 1.5 lakh both in the case

of home ownership and renting.

The tax benefits under section 24B for home buyers is considered as 2 lakhs.

The HRA benefits in case of renting is considered as per the taxation rules based on

average rental prices.

However, the tax calculation for the previous years is taken as per the rules pertaining to

the respective previous years.

8. Limitations



9. Appendix - I

FIGURES:

Figure1: National snapshot

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

Figure 3: Average property price and rental values across eight major cities of India

Figure 4: Number of square feet covered per one lakh of amount paid

Figure 5: Number of years required to save the corpus for down payment

Figure 6: Break even horizon for eight major cities of India

TABLES:

Table 1: Affordability to buy rank

Table 2: Affordability to rent rank

Table 3: Urgency to buy rank

Table 4: Factors associated with home ownership and renting

Table 5: Arthayantra Buy vs Rent score explanation

Table 6 : Arthayantra Buy vs Rent Score for different income levels across eight major

cities

Table 7 : Important numbers to look before making a decision.

SOURCES:


National Housing Board, India: www.nhb.org.in

Jones Lang LaSalle: www.joneslanglasalle.co.in

Makaan: www.makaan.com

Commonfloor: www.commonfloor.com

Magic Bricks: www.magicbricks.com

99 Acres: www.99acres.com

Multiple Primary sources


Appendix - II


*Ini�al corpus required for owning = 20% of the Average property price (down payment for home loan)**Ini�al corpus required for ren�ng= Amount equivalent to 10 months of rental value (Hyderabad which is 3 months)*** (Ren�ng the home) / Average out of pocket cost (Owning the home)The gross income of 8 lakhs per annum is considered.

Other important numbers to look at before making the decision :

Table 7: : Important numbers to look before making a decision.

Delhi NCRCities Kolkata Hyderabad Bengaluru Chennai

7 years growth of NHB residex

99% 106% 109% -5% 7% 249%

Initial Corpus required

for owning*(INR)

2,232,875

997,008 822,532

1,224,958

1,38,9820

No.of Years to save for the corpus

9.7

4.8 4.1

3.4

5.8

6.5

Average No.of sq.ft per INR 1lakh

8.96

20.06 24.32

29.55

16.33

14.39

Initial

corpus required for renting**

2,34,063

1,63,077 1,02,492

31,915

1,67,583

1,65,667

0.24

0.37 0.28

0.36

0.31

0.27

Break Even year

15+

14 15+

Pune

132%

676,915

5.6

16.84

1,45,455

0.28

15+

MumbaiAhmedabad

129%

1,187,9823,276,722

13.3

6.10

3,22,500

0.22

15+

13

15+

15+

Rent tobuy ratio



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