Contemplating between buying a house or moving on rent? MBRI could help you decide.
Which is beneficial, buying a property or staying on rent? In the absence of a robust and reliable tool, these decisions were traditionallytaken with gut feel or with guidance of a close relative / friend, leaving scope for error. The latest report from Makaan.com gives an insight whether homebuyers should invest in property or move on rent instead. The Makaan.com Buy Vs Rent index (MBRI) for the period April to June 2011 highlights some interesting findings for top Indian cities/sub cities.
Let’s look at some recommendations for buying Vs. renting property in
MBRI analysis for top Indian Cities
The table and illustrations below explains what the MBRI is and how it is to be used. MBRI for key Indian real estate markets for the period April - May – June 2011 is given below.
Let’s look at the MBRI data for Chennai (16) and Bangalore (19) and compare that with MBRI for Mumbai (24) and Delhi (29). A lower MBRI for Chennai, Bangalore and Hyderabad indicates that it is less expensive to buy a property here than to stay on rent. Let us take an example to understand the MBRI dynamics with-in a city, if you look at Delhi NCR, we find that MBRI for Gurgaon, Faridabad & Noida is 20, 19 & 17 respectively, indicating that property seekers will be better off buying a property in these sub-cities rather than staying on rent. This also indicates that the rentals in these sub-cities are higher when compared with the prevailing capital values. On the other hand, MBRI for Delhi East, Delhi North & Dwarka is 34, 35 & 44 respectively, indicating that one should prefer to stay on rent rather than buying a property here. High MBRI also indicate lower rental value when compared with the capital value of property. Similar interpretation can be drawn for other cities / sub-cities.
When compared with the last Quarter i.e January - February - March 2011, most Indian cities have not shown very drastic fluctuation in terms of MBRI values. Makaan Buy vs. Rent index is a quarterly initiative and will be updated every 3 months. The detailed findings can also be accessed at www.makaan.com/MBRI
How to interpret MBRI?
How to interpret MBRI?
MBRI of 1-20: This denotes that it is much less expensive to buy a home than to stay on rental, in these cities / sub-cities. Property seekers looking at investing here are advised to buy a property than staying on rentals.
MBRI of 21-25: This denotes that it is relatively more expensive to buy a home than to stay on rental, in these cities / sub-cities. This is a neutral range and property seekers looking at investing here are advised to take the final decision based on their financial situation.
MBRI of 25+: This denotes that it is much more expensive to buy a home than to stay on rental, in these cities / sub-cities. Property seekers looking at investing here are advised to rent a property rather than buying.
Coverage - Each city is divided in sub-cities (micro-markets) and micro-markets into localities. Prices of properties are obtained across micro-markets through listings on makaan.com as well as makaan.com’s nationwide sales force
Database - The current Index comes from 32 micro-markets across the above cities. The Index is based on minimum database size of 20,000 data points every month
New & Resale properties - The MBRI database includes a good representation of new as well as resale properties. Most reports on the property sector today are based on new developments, whereas actually new properties are relatively small % of the supply with resale being the majority of suppl
Index algorithm - The Index is calculated quarter-on-quarter for each of the above cities & sub-cities. It is a derived index using an advanced algorithm which factors in the average value of properties available for sale and rent.
Selection of cities for MBRI
Coverage - The MBRI covers Ahmedabad, Bangalore, Chennai, Delhi/NCR, Hyderabad, Mumbai and Pune.Other cities may be added in subsequent issues. These cities account for over 80% of the Indian Real Estate market.
Factors that have been taken into consideration while selecting the cities:
Population – The real estate sector is dependent on the demand of houses, which in turn is dependent on the population. Populous and ever growing urban agglomerates like Mumbai and NCR have an ever growing demand for housing.
Economic Importance – Cities which are hubs of certain industries have constant influx immigrants from across the country, which also creates a strong demand for housing – beyond the needs of the resident populations – e.g. Bangalore, Pune. Hence such cities have also been included.