Go on rentals! Recommended in Mumbai
Rapid urbanization, sound economy and improved infrastructure, make cities a favorite dwelling option. With the recovering market and new projects in store, the inhabitants here end up in utter confusion on whether to stay on rent or to use the rental amount as EMI to buy a home. At times he feels staying on rent is far economical but at times he is drawn by the sentiments of owning a home. The high property prices, increasing home loan rate, and innumerable projects puts him in deep contemplation. In the absence of a robust and reliable tool, these decisions were traditionally taken with gut feel or with the guidance of a close relative / friend, leaving a great scope for error. To help out such property seekers Makaan.com launched Makaan.com Buy Vs Rent Index (MBRI), a tool that aims to help property seekers make informed choice between buying and renting of property in top Indian cities / sub-cities home.
The latest Makaan.com Buy Vs Rent Index (MBRI) for the period January to March 2012 recommends Mumbaikars to opt for rentals rather than buying property at the current time. For better analysis, Mumbai is divided into 8 sub-cities and MBRI is calculated for each sub-city to enable seekers make informed choice in their respective areas of interest. The index for the city of Mumbai has dropped down from 30 to 29 during Oct-Dec’11 period to Jan-March ‘12, which places the city on the Rental scale. This shift in MBRI can be attributed to slight softening of property prices in the recent past and / or stable or to slightly hard rental rates in the city. The softening in prices, however, is not sufficient to enable people to buy easily.
Overall a lower MBRI (less than 20) indicates a preference for Buying Vs Renting and a higher MBRI (higher than 25) indicates a preference for Renting Vs Buying.
Nationally, the MBRI for India is on 23 maintaining a neural status for the country as a whole. Key real estate markets in the rental range (MBRI > 25) are Mumbai (29), Delhi (31) and Ahmedabad (29). Cities in the neutral range (MBRI 21 – 25) are Pune and Chennai. Finally, cities recommended for Buying (MBRI < 20) are Bangalore (19) and Hyderabad (20)
MBRI is a numerical value, arrived at after taking into account several factors including average capital value of property, average rental value, rental yield, historical capital price movement, historical rental movement and inflation. A low MBRI indicates that it is much less expensive to buy a home than to stay on rental whereas a high MBRI denotes that it is much more expensive to buy a home than to stay on rental. MBRI has been collated both at city and sub-city level.
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.
Selection of cities
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
• 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 real estate supply with resale being the majority of supply
• 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.