It's better to Rent Vs Buying property in Mumbai, Delhi & Ahmedabad
Rapid urbanization, sound economy and improved infrastructure, make cities a favourite 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.
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.
January – March’12 Buy Vs Rent analysis for top Indian cities / sub-cities
Overall a lower MBRI indicates a preference for Buying Vs Renting and a higher MBRI indicates a preference for Renting Vs Buying. On analyzing the MBRI for January – March’12 for 39 sub-cities in India (see table), it can be observed that cities like Mumbai, Delhi and Ahmedabad are preferred for Renting whereas Bangalore and Hyderabad are recommended for Buying. Cities of Pune & Chennai are in the neutral territory.
Buy Vs Rent analysis for Mumbai – The index for the city of Mumbai moved marginally down to 29 from 30 in the last quarter. This shift to a lower MBRI could be attributed to the slight softening of property prices and / or stable to slightly hard rental rates in the city. All the sub-cities in Mumbai remain in the rental zone. The sub-cities of Andheri-Dahisar, Mira Road and Beyond and Mumbai South West have shown a lower MBRI compared to last quarter. These areas have shown a drop in the index of -3, -2 and -2 points respectively. Lowering of MBRI indicate that rentals have appreciated more than the capital value in these areas.
Buy Vs Rent analysis for Ahmedabad – The index for the city of Ahmedabad is at 29 indicating that it is advisable to stay on Rent Vs Buying property. All sub-cities in Ahmedabad have come in the rental zone during the Jan–March’12 period. Ahmedabad West and Ahmedabad East have dropped -4 and -5 points respectively on the Rental scale. This indicates that the property rates in these areas have come down compared to their rentals. Alternatively, it also could be because of stability in property prices and hardening of rentals. If one were to analyze the quarterly change, the Index has moved down marginally to 29 in Jan-March’12 compared to 30 in Oct-Dec’11 period.
Buy Vs Rent analysis for Delhi NCR – The index for the city of Delhi NCR has moved down marginally to 31 from 32 in the last quarter, which keeps the overall city on the Rental scale. This shift to a lower MBRI could be attributed to the slight softening of property prices in the recent past compared with the rental rates in the city. Within the main city of Delhi, all areas including Dwarka are recommended for rent. The NCR region remains affordable compared to main Delhi city. Faridabad and Noida are buyer friendly regions and recommended for buying. It is far more cost effective to buy a property in Faridabad and Noida than to stay on rental. If one is eyeing property in Gurgaon or Ghaziabad it is wise to make a decision depending up on one’s financial condition and requirement.
Buy Vs Rent analysis for Bangalore – The index for the city of Bangalore is at 19 making the city suitable for Buying over Renting. Within the city, only Bangalore Central remains in the neutral range meaning one can decide to buy or rent based on your financial situation. Areas like Bangalore East, Bangalore North, Bangalore South and Bangalore West are recommended for buying indicating that it is far more economical to buy a property in these areas than to stay on rental.
Buy Vs Rent analysis for Hyderabad – The index for the city of Hyderabad is at 20 making the city suitable for Buying over Renting. Within the city the Index for Hyderabad has moved down 2 points whereas that for Secundrabad has come up by 3 points. This makes Hyderabad even more attractive for property buying whereas Secundrabad is in the neutral range.
Buy Vs Rent analysis for Chennai – The index for the city of Chennai has increased from 21 to 22 from Oct-Dec’11 to Jan-March’12 period respectively. The city is in the neutral range, property seekers in Chennai are advised to take the final decision based on their financial situation.
Buy Vs Rent analysis for Pune – The index for the city of Pune has remained stable at 25 since three consecutive quarters. The city of Pune hence remains in the neutral range. This stability in MBRI can be attributed to hardening of property prices for both buying and renting. Property seekers in Pune can decide to buy or rent based on their financial situation.
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 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.
Selection of cities for MBRI
Coverage - The MBRI covers Ahmedabad, Bangalore, Chennai, Delhi/NCR, Hyderabad, Mumbai andPune. 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.
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.