Given the skyrocketing capital values of residential properties, more home seekers are opting for rental properties. However, this phenomenon has led to a new kind of problem where rental values of certain areas, particularly those close to commercial properties are increasing rapidly. Today’s home seeker is therefore left in a dilemma over whether to buy a home or rent it. If you are stuck in a similar situation, then here are some pointers to aid you out.
- Risk Analysis- Rise in property prices is exponential in developing nations such as India as prices may be artificially floated over a long period. However,rental earning grows at a realistic rate as they are proper functions of demand. Most rental agreements have clauses where rental rates are hiked by 10 percent annually. Price of property in metros normally double every 5 years in urban areas, which is around 20 percent in a year. You should carefully weigh your options of investment as stock markets too offer an annualised return of 20 percent almost.
- Price to rent ratio– This tool is fast catching up withIndian property buyers where the cost of the property is divided by the rent payable annually for it. If the value of the ratio is lesser than 15, it would be better to buy the house than rent it.
- Financial strength- Your financial position must be the backing force behind your stand to purchase anapartment. If your family earning is around Rs 1 lakh in a month, then you shall be entitled to take out a loan of Rs 40 lakhs to Rs 50 lakhs for a period of 20 years. However, if you need to balance your budget in a way to be able to meet expenses with a residual pay after the EMI is deducted. Moreover, you have to spend 20 percent of the cost upfront. For a house valued at Rs 50 lakhs, you have to down pay Rs 10 lakhs or so. Before you set out to buy anapartment, you should set aside an amount of Rs 5 to 6 lakhs as emergency fund. Also, you should be left with some savings after bearing home expenses and monthly EMI. The surplus shall cover the needs of investment and any increase in interest rates. Once you fulfil the conditions, you should look out to purchase an apartment.
- Stability of earnings- Home loans are normally for long tenures (more than 20 years or so). Unless you have a stable employment record, getting a home loan may be difficult. You must be confident about the stability of your job particularly if you are employed in a privately owned enterprise. Loan agreements normally come with built-in insurance which would take stock of the outstanding loan in the event of death.
Besides, prior to buying a new apartment you must factor in the salary increases you hope to see in the coming years because your EMI may increase when the rates are revised. Or else, go for flats on rent under your budget in a preferred locality.