BIG PURCHASES
Should I buy a house or keep renting?
In most Indian cities the rent on a flat is far below the EMI on the same flat. That gap is the whole argument, and it cuts both ways.
THE SHORT ANSWER
Compare the annual rent against the property price. Where rent is under about 3% of the price, renting and investing the difference usually comes out ahead financially. Buying wins when you will stay put for seven years or more, when you have 20% as a down payment without emptying your emergency fund, and when the EMI stays under 40% of take-home pay.
The number to run first
Take the annual rent on a flat and divide it by what that flat would cost to buy. In much of urban India this lands somewhere between 2% and 3%. A flat costing ₹1.5 crore often rents for ₹35,000 to ₹45,000 a month, which is roughly ₹5 lakh a year, or about 3%.
Meanwhile the home loan on that flat costs considerably more in interest alone during the early years. In the first years of a twenty-year loan, the overwhelming majority of each EMI is interest rather than principal. You are buying very little ownership for a long time.
What that means in practice
If you rent the same flat and genuinely invest the monthly difference, the arithmetic often favours renting. The word doing the work in that sentence is genuinely. Most people who plan to invest the difference spend it instead, which is why buying works out better for many households in practice than it does on paper. A home loan is a forced savings plan with a legal penalty for stopping.
The three conditions for buying
Time. Stamp duty, registration, brokerage and interiors typically come to 8-12% of the price. You need several years of price growth simply to recover that. Under five years, renting is almost always better.
Down payment. Twenty percent from savings, without touching the emergency fund. If buying the flat leaves you with no cash buffer, you have converted a liquid position into an illiquid one plus a monthly obligation.
EMI ratio. Under 40% of take-home pay, and ideally under 35%. Banks will sanction more. Banks are not the ones living on what remains.
The part specific to women
Several states charge lower stamp duty when a property is registered in a woman's name, and many lenders offer a small interest concession on loans to women borrowers. Both are worth asking about directly, because neither is always volunteered.
More importantly, make sure your name is actually on the title if your money is in the purchase. Contributing to a down payment while the registration sits in somebody else's name is common, and it is a poor position to be in later.
ONE MOVE THIS WEEK
Work out the rent-to-price ratio for the flat you are living in right now. It reframes the question in about two minutes.
