ArthaYantra Buy vs. Rent Score (ABRS)-Bangalore

BUY VS. RENT A PERSONAL FINANCE PERSPECTIVE

Bengaluru Edition

CCopyright 2012Cwww.arthayantra.com

Buy Rent

ArthaYantraA CFO FOR EVERYONE

Table of Contents

C

Summary 3

1. Introduction 6

2. Methodology 7

3. Assumptions 8

4. Findings

4.1 Historical data of Real estate prices 9

4.2 Property Cost vs Rental Value 10

4.3 Down Payment 12

4.4 Area 13

4.5 Rent to Buy Ratio 14

4.6 Break Even Horizon 15

TM5 ArthaYantra Buy vs Rent Score (ABRS ) 17

6. Other Important Numbers 20

7. Conclusion 21

8. Limitations and Concerns 21

9. Appendix 22

Copyright 2012Cwww.arthayantra.com

Property cost vs Rental Value: The Residential Property prices in Kanakapur Road and

Tumkur Road are not being translated to their rental value. Though the average residential

property values of Kanakapur Road and Hosur Road are identical, the average rental

value is less by nearly 20%. The same case goes with Tumkur Road and Whitefield. Though

their average residential property values are identical, their average rental values differ by

nearly 50%.

Down payment: The years of saving required to afford the initial down payment i.e. 20% of

the property price determines how sooner we can buy a house. In Mysore Road it takes 3

years to save for the initial corpus. It takes at least 4 years to save for the required corpus in

Bellary Road, Hosur Road, Whitefield, Tumkur Road and Kanakapur Road. A professional

will have to save for 5 years in Old Madras Road. In Indiranagar a professional has to save

for at least 10 years to afford the down payment amount required.

Area: The average number of square feet per INR 1 lakh determines the amount you need

to pay for the desired area of occupancy. The average number of sq ft of 33.33 per INR 1

lakh in Mysore Road makes it the place where you can get the highest area for the same

amount of money compared to other 6 localities. This implies that for a given price one can

get the largest space in Mysore Road followed by Hosur Road, Kanakapur Road,

Whitefield, Tumkur Road, Bellary Road and Old Madras Road. Indiranagar offers the least in

terms of space.

Rent to Buy Ratio: The ratio compares the monthly cost of renting house to the monthly cost

of owning the same place. The ratio undermines the necessity and urgency with which the

house has to be bought. The rent to buy ratio of 0.40 shows that the rental values in

Whitefield are higher and makes them an “immediately buy when you can afford” place.

The ratio of 0.32 for Bellary Road and Kanakapur Road gives ownership of house an

advantage over renting.

Annual out of Pocket Costs: The annual out of pocket costs in case of ownership include the

monthly EMI being paid including the maintenance charges and the amount of tax being

paid. The values have been calculated and compared across the average loan tenure of

15 years. The year at which the annual costs match determines the minimum stay period in

the house. The minimum stay period is 11 years for Whitefield, 12 for Hosur Road, 13 for

Mysore Road, 14 for Kanakapur Road, 15 for Bellary Road and Tumkur Road and above 15

years for Indiranagar and Old Madras Road. The tax benefits received under the HRA

allowance dominate the tax benefits received in case of ownership over the period of

15years.

ArthaYantra Buy vs Rent Score: ArthaYantra Buy vs. Rent Score (ABRS) not only aids in

making the rent vs. Buy decision but also explains the affordability and need to buy or rent

in a given place. The three important factors on which scale is based are: affordability to

rent, affordability to buy and a comparison of rent and EMI.

Summary

BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Copyright 2012C www.arthayantra.com Page No:3

Bellary Road: The rent to buy ratio of 0.32 meant that the rental prices are moderately high

and it is advisable to buy. A professional with a salary range of 8-10 lakhs is better of renting

in this locality. A professional with a salary of 11-14 lakhs falls in the neutral zone and a

professional with a salary range of more than 15 lakhs are advised to buy.

Hosur Road: The rent to buy ratio of 0.38 meant that the average rental value of residential

property is high compared to the average property price. This makes Hosur a place to buy.

The moderate prices and decent number of sq ft per INR 1 lakh make it a place where in

you need to buy a house as soon as you can afford it. The out of pocket costs is also in favor thof buy with the breakeven being achieved at 12 year (second fastest of the eight

localities).

Indiranagar: The highest in terms of average property prices. The rent to buy ratio of 0.15

meant that the average rental value of residential property is very less compared to its

higher prices. The least number of sq ft per INR 1 lakh(among the eight localities) make it a

place to rent. A professional with a salary of 8-25 lakhs cannot afford to buy in this locality,

therefore renting is recommended.

Kanakapur Road:The rent to buy ratio of 0.32 meant that the rental prices are moderately

high and it is advisable to buy. A professional with a salary range of 8-9 lakhs is better of

renting in this locality. A professional with a salary of 10-11 lakhs falls in the neutral a

professional with a salary range of more than 11 lakhs are advised to buy.

Mysore Road: The first most affordable locality for a professional. The rent to buy ratio of 0.36

meant that the rental prices are moderately high and it is advisable to buy. The years

required to save for down payment is 3 and one can get around 33.33 sq ft per INR 1 lakh.

The affordable gross salary zone also starts from INR 10 lakh.

Old Madras Road: The second highest in terms of average property prices. The rent to buy

ratio of 0.27 meant that the average rental value of residential property is high, but can be

considered less when compared to its higher prices. Renting is the best option.

Tumkur Road: A rent to buy ratio of 0.27 and moderately high property prices and cheaper

rental values makes it a place to rent. A professional with a salary range of 8-12 lakhs should

rent. The low rental prices also meant that though the professional with a salary more than

12 lakhs can afford to buy a house renting is a better option.

Whitefield: The rent to buy ratio of 0.40 meant that the average rental value of residential

property is high compared to the average property price. This makes Whitefield a place to

buy. The moderate prices and decent number of sq ft per INR 1 lakh make it a place where

in you need to buy a house as soon as you can afford it. The out of pocket costs also in favor thof buy with the breakeven being achieved at 11 year (fastest of the eight localities).





Buy Vs. Rent in Bangalore

RENT NEUTRAL BUY

PlacePlace Salary

range Lacs ( )

ABRS Score Sq feetper Lac ( )

No of Yearsto Buy

(1000 Sq feet)

Mysore Road8 - 9

12 - 1415 - 25

33.33

Old Madras Road

8 - 1213 - 1516 - 25 80

80

90

18.18

Kanakapur Road

8 - 9 65

10 - 11 77.512 - 25 90

100

26.67

Bellary Road 8 - 10 65

11 - 14

15 - 25 9022.22

Whitefield 8 - 9

10 - 1215 - 25

25.00

Indiranagar 8 - 25 55 6.67

Tumkur Road

8 - 9

10 - 1215 - 25

25.00

5

Hosur Road8 - 9 65

10 - 11 77.5

77.5

77.5

12 - 25 9026.67

3

4

4

4

4

455

55

65

10

77.5

67.5

67.5

Figure 1: Graphical Representation of Buy Vs. Rent in Bengaluru



1. Introduction

Buying a home is one of the most important decisions in one's life. It is a tough decision to

make and emotions cloud the decision making process. Often buying a home is given a

high weightage by our family, friends and society at large. People associate the

advantages of housing security, physical asset creation and property appreciation with

home ownership. Renting is associated with expenditure. However, renting on the other

hand gives flexible lifestyle options, high level of mobility and is easy on the purse when

compared to the EMI to be paid.

From a personal finance perspective there is always a tussle between buying a home and

renting it. Is it prudent to buy? Is there an upside to taking a place on rent? How the lifestyle is

going to be affected? What is the impact of the locality chosen? There are numerous other

Questions that crop up when this topic is discussed. This research paper tries to find the

answers for these questions. As a part of this research we aim to objectively address the

major factors which impact the decision of buying or renting.

The common assumption that the residential property always appreciates is inconsistent.

The appreciation of a residential property is dependent on several factors. So one can't

actually determine the rate at which the residential property is going to appreciate or

depreciate. A school of thought supporting the rent argument says the amount invested in

a home when invested in equities for the common horizon of 15 years, yields the same or

better rewards. The real estate market scenario is similar to that of equity markets because it

is unpredictable.

The other common assumption held is buying a home eventually results in increased tax

savings. But provided the fact that the EMI payments accounting for principal payment of

home loan come under the same section as Provident fund and required risk cover for self

and family, one can't enjoy major tax benefits under section 80C. The tax benefits received

under section 24B i.e. the interest payments made towards house loan can be matched up

with HRA allowance in case of renting. So a professional shouldn't base the decision of

buying a house on the tax savings he/she is going to receive.

So eventually the three factors which play a predominant role in making the decision are:

Current Property price which determines the EMI to be paid, current monthly Rental value

and the current gross income. Monthly rent or the EMI being paid shouldn't end up

consuming most of the salary which in turn affects the lifestyle. It is not a good financial

decision to buy if the rental value is low compared to the EMI to be paid in case of

ownership.

As a part of this research we aim to provide a quantitative answer to the question of buying

vs. renting a home. We analyzed the costs associated with owning a house and renting a

house across eight localities in Bengaluru: Bellary Road, Hosur Road, Indiranagar,

Kanakapur Road, Mysore Road, Old Madras Road, Tumkur Road and Whitefield.

Property prices and rental prices of various residential properties were collected from

multiple data sources to generate the primary and secondary data for the analysis. The

public data sources including the data by National Housing Board (NHB) of India, data

from various real estate reports and data from major real estate aggregators is collated.

The primary research has been performed by collating information from over 100 real

estate agents across the localities considered.

The methodology used for arriving at results considers various key parameters derived from

the initial data collected: Price of the residential property and their rental value. Various

important factors like the years of saving required for a professional to accumulate the

corpus for down payment and the number of square feet per INR 1 lakh are derived from

the average property price.

The main idea behind this research was to quantify the buy vs. rent decision from a personal

finance perspective. The main factors which drive the decision are: how much more

money does a professional need to shell out for buying a home compared to renting it?

Can the professional afford this additional amount? ArthaYantra's Buy vs. Rent Score tries to

address these questions and come up with a comprehensive scoring system. The scoring

system not only tells whether it's better to buy or rent but also tells whether it's affordable to

buy or rent.

2. Methodology

Copyright 2012


C www.arthayantra.com Page No:7

Factors associated with buying a home Factors associated with renting a home

Down payment for home loan Security Deposit

No. of Years required to save for down payment

Monthly Rent

EMI on home loan Yearly increase in rent

Monthly property maintenance charges Monthly property maintenance charges

Annual repairs Income tax savings under HRA exemption

Annual property tax

Income tax savings under section 80c and 24 b

Table 1: Factors associated with home ownership and renting



The sale price and rental values are calculated for 1000 sq ft area ready to occupy

residential property.

20% of the cost of the house is considered as the required down payment to buy a

house.

The loan tenure is 15 years.

The lending rate for the loan is 10.50%.

Average savings rate is 25%.

The minimum gross income required to buy a house is calculated by considering

50% of monthly take home salary= Monthly EMI to be paid.

The gross income of the professional increases 10% annually.

1.5% of the property value is considered as the property tax to be paid.

10% annual increase in rent is considered.

Property appreciation is not considered.

3. Assumptions



4.1 Historical data of Real estate prices

National Housing Board India's Residential Index (NHB Residex) tracks the movement of

prices in the residential housing segment across India. Figure 1 shows the historical NHB

Residex values since its inception in 2007.

4. Findings

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)



4. Findings

Bengaluru's city index hasn't recorded any raise or decline meaning the average prices of

the city cmae back to where it was in 2007. Only Zone C and Zone D recorded a raise in

their residex value. Zone C has recorded the highest raise in the index value by 106%. Zone

D followed up with a 29% raise. Zone E and F have recorded a decline when compared to

the base year by 16% and 20% respectively. The real estate market in Zones C and D have

outperformed city's average. The real estate markets of Zones E and F have

underperformed compared to the city's average. Hosur Road represents Zone C. Old

Madras Road, Indiranagar and Whitefield represent Zone D. Bellary Road and Mysore

Road represent Zone E. Tumkur Road and Kanakapur Road represent Zone F.

It is evident that each of the zones has different real estate market and different

expectations from real estate. The effort is to identify the places that are most affordable

for a professional, given the current scenario. It is important to look at these graphs to get a

high level perspective of the general movement of real estate in each of the zones. We

delve into each zone's prospect in the later sections. The relative nature of the index hides

many interesting facts.many interesting facts.

NHB Residex of Chennai

50100150200250

Zone C

Zone D

Zone E

Zone F

NHB Residex of Bengaluru

2007

Inde

x

Jan-

Mar

201

0 In

dex

Apr-J

un 2

010

Inde

x

Jun-

Sep 2

010

Inde

x

Oct

-Dec

201

0 In

dex

Jan-

Mar

201

1 In

dex

Apr-J

un 2

011

Inde

x

Jul-S

ep 2

011

Inde

x

Oct

-Dec

201

1 In

dex

Jan-

Mar

201

2 In

dex

Apr-S

ep 2

012

Inde

x



4.2 Property cost Vs. Rental Value

The graph compares the property price and rental value of 1000 sq ft ready to occupy

house across eight localities of Bengaluru. The bar graph depicts the average property

price in the locality and the line graph depicts the average rental value in the locality.

The most important thing that strikes out while assessing the current residential property

prices and NHB Residex is the base effect. Hosur Road's property prices (INR 3,750,000) as

per NHB Residex have grown two fold but still remains identical with that of Kanakapur

Road (INR 3,750,000) which recorded a decline of 20%. Whitefield's property prices (INR

4,000,000) as per NHB Residex have grown by 29% but are still less than that of Bellary Road

(INR 4,500,000) which has recorded a decline of 16%. This means that the property prices of

Hosur Road and Whitefield were less compared to the other localities in the base year.

The most important factor that stands out from the rental value of the properties across the

eight localities is the anomaly of the property values not being translated to the

corresponding rental values. Hosur Road's and Kanakapur Road's average property prices

are identical. But the Average rental value of Hosur Road (INR 12,000) is higher than that of

Kanakapur Road (INR 10,000) by nearly 20%. The same case has been observed with

Tumkur Road and Whitefield. Though their average residential property values are

identical, the average rental value of Whitefield (INR 13,500) is higher than that of Tumkur

Road (INR 9,000) by 50%.

Comparisons of Average Rents and Average Property Prices

Average Price of Residen�alProperty Average Rental Value

Figure 3: Average property price and rental values across eight major localities of Bengaluru

Rs. 16,000,000.00Rs. 14,000,000.00Rs. 12,000,000.00Rs. 10,000,000.00Rs. 8,000,000.00Rs. 6,000,000.00Rs. 4,000,000.00Rs. 2,000,000.00

Rs. 0.00

Rs. 20,000,000

Rs. 15,000,000

Rs. 10,000,000

Rs. 5,000,000

Rs. 0.00

Locality

Mys

ore

Roa

d

Hos

ur R

oad

Kanak

apur

Roa

d

Whi

tefie

ld

Tum

kur R

oad

Bella

ry R

oad

Old

Mad

ras

Roa

d

Indi

rana

gar



*On a scale of 1 to 7 with 1 being most affordable and 7 being least affordable based on the average property prices.

Table 2: Locality wise ranking based on the affordability to rent and buy

Locality Affordability to Rent Rank Affordability to Buy Rank

Bellary Road 5 6

Hosur Road 4 3

Indiranagar 8 8

Kanakapur Road 12

Mysore Road 2 1

Old Madras Road 6 7

Tumkur Road 1 4

Whitefield 7 5

3 2

The above table shows the affordability to rent rank and the affordability to buy rank based

on the average property prices and average rental values across the eight major localities

of Bengaluru. Mysore Road stands out to be the most affordable place to buy while Tumkur

Road stands out to be the most affordable place to rent. Indiranagar stands out to be the

least affordable place in both scenarios. Kanakapur Road is the second most affordable

place to buy and Mysore Road is the second most affordable place to rent. Old Madras

Road is the second least affordable place to buy and Whitefield is the second least rd thaffordable place to rent. Hosur Road takes the 3 place on affordability to buy and 4

th thplace on affordability to rent. Tumkur Road takes 4 , Whitefield takes 5 and Bellary Road th rd th

takes 6 on affordability to buy rankings. Kanakapur Road takes 3 and Hosur Road take 4 th th

on the affordability to rent rankings. The 5 and 6 place on the affordability to rent ranking

is taken by Bellary Road and Old Madras Road respectively.

The rank of affordability to Rent does not match with the rank of affordability to buy in the

case of any of the eight localities. This means that the high/low property prices of the eight

localities are not translated to their relative rental prices. This signifies the fact that people of

different localities have different expectations from their real estate markets.



The average property prices translate to the number of year's professional needs to save

for the required corpus for down payment. Based on the above stated assumption and

average property prices a professional can afford the down payment required to buy a

house in Mysore Road in 3 years. In order to own a house in Bellary Road, Hosur Road,

Whitefield, Tumkur Road and Kanakapur Road a professional has to save for 4 years. A

professional will need to save for 5 years in order to afford a house in Old Madras Road. It

takes nearly 10 years of savings for a professional to afford to buy a house in Indiranagar.

Figure 3 is in sync with the assigned affordability ranks for ownership.

Figure 4: No.of years required to save the corpus for down payment

across eight major localities of Bengaluru

A critical decision in purchasing a home is the down payment required to make in order to

avail the facility of housing loan. It is often a substantial amount of money to be paid

upfront in order to own the house. While some of the professionals depend on their

extended family to provide for this amount, often they do need to save for it. Assuming a

20% of property price as the down payment and saving rate of 25% for a professional with a

gross income of 8 lakhs, based on the current average property prices, the time required to

save the corpus determines how sooner one can afford to buy a home.

4.3 Down payment

No.of Years Required to save corpus for downpayment of buying a house

Lo

cality

12

Indiranagar

Old Madras Road

Tumkur Road

Whitefield

Hosur Road

Mysore Road

Bellary Road

Kanakapur Road

The area of residential occupancy is an important aspect of life style. It determines the size

of the home that is provided for the family. Figure 4 compares the average number of sq ft

that can be bought for 1 lakh rupees across the eight localities.

4.4 Area



Figure 5: Average no. of sq ft per INR 1lakh across eight major localities of Bengaluru

Indiranagar being the costliest locality offer a space of 6.67 sq ft per INR 1 lakh. Mysore

Road being the cheapest locality offers a space of 33.33 sq ft per INR 1 lakh. This means for

the same amount of living area, a professional who wants to own a house in Indiranagar

has to spend at least 5 times the amount he spends in Mysore Road. Hosur Road and

Kanakapur Road offer 26.67 sq ft per INR 1 lakh. Tumkur Road and Whitefield offer 25 sq ft

per INR 1 lakh. Bellary Road and Old Madras Road offer a living space of 22.22 sq ft and

18.18 sq ft respectively per INR 1 lakh. Figure 4 attuned to the Affordability to Buy Ranking

mentioned above.

No.of Years Required to save corpus for downpayment of buying a house

Lo

cality

30 35252015105

Indiranagar

Old Madras Road

Tumkur Road

Whitefield

Kanakapur Road

Mysore Road

Hosur Road

Bellary Road

Locality Average monthly out of pocket

cost(Ren�ng the house) (INR)

Average monthly out of pocket

cost(Owning the house) (INR)

Rent yo Buy Ra�o Urgency to buy rank

Bellary Road 13,000 40,794 32% 4

Hosur Road 13,000 34,162 38% 2

Indiranagar 20,000 13,3648 15% 8

Kanakapur Road 11,000 34,162 32% 5

Mysore Road 10,000 27,530 36% 3

Old Madras Road 13,500 49,638 27% 6

Tumkur Road 10,000 36,373 27% 7

Whitefield 14,500 36,373 40% 1

*On a scale of 1 to 8 based on the monthly cost of renting and monthly cost of buying with 1 being buy as soon as

possible and 8 being renting is better than buying.

Indiranagar has the least rent to buy ratio. This signifies the fact that the higher property prices of the locality are not being translated to the rental value in the locality. Renting is cheaper than owning a house by at least 85%. Tumkur Road and Old Madras Road also have low rent to buy ratios. Whitefield has the high rent to buy ratio.

The urgency to buy rank assigned signifies the fact that higher the rent to buy ratio, the

sooner a professional needs to buy a home in the locality. With a rent to buy ratio of 0.40

and the average monthly out of pocket cost of Owning house being moderate, rents

being relative higher Whitefield ranks 1 in the urgency to buy ratio. Hosur Road, Mysore

Road and Bellary Road are also ranked high on urgency to buy rankings.

The rent to buy ratio explains the additional monthly payments to be paid in case of

ownership compared to renting. The ratio also helps in understanding whether the

property prices are being translated to the rental value or not. The ratio is calculated

based on the average monthly cost of renting i.e. monthly rental value + monthly

maintenance and average monthly cost of ownership i.e. monthly EMI being paid in case

of owning the house + monthly Maintenance charges.

4.5 Rent to Buy Ratio



Table 3:Rent to Buy ratio and Urgency to buy rank of eight major localities across Bengaluru



Ignoring the price escalations of the residential property, one important question to be

answered is the breakeven horizon i.e. how long a new home buyer would have to own the

home to justify the decision of buying instead of renting in financial sense. Figure 5 shows the

graphs of the annual out pocket costs incurred in case of ownership and renting based on

the average property prices and average rental prices across the eight localities. The

annual out of pocket cost in case of renting include the annual amount paid towards the

rent, the annual maintenance charges paid and the amount of income tax being paid.

The annual out of pocket cost in case of ownership include the annual amount paid

towards the EMI payments of the house loan, annual maintenance and repair charges and

the amount of income tax being paid.

The income tax being paid is considered in calculations because most of the professionals

feel buying a home will do a world good for their tax savings. The idea is to compare the tax

benefits received in case of buying a home and renting the home. The payments made

towards the principal amount of the home loan are considered under section 80C. The

payments made towards interest on home loan are considered under section 24b. In case

of renting one can claim tax benefits under house rent allowance.

The provident fund received and required risk coverage for self and family also come

under section 80C. These items do fill up most of the 80C part. Out of the EMI payments

being made, in the initial years most of the amount accounts for interest payments rather

than the principal amount. By the time the payment towards principal increases, one can

also expect the salary of the professional to increase in turn increasing the Provident fund

being received. So, the tax benefit under section 80C in case of ownership doesn't actually

add much of advantage.

Though the tax benefits in case of ownership are higher during the initial years, renting the

same place gives better tax benefits over the next few years. The benefits of renting are

higher especially in the regions where the costs of ownership and renting don't match up

during the average loan tenure of 15 years. The breakeven year i.e. the year at which the

annual cost of owning house is equal to the annual cost of renting the same place is

calculated over the average loan tenure i.e 15 years. The cost of ownership and renting

matchup in Whitefield happens after 11 years. The costs matchup in Hosur Road, Mysore

Road and Kanakapur Road happens at 12, 13 and 14 years respectively. In Bellary Road

and Tumkur Road, it takes 15 years. The costs don't matchup in the case of Indiranagar and

Old Madras Road. The planned length of stay in the house becomes an important aspect in

deciding whether to buy or rent.

4.5 Break Even Horizon

Figure 6: Break Even Horizon for the eight major localities of Bengaluru

Break Even Horizon

Lo

cali

ty

12 14 16108642

Mysore Road

Tumkur Road

Kanakapur Road

Bellary Road

Whitefield

Indiranagar

Hosur Road

Old Madras Road

Copyright 2012 www.arthayantra.com Page No:16


The property price and rental value of the place speaks volumes about why one should rent

or buy the place. They have an impact on the amount of money being spent on the house

(be it rent or EMI), the tax savings being received and many other important things. But one

can't only rely on the rent to buy ratio and make the decision to buy without assessing his

affordability. Similarly a decision to buy a house just because one can afford the EMI is not

advisable. ArthaYantra came up with a unique scoring system called ArthaYantra Buy vs.

Rent Score (ABRS) which is an effort to seamlessly integrate the above two aspects. We

even added another layer of parameter, the rental value. So given a locality, based on the

income of the professional ABRS describes a suitable action from wide range of options

spanning from why one can't rent to why one has to rent though he/she can afford to buy to

why one should buy.

As a part of this research report we have considered the average property prices and

rental values of the localities and calculated the ABRS score across different salary ranges.

In this research, the scope of the scoring system is confined to rental value and price of the

corresponding property of the same region. It can be extended to compare the rental

value of one region and property prices of a different region. This makes ABRS a powerful

tool to logically gauze the pros and cons of renting and buying a house.

TM5 ArthaYantra Buy vs Rent Score (ABRS )

Score Recommended Ac�on

100 Buy (Rents are very high)

90 Buy (Rents are high)

87.5 Buy ( Rents are higher)

80 Can afford both ownership and Renting but because of low Rent to Ownership Rent is recommended.

77.5 Buy/Neutral (Can afford both ownership and rent )

75 It is Advisable to buy but EMI can't be afforded. Have to Rent.

67.5 Rent/Neutral (Can afford both ownership and rent but rent/EMI ratio is low)

65 Rent (Rents are high but can't afford to buy)

55 Can afford to Rent but can't afford to Buy.

50 Can't afford both ownership and renting.

Table 4: ArthaYantra Buy vs. Rent Score Explanation



Gross Income/

Cities

Bellary Road

Hosur Road

Indiranagar

Kanakapur

Road

Mysore Road

Old Madras Road

Tumkur Road

Whitefield Road

8 Lakhs 65 65 55 65 77.5 55 55 65

10 Lakhs 65 77.5 55 77.5 90 55 67.5 77.5

12 Lakhs 77.5 90 55 90 90 55 67.5 77.5

15 Lakhs 90 90 55 90 90 67.5 80 90

20 Lakhs 90 90 55 90 90 80 80 90

25 Lakhs 90 90 55 90 90 80 80 90

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across eight major

Localities of Bengaluru.

Bellary Road: A professional with a salary range of 8-10 lakhs is better of renting. A

professional with a salary of 11-14 lakhs falls in the neutral zone i.e. he can afford to buy and

it is advisable to buy but have to make few adjustments to the current lifestyle in order to

afford the additional amount for EMI payments. The professionals with a salary range of

more than 15 lakhs are advised to buy.

Hosur Road: A professional with a salary range of 8-9 lakhs is better of renting. A professional

with a salary of 10-11 lakhs falls in the neutral zone i.e. he can afford to buy and it is

advisable to buy but have to make few adjustments to the current lifestyle in order to afford

the additional amount for EMI payments. The professionals with a salary range of more than

11 lakhs are advised to buy.

Indiranagar: The score of 55 for a professional with a salary range of 8-25 lakhs signifies that

the monthly cost of renting is cheaper than buying by more than 70%.

Kanakapur Road: A professional with a salary range of 8-9 lakhs is better of renting. A

professional with a salary of 10-11 lakhs falls in the neutral zone i.e. he can afford to buy and

it is advisable to buy but have to make few adjustments to the current lifestyle in order to

afford the additional amount for EMI payments. The professionals with a salary range of

more than 11 lakhs are advised to buy.

Mysore Road: A professional with a salary of 8-9 lakhs falls in the neutral zone i.e. he can

afford to buy and it is advisable to buy but have to make few adjustments to the current

lifestyle in order to afford the additional amount for EMI payments. The professionals with a

salary range of more than 10 lakhs are advised to buy.




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Old Madras Road: The score of 55 for a professional with a salary range of 8-14 lakhs signifies

that the monthly cost of renting is cheaper than buying by more than 70%. The low rental

prices compared to the EMI also meant that though the professional with a salary more

than 15 lakhs can afford to buy a house renting is a better option.

Tumkur Road: The score of 55 for a professional with a salary range of 8-12 lakhs signifies that

the monthly cost of renting is cheaper than buying by more than 70%. The low rental prices

compared to the EMI also meant that though the professional with a salary more than 12

lakhs can afford to buy a house renting is a better option.

Whitefield: A professional with a salary range of 8-9 lakhs is better of renting. A professional

with a salary of 10-14 lakhs falls in the neutral zone i.e. he can afford to buy and it is

advisable to buy but have to make few adjustments to the current lifestyle in order to afford

the additional amount for EMI payments. The professionals with a salary range of more than

14 lakhs are advised to buy.

*Ini�al corpus required for owning = 20% of the Average property price (down payment for house loan)* * I n i � a l c o r p u s r e q u i r e d fo r r e n � n g = A m o u n t e q u i v a l e n t t o 1 0 m o n t h s o f r e n t a l v a l u e *** (Ren�ng the house) / Average out of pocket cost (Owning the house)The gross income of 8 lakhs per annum is considered.

6 Key Factors

Bellary Road

Localities Indiranagar

Hosur Road

Old Madras

Road

Tumkur

Road

Whitefield

Initial

Corpus required

for owning*(INR)

900,000

750,000

800,000

No.of Years to save for the corpus

4 4

Average No.of sq.ft per INR 1lakh

22.22 26.67 6.67 26.67 33.33

18.18 25

25

Initial

corpus required for renting**

120,000 120,000

190,000

90,000

Break Even year

15 12 15+ 14 13 15+ 15 11

Mysore Road

750,000

Kanakapur Road

3,000,000

10 3 5 4 4

100,000 90,000



Here are some important numbers to look at before making the decision:

600,000 1,100,000 800,000

4

125,000 135,000

0.32 0.38 0.15 0.32 0.36 0.27 0.27 0.40Average

out of

pocket

cost ***

Table 6: Other important numbers

Based on the current real estate markets Mysore Road is the best place to own a house. The

property prices and rental value in this locality is low, thus making it the most affordable

places for a professional to rent or own a house. The larger residential spaces offered by

Mysore Road provide a better lifestyle option. The real estate market of Hosur Road,

Kanakapur Road and Whitefield favors the home owners because of its moderate property

prices and high rental value. Though the moderate property prices of Tumkur Road and

Bellary Road make a strong case of ownership for professionals with higher salaries, the low

rental values make renting a better option. The high property prices and low rental values

of Old Madras Road make the decision to rent easier. Indiranagar is the least affordable

locality for a professional because of its high property prices and rental values.

The research addresses the fact that Buy vs. rent decision has a huge impact on the

personal finance of a professional. Buying a home is an integral part of every one's dream.

But a very calculated and merit based judgment is needed before taking the decision to

own the house. The comprehensive ArthaYantra Buy vs. Rent Score (ABRS) suggests the

decision a professional should take across the eight major localities of Bengaluru based on

the current rental values, property prices and the salary. If a professional finds himself in the

rent zone as per the ABRS but still wants to buy a house, one has to make sure that their

Emotional Premium attached with buying a house is going to match the EMI premium

being paid.

7 Conclusion



The data is related to following localities of Bengaluru:

Bellary Road, Hosur Road, Indiranagar, Kanakapur Road, Mysore Road, Old Madras Road,

Tumkur Road and Whitefield.

The property tax to be paid is considered as 1.5% of the property value. The property tax calculation reforms need some stringent reforms to regulate the process. In most places the value is calculated based on the rental value. The rental values being shown in the related local governing bodies website varies from the actual rental prices.

The tax benefits received under section 80C is considered as INR 1.2 lakh both in the case of house ownership and renting.

8. Limitations and Concerns:

9. Appendix

FIGURES:

Figure1: Graphical Representation of Buy Vs. Rent in Bengaluru

Figure2: Historical values of National Housing Board India Residential Index (NHB Residex)

Figure 3: Average property price and rental values across eight major localities of Bengaluru

Figure 4: No. of years required to save the corpus for down payment across eight major

localities of Bengaluru

Figure 5: Average no. of sq ft per INR 1lakh across eight major localities of Bengaluru

Figure 6: Break even horizon for the eight major localities of Bengaluru

TABLE:

Table 1 : Factors associated with home ownership and renting

Table 2 : Locality wise ranking based on the affordability to rent and buy

Table 3 : Rent to Buy ratio and Urgency to buy rank of eight major localities of Bengaluru

Table 4 : ArthaYantra Buy vs. Rent Score Explanation

Table 5 : ArthaYantra Buy vs. Rent scores for different salary ranges across eight

major Localities of Bengaluru.

Table 6 : Other important numbers

SOURCES:



National Housing Board, India: www.nhb.org.in

Jones Lang LaSalle: www.joneslanglasalle.co.in

Makaan: www.makaan.com

Magic Bricks: www.magicbricks.com

Multiple Primary sources (100+)



ArthaYantra is a young and innovative company started by a group of alumni of the Indian School of Business (ISB) Hyderabad. It provides integrated personal finance services using its unique

TMproprietary framework, Personal Financial Lifecycle Management (PFLM) , which helps clients achieve their financial goals. ArthaYantra's vision is to provide independent, high quality, customized financial planning solutions and their efficient execution to individuals. It employs proprietary financial models and enable investments through well balanced passive investment strategies. ArthaYantra's clientele includes individuals from India, US, Europe and Middle East.

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ArthaYantra Buy vs. Rent Score (ABRS)-Bangalore

Real Estate

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