ArthaYantra Buy vs. Rent Score (ABRS)-Delhi

BUY VS. RENT A PERSONAL FINANCE PERSPECTIVE

Delhi 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 19

7. Conclusion 20

8. Limitations and Concerns 21

9. Appendix 22

Copyright 2012Cwww.arthayantra.com

Property cost vs Rental Value: The Residential Property prices in Rohini Sec-13 and Sohna

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

property values of Sohna Road is higher than Noida City by 26%, the average rental value is

less by nearly 23%. The same case goes with Rohini Sec-13 and Golf Course Road. Though

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

nearly 17%.

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. It takes at least 4 years to

save for the required corpus in Indirapuram and Faridabad (Sector 86). In Noida City and

Noida-Greater Noida Expressway it takes 5 years and in Sohna Road and Golf Course

Extension Road it takes 6. In Delhi East and Rohini Sec-13 it takes a professional 7 and 9 years

respectively. It takes 10 years to save for a house in Golf Course Road. In Delhi South and

Vasant Kunj a professional has to save for at least 11 years to afford the down payment

amount required. A professional needs to save for 12 years to buy a house in Safdarjung

Enclave.

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 28.72 per INR 1

lakh in Faridabad (Sector 86) makes it the place where you can get the highest area for the

same amount of money compared to other eleven localities. This implies that for a given

price one can get the largest space in Faridabad (Sector 86) followed by Indirapuram,

Noida-Greater Noida Expressway, Noida City, Sohna Road, Golf Course Extension Road,

Delhi East, Rohini Sec-13, Golf Course Road and Delhi South. Vasant Kunj and Safdarjung

Enclave offer 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 0.34 and 0.33 for Indirapuram and Noida-

Greater Noida Expressway respectively 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 14 years for Indirapuram, 15 for Noida-

Greater Noida Expressway, Noida City and Faridabad and above 15 years for Delhi East,

Delhi South, Golf Course Extension Road, Golf Course Road, Rohini Sec-13, Safdarjung

Enclave, Sohna Road and Vasant Kunj. 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

Delhi East : The rent to buy ratio of 0.23 meant that the rental prices are higher compared to

EMI to be paid in case of ownership. The low rental values compared to high property

prices makes it a place where renting can be easily afforded and the EMI associated with

home loan is high. It is advisable to rent for a professional with a salary range of 8 – 25 lakhs.

Delhi South : The rent to buy ratio of 0.16 meant that the rental price are low compared to

the EMI to be paid, so it is advisable to rent. The years required to save for down payment

(11 years) and the property prices being the third costliest locality (out of the twelve).A

professional with a salary range of 8-25 lakhs is advised to rent.

Faridabad (Sector 86) : The place with least average rental value and average property

price. The rent to buy ratio of 0.31 meant that it is advisable to buy. The lower property prices

and highest number of sq ft per INR 1 lakh (among the twelve localities) makes it a place to

buy.

Golf Course Extension Road : The rent to buy ratio of 0.18 meant that the average rental

value of residential property is very less compared to its higher prices. Renting house is a

better option. A professional with a salary range of 8-20 lakhs can't afford the locality but a

professional with a salary range of 21-25 lakhs can afford to buy but because of the low

rents it is advised to rent.

Golf Course Road : The fourth highest in terms of average property prices. The rent to buy

ratio of 0.18 meant that the average rental value of residential property is very less

compared to its higher prices. Renting house is a better option. The low rental values

compared to high property prices makes it a place where renting is recommended for a

salary range of 8 – 25 lakhs.

Indirapuram : The rent to buy ratio of 0.34 meant that the rental prices are moderately high

and it is advisable to buy. The years required to save for down payment (4 years, which is

least among the twelve localities) and the property prices being in an affordable range

makes it the second most affordable locality (out of the twelve).

Noida City : The rent to buy ratio of 0.31 meant that the rental prices are moderately high

and it is advisable to buy. But a professional with a salary range of 8-12 lakhs is better of

renting, whereas a professional with a salary range of 13-25 lakhs can buy a house in this

locality.

Noida-Greater Noida Expressway : The rent to buy ratio of 0.33 meant that the rental prices

are moderately high and it is advisable to buy. The years required to save for down

payment (5 years) and the property prices being in an affordable range make it the third

most affordable locality (out of the twelve).

Rohini Sec-13 : The rent to buy ratio of 0.16 meant that the average rental value of

residential property is very less compared to its higher prices. ArthaYantra Buy vs Rent score

of 55 signifies that though the rents are high, it is advisable to rent because the property

prices are also high.

Safdarjung Enclave : The highest in terms of average property prices. The rent to buy ratio of

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

higher prices. Renting is the best option.





Sohna Road : The average residential property values of Sohna Road is higher than Noida

City by 26%, the average rental value is less by nearly 23%. A rent to buy ratio of 0.20 and

moderately high property prices makes it a place to Rent.

Vasant Kunj : The second highest in terms of average property prices. The rent to buy ratio of

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

higher prices. Renting is the best option.

RENT NEUTRAL BUY

Buy Vs. Rent in Delhi

PlacePlace Salary

range Lacs ( )

ABRS Score Sq feetper Lac ( )

No of Yearsto Buy

(1000 Sq feet)

8 - 25Vasant Kunj 5.43

Golf Course Road 8 - 25 7.14

Sohna Road20 - 248 - 19

24 - 2515.63

Rohini Sec-13 8 - 25 7.48

Indirapuram8 - 9

10 - 1112 - 25 90

90

90

26.67

Golf Course Extension Road

8 - 20 55

77.5

77.5

77.5

67.5

67.5

77.5

21 - 25

90

13.07

Delhi East 558 - 25

8 - 25

10.60

Noida-Greater Noida Expressway

8 - 1012 - 15

20 - 25

21.05

Faridabad (Sector 86)

8 - 9 65

10 - 1112 - 25

28.72

Noida City

8 - 1213 - 1520 - 25

19.61

Delhi South 55 5.81

55

65

65

65

55

55

80

55

Safdarjung Enclave

8 - 910 - 25 5.0955

30

12

10

11

11

5

5

7

9

6

6

4

4

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



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 twelve major localities of Delhi: Delhi East, Delhi South, Faridabad (Sector 86),

Golf Course Extension Road, Golf Course Road, Indirapuram, Noida City, Noida-Greater

Noida Expressway, Rohini Sec-13, Safdarjung Enclave, Sohna Road and Vasant Kunj.

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

Delhi as a city has recorded a raise of 72% in its NHB Residex value compared to the base

year, 2007. Zone C has recorded the highest raise in the index value by 132%. Zones G has

followed up with an 83% raise. Zones A and E have recorded a raise of 77% in their index

when compared to the base year 2007. Zones B, F and D have recorded a raise of 58%, 35%

and 23% respectively. Four zones have outperformed the city average while three zones

have underperformed.

Safdarjung Enclave falls under Zone B, Vasant Kunj under Zone C and Rohini Sector under

Zone E. Golf Course Road, Sohna Road, Golf Course Extension Road, Noida-Greater Noida

Expressway, Noida City and Indirapuram fall under Zone D. Delhi East and Delhi South fall

under Zones F and G respectively.

It is evident that each of the zones have different real estate markets 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.

50

100150200

250

Zone A

Zone B

Zone C

Zone D

Zone E

Zone F

Zone G

NHB Residex of Delhi

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-J

un 2

012



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 twelve localities of Delhi. 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. Vasant Kunj's property prices (INR 18,408,500) as

per NHB Residex have grown by 132% but still remain less than that of Safdarjung Enclave

(INR 119,648,000) which appreciated by only 58%. Rohini Sec-13 whose property prices (INR

13,262,000) doubled as per NHB Residex are identical with that of Golf Course Road (INR

14,000,000) which recorded a 23% raise in its index value. This means that the property

prices of Vasant Kunj and Rohini Sec-13 in the base year 2007 were less compared to other

localities.

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

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

corresponding rental values. Noida City's average property price (INR 5,100,000) is less than

that of Sohna Road (INR 6,400,000) by 26%. But the Average rental value of Noida City (INR

13,250) is higher than that of Sohna Road (INR 10,750) by nearly 23%. The same case has

been observed with Rohini Sec-13 and Golf Course Road. Though their average residential

property values are identical, the average rental value of Golf Course Road (INR 21,000) is

higher than that of Rohini Sec-13 (INR 18,000) by 17%.

Figure 3: Average property price and rental values across twelve major localities of Delhi

Comparisons of Average Rents and Average Property Prices

Average Price of Residen�alProperty Average Rental Value

Rs. 25,000,000.00

Rs. 20,000,000.00

Rs. 15,000,000.00Rs. 10,000,000.00

Rs. 5,000,000.00

Rs. 0.00

Rs. 20,000,00Rs. 25,000,00Rs. 30,000,00Rs. 35,000,00

Rs. 15,000,00Rs. 10,000,00Rs. 5,000,00Rs. 0.00

LocalityFar

idab

ad (S

ecto

r 86)

Indi

rapu

ram

Noi

da-G

reat

er N

oida

Expre

ssway

Noi

da C

ity

Sohna

Roa

d

Gol

f Cou

rse

Exten

sion

Roa

d

Del

hi E

ast

Roh

ini S

ec-1

3

Gol

f Cou

rse

Roa

d

Del

hi S

outh

Vasan

t Kun

j

Safda

rjung

Enc

lave



*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

Delhi East 8 7

Delhi South 10 10

Faridabad (Sector 86) 1 1

Golf Course Extension Road 4 6

Golf Course Road 9 9

Indirapuram 2 2

Noida City 6 4

Noida-Greater Noida Expressway 5 3

Rohini Sec-13 7 8

Safdarjung Enclave 12 12

Sohna Road 3 5

Vasant Kunj 11 11

4 6

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 twelve major

localities of Delhi. Faridabad (Sector 86) stands out as the most affordable locality to buy

and rent. Safdarjung Enclave stands out to be the least affordable place in both scenarios.

Indirapuram is the second most affordable place and Vasant Kunj is second least

affordable place. Golf Course Road and Delhi South take the 9th and 10th place

respectively in both scenarios. This means that the high/low property prices of the above

mentioned 6 localities are translated to their relative rental prices.

Sohna Road ranks 3rd and 5th on the affordability to rent and affordability to buy rankings

respectively. Noida-Greater Noida Expressway ranks 5th and 3rd on the affordability to rent

and affordability to buy rankings respectively. This means that the average property price

in Noida-Greater Noida Expressway is less than that of Sohna Road but the rental value is

higher. Golf Course Extension Road ranks 4th and 6th on the affordability to rent and

affordability to buy rankings respectively. Noida City ranks 6th and 4th on the affordability

to rent and affordability to buy rankings respectively. This means that the average property

price in Noida City is less than that of Golf Course Extension Road but the rental value is

higher. Rohini Sec-13 ranks 7th and 8th on the affordability to rent and affordability to buy

rankings respectively. Delhi East ranks 8th and 7th on the affordability to rent and

affordability to buy rankings respectively. This means that the average property price in

Delhi East is less than that of Rohini Sec-13 but the rental value is higher. 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 Indirapuram and Faridabad (Sector 86) in 4 years. In order to own a house in Noida

City and Noida-Greater Noida Expressway a professional has to save for 5 years. A

professional will need to save for 6 years to buy a house in Sohna Road and Golf Course

Extension Road. To buy a house a professional will need to save for 7 and 9 years in Delhi

East and Rohini Sec-13 respectively. A professional can afford the down payment required

to buy a house in Golf Course Road in 10 years. In order to own a house in Delhi South and

Vasant Kunj a professional has to save for 11 years. To save for the down payment of a

house in Safdarjung Enclave a professional will need to save for 12 years. 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 twelve major

localities of Delhi

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

Safdarjung Enclave

Vasant Kunj

Golf Course Road

Rohini Sec-13

Delhi East


Sohna Road


Indirapuram

Noida City


Delhi South

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 twelve major localities in Delhi.

4.4 Area



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

Safdarjung Enclave being the costliest locality offers a space of 5.09 sq ft per INR 1 lakh.

Faridabad (Sector 86) being the cheapest locality offers a space of 28.72 sq ft per INR 1

lakh. Indirapuram offers a space of 26.67 sq ft per INR 1 lakh. This means that for the same

amount of living area, a professional who wants to buy a house in Safdarjung Enclave has

to spend at least 5 times the amount he spends in Faridabad and Indirapuram. A

professional gets 21.05 sq ft and 19.61 sq ft space for INR 1 lakh in Noida-Greater Noida

Expressway and Noida City respectively. Sohna Road and Golf Course Extension Road

offer a space of 15.63 sq ft and 13.07 sq ft per INR 1 lakh respectively. A professional gets a

living space of 10.60 sq ft per INR 1 lakh in Delhi East. Rohini Sec-13 and Golf Course Road

offer a space of 7.48 sq ft and 7.14 sq ft per INR 1 lakh respectively. The second and third

costliest localities, Delhi South and Vasant Kunj offer a space of 5.81 sq ft and 5.43 sq ft per

INR 1 lakh respectively. Figure 4 attuned to the Affordability to Buy Ranking mentioned

above.

Average No.of sqft per INR 1lakh

Lo

cali

ty

25 30 352015105

Safdarjung Enclave

Vasant Kunj

Golf Course Road

Rohini Sec-13

Delhi East

Indirapuram

Sohna Road




Noida City

Delhi South

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

Delhi East 19,470 84,400.138 23% 5

Delhi South 24,290 15,3173.6374 16% 11

Faridabad (Sector 86) 10,000 31,787.57082 31% 4

Golf Course Extension Road 12,500 68,650.41413 18% 10

Golf Course Road 22,000 12,4804.6795 18% 9

Indirapuram 11,750 34,161.96771 34% 1

Noida City 14,250 46,100.27609 31% 3

Noida-Greater Noida Expressway 14,000 43,005.1591 33% 2

Rohini Sec-13 19,000 11,9162.7233 16% 12

Safdarjung Enclave 32,000 17,4751.0244 18% 8

Sohna Road 11,750 57,596.42489 20% 6

Vasant Kunj 29,500 16,3789.8887 18% 7

*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.

Rohini Sec-13 and Delhi South has the least rent to buy ratio. This signifies the fact that the higher property prices of the localities are not being translated to the rental value in these localities. Renting a house is cheaper than owning a house by at least 84%. Golf Course Extension Road, Golf Course Road, Safdarjung Road and Vasant Kunj also have low rent to buy ratios. Indirapuram has the highest rent to buy ratio compared to other localities.

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 0.34 and the average monthly out of pocket cost of Owning house being moderate, rents being relative higher Indirapuram ranks high in the urgency to buy ratio. Noida-Greater Noida Expressway and Noida City are also ranked high on urgency to buy rank.

Faridabad and Delhi East rank 4th and 5th respectively in the urgency to buy rank. The 6th and 7th position in the urgency to buy rank is taken by Sohna Road and Vasant Kunj respectively. Safdarjung Enclave takes the 8th position in the urgency to buy rankings.. The 10th position in the urgency to buy rank is taken by Chembur.

Table 3: Rent to Buy ratio and Urgency to buy rank of twelve major localities across Delhi

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





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 twelve 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 matchup of cost of ownership

and renting in Indirapuram is 14 years. The cost matchup in Noida-Greater Noida

Expressway, Noida City and Faridabad is 15 years. It takes more than 15 years in Delhi East,

Delhi South, Golf Course Extension Road, Golf Course Road, Rohini Sec-13, Safdarjung

Enclave, Sohna Road and Vasant Kunj. The planned length of stay in the house becomes

an important aspect in deciding whether to buy or rent.

4.5 Break Even Horizon

Copyright 2012 www.arthayantra.com Page No:16


Figure 6: Break Even Horizon for the twelve major localities of Delhi

Break Even Horizon

Current Average stay 7 years

Lo

cali

ty

12 14 16108642

Golf Course Road



Rohini Sec-13

Sohna Road

Indirapuram

Vasant Kunj


Noida City

Safdarjung Enclave

Delhi South

Delhi East

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



Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across twelve major Localities of Delhi.

Delhi East : The low rental values compared to high property prices makes it a place where

renting can be easily afforded and the EMI associated with home loan in high. It is

advisable to rent for a professional with a salary range of 8 – 25 lakhs.

Delhi South : The score of 55 signifies that though the rents are high, it is advisable to rent

because the property prices are also high. The EMI payments to be made in case of

ownership are not affordable.

Faridabad (Sector 86) : A professional with a salary of 8 lakhs is better of renting even though

the rents are high. This is because he can't afford the EMI in this salary range. A professional

with a salary range of 9-11 lakhs falls in the neutral zone i.e. he can afford both renting and

buying. A professional with a salary range of 12-25 lakhs is advised to buy.

Golf Course Extension Road : A professional with a salary range of 8-20 lakhs can afford to

rent but can't afford to buy in this locality. A professional with a salary range of 21-25 lakhs

can afford to buy but because of the low rents is advised to rent.

Golf Course Road : The low rental values compared to high property prices makes it a

place where renting can be easily afforded and the EMI associated with home loan in high.

It is advisable to rent for a professional with a salary range of 8 – 25 lakhs.

Indirapuram : A professional with a salary of 8 lakhs is better of renting even though the rents

are high. This is because he can't afford the EMI in this salary range. A professional with a

salary range of 9-11 lakhs falls in the neutral zone i.e. he can afford both renting and buying.

A professional with a salary range of 12-25 lakhs is advised to buy.



Gross Income/

Cities

Delhi East

Delhi South

Faridabad (Sect

or 86)

Golf Course Extensi

on Road

Golf Cour

se Roa

d

Indirapuram

Noida City

Noida-Greater Noida Express

way

Rohini Sec-13

Safdarjung Encla

ve

Sohna Road

Vasant kunj

8 Lakhs 55 55 65 55 55 65 65 65 55 30 55 55

10 Lakhs 55 55 77.5 55 55 77.5 65 65 55 55 55 55

12 Lakhs 55 55 90 55 55 90 65 77.5 55 55 55 55

15 Lakhs 55 55 90 55 55 90 77.5 77.5 55 55 55 55

20 Lakhs 55 55 90 55 55 90 90 90 55 55 67.5 55

25 Lakhs 55 55 90 67.5 55 90 90 90 55 55 80 55


www.arthayantra.com Page No:17Copyright 2012C www.arthayantra.com Page No:19

Noida City : A professional with a salary range of 8-12 lakhs is better of renting. A

professional with a salary range of 13-15 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 16-25 lakhs are advised to buy.

Noida-Greater Noida Expressway : A professional with a salary range of 8-11 lakhs is better

of renting. A professional with a salary of 12-15 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.

Rohini Sec-13 : The score of 55 signifies that though the rents are high, it is advisable to rent

because the property prices are also high. The EMI payments to be made in case of

ownership are not affordable.

Safdarjung Enclave : A professional with a salary of 8 lakhs cannot afford this locality. He will

not be able to pay the rents nor will he be able to afford the EMI payments. A professional

with a salary range of 9-25 lakhs can afford the rents in this locality but can't afford the EMI

associated with home loans.

Sohna Road : The score of 55 for a professional with a salary range of 8-15 lakhs signifies that

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

also meant that though the professional with a salary more than 16 lakhs can afford to buy

a house renting is a better option.

Vasant Kunj : The low rental values compared to high property prices makes it a place

where renting can be easily afforded and the EMI associated with home loan in high. It is

advisable to rent for a professional with a salary range of 8 – 25 lakhs.

*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



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

Cities Delhi East

Delhi South



Golf Course Road

Indirapuram

Noida City


Rohini Sec-13

Safdarjung Enclave

Sohna Road

Vasant kunj

50

(INR)

4

15+

4

15+

12

15+

5

15

6

15+

6

14

7

15

9

15

11

15+

11

15+

10

15+

5

15+

InitialCorpusrequiredfor owning *

InitialCorpusrequiredfor renting **

Averageout ofpocketcost ***

BreakEvenYear

No ofYears tosave forthe corpus

AverageNo.ofsq.ft perINR 1lakh

1,886,200

184,700

3,441,600

232,900

1,020,000

132,500

2,672,400

180,000

3,681,700

285,000

1,530,000

115,000

696,300

90,000

2,800,000

210,000

750,000

107,500

950,000

130,000

3,929,600

310,000

1,280,000

107,500

10.60

0.23

5.81

0.16

28.72

0.31

13.07

0.18

7.14

0.18

19.61

0.31

21.05

0.33

7.48

0.16

5.09

0.18

5.43

0.18

15.63

0.20

26.67

0.34

Table 6: Other important numbers

Based on the current real estate markets, Faridabad (Sector 86) and Indirapuram are the

best places to own a house. The property prices and rental values in these two localities are

low, thus making them the most affordable places for a professional to rent or own a house.

The larger residential spaces offered by Faridabad (Sector 86) and Indirapuram provide a

better lifestyle option. The real estate market of Noida City favors the home owners

because of its moderate property prices and high rental value. Though the moderate

property prices of Sohna 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 Rohini Sec-13 make the decision to rent easier. Safdarjung Enclave

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 thirteen major localities of Delhi 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 Delhi:

Delhi East, Delhi South, Faridabad (Sector 86), Golf Course Extension Road, Golf Course

Road, Indirapuram, Noida City, Noida-Greater Noida Expressway, Rohini Sec-13,

Safdarjung Enclave, Sohna Road and Vasant Kunj.

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 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 Delhi

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

Figure 3: Average property price and rental values across twelve major localities of Delhi

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

localities of Delhi

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

Figure 6: Break even horizon for the twelve major localities of Delhi

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 twelve major localities across

Delhi

Table 4 : ArthaYantra Buy vs. Rent Score Explanation

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

major Localities of Delhi.

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.

For more information on this report please contact ArthaYantra Corporation Pvt. Ltd. visit us online: or Write to : [email protected] www.arthayantra.com

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