ArthaYantra Buy vs. Rent Score (ABRS)-Hyderabad

BUY VS. RENT A PERSONAL FINANCE PERSPECTIVE

Hyderabad 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 price in Tellapur is not being

translated to its rental value. Though the average residential property value of Tellapur is

higher than Miyapur by 3.8%, the average rental value is higher by nearly 81.82%. The same

case goes with Kukatpally and Kondapur.

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 3 years to

save for the required corpus in L.B Nagar, Rajendra Nagar, Miyapur and Tellapur. In

Kukatpally, Kondapur and Begumpet it takes 4 years. It takes 7 years to afford the down

payment amount required in Banjara Hills.

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 37.74 per INR 1

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

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

can get the largest space in Miyapur followed by Tellapur, L.B Nagar, Rajendra Nagar,

Kukatpally, Kondapur and Begumpet. Banjara Hills 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 0.45 shows that the rental values in

Kondapur are higher and makes it an “immediately buy when you can afford” place.

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 Begumpet, Kondapur and Tellapur. The

costs don't matchup in the case of Banjara Hills, Kukatpally, L.B Nagar, Miyapur and

Rajendra Nagar. 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

Banjara Hills : The highest in terms of average property prices and rental values among the

eight localities considered. The rent to buy ratio of 0.27 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.

Begumpet : The rent to buy ratio of 0.44 meant that the average rental value of residential

property is high compared to the average property price. This makes Begumpet 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

of buy with the breakeven being achieved at 11th year. A professional with a salary range

of 9-25 lakhs can afford to buy in this locality.

Kondapur : The rent to buy ratio of 0.45 meant that the average rental value of residential

property is high compared to the average property price. This makes Kondapur 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

of buy with the breakeven being achieved at 11th year.

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

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

property prices being in an affordable range makes it an affordable locality. A professional

with a salary range of 12-25 lakhs is advised to buy in this locality.

L.B Nagar : The rent to buy ratio of 0.27 meant that the average rental value of residential

property is very less compared to its property price. A professional with a salary range of 9-

25 lakhs can afford to buy in this locality but due to the low rents is advised to rent.

Miyapur : The rent to buy ratio of 0.27 meant that the average rental value of residential

property is very less compared to its property price. A professional with a salary range of 9-

25 lakhs can afford to buy in this locality but due to the low rents is advised to rent.

Rajendra Nagar : The rent to buy ratio of 0.30 meant that the rental prices are moderately

high and it is advisable to buy. The years required to save for down payment (3 years, which

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

makes it an affordable locality. A professional with a salary range of 12-25 lakhs is advised to

buy in this locality.

Tellapur : The rent to buy ratio of 0.43 meant that the average rental value of residential

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

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

where you need to buy a house as soon as you can afford it. The out of pocket costs also in

favor of buy with the breakeven being achieved at 11th year. A professional whose salary

range is between 9-25 lakhs can afford to buy in this locality.





Buy Vs. Rent in Hyderabad

RENT NEUTRAL BUY

PlacePlace Salary

range Lacs ( )

ABRS Score Sq feetper Lac ( )

No of Yearsto Buy

(1000 Sq feet)

L.B Nagar 8 - 9

11 - 25 35.09

Miyapur 8 - 9

10 - 25 80

80

90

37.74

Kukatpally8 - 9 55

10 - 11 67.512 - 25 80

80

29.41

Banjara Hills8 - 20 55

21 - 25 80 12.90

Tellapur 8 - 9

10 - 25 36.36

Kondapur 27.40

Rajendra Nagar

8 - 10

11 - 25 30.18

Begumpet8 - 9

8 - 9

75

75

10 - 11

10 - 11

87.5

87.5

11 - 25

11 - 25

90

90

26.67

3

3

3

3

4

4

7

4

67.5

67.5

67.5

77.5

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



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 Hyderabad: Banjara Hills, Begumpet, Kondapur, Kukatpally,

L.B Nagar, Miyapur, Rajendra Nagar and Tellapur.

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

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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 different zones of the city. 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

Hyderabad as a city has recorded a decline of 15% when compared to the base year of

2007. The Other Zone of Hyderabad has recorded the highest raise in the index value by

96%. East Zone followed up with a 20% raise. West and North Zones have recorded a

decline when compared to base year by 6% and 19% respectively. South and Central

Zones have also recorded a decline of 32% and 36% respectively. Other, East and West

Zone have performed better than the city while North, South and Central Zones have not

done as well as the city. Banjara Hills falls under the Central Zone. Begumpet falls under the

North Zone. Kondapur, Kukatpally, Miyapur and Tellapur fall under the West Zone.

Rajendra Nagar falls under the South Zone and L.B Nagar falls under the East Zone.

It is evident that each of the localities under different 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.

NHB Residex of Chennai

50

100150200250

West Zone

South Zone

North Zone

Central Zone

Others Zone

East Zone

NHB Residex of Hyderabad

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

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 Hyderabad. The bar graph depicts the average property

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

The anomaly of rental prices not being proportionate with the property prices is evident

from Figure 2. The average property price in Tellapur (INR 2,750,000) is higher than that of

Miyapur (INR 2,650,000) by 3.8% but the average rental price is higher by 81.82%. Similarly

the average property price in L.B Nagar is higher than that of Tellapur by 3.5% but the rental

value is less by 40%. The same case can be observed in case of Kukatpally and Kondapur.

Banjara Hills stands out as the costliest place in terms of both rental value and property

prices.

The important factor that stands out when from the rental value of the property prices is

that in Hyderabad, the rental values are directly proportional to the property prices

excluding the area of Tellapur. If we actually exclude the rental prices and property prices

of Tellapur and look at the graph, we can observe the rental prices getting higher once the

property prices increase.

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

Comparisons of Average Rents and Average Property Prices

Average Price of Residen�alProperty Average Rental Value

Rs. 8,000,000Rs. 9,000,000 Rs. 20,000

Rs. 7,000,000 Rs. 16,000Rs. 18,000

Rs. 6,000,000 Rs. 14,000Rs. 5,000,000Rs. 12,000Rs. 4,000,000Rs. 10,000Rs. 3,000,000Rs. 8,000Rs. 2,000,000Rs. 4,000Rs. 1,000,000Rs. 2,000Rs. 0Rs. 0

Locality

Miyap

ur

Tella

pur

L.B N

agar

Raj

endr

a Nag

ar

Kukat

pally

Konda

pur

Begum

pet

Banja

ra H

ills



*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

Banjara Hills 8 8

Begumpet 7 7

Kondapur 6 6

Kukatpally 12

L.B Nagar 2 3

Miyapur 1 1

Rajendra Nagar 3 4

Tellapur 5 2

4 5

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 Hyderabad. Miyapur stands out as the most affordable place in Hyderabad to rent or

buy. Tellapur is the second most affordable place to buy but it ranks 5th on the affordability

to rent because of its higher rental price. L.B Nagar is the second most affordable place to

rent. Banjara Hills is the least affordable place to buy or rent. Begumpet and Kondapur are

the second and third least affordable places to buy or rent. As discussed above, excluding

Tellapur the affordability to rent and affordability to buy ranks match up for the other eight

localities, proving the proportionality of rental prices to property prices in Hyderabad.



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 L.B Nagar, Rajendra Nagar, Miyapur and Tellapur in 3 years. A professional will

need to save for 4 years to be able to afford a house in Kukatpally, Kondapur and

Begumpet. In order to own a house in Banjara Hills a professional has to save for 7 years.

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

of Hyderabad

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

6 7

Banjara Hills

Kukatpally

Begumpet

Tellapur

Rajendra Nagar

Miyapur

L.B Nagar

Kondapur

1 2 3 4 5

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 eight major localities in Hyderabad.

4.4 Area



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

Banjara Hills being the costliest locality offers a space of 12.90 sq ft per INR 1 lakh. Miyapur

being the cheapest locality offer a space of 37.74 sq ft per INR 1 lakh. Tellapur offers a

space of 36.36 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 Banjara Hills has to spend at least 3 times the

amount he spends in Miyapur and Tellapur. L.B Nagar offers a space of 35.09 sq ft per INR 1

lakh. Rajendra Nagar and Kukatpally offer a space of 30.18 sq ft and 29.41 sq ft per INR 1

lakh respectively. Kondapur and Begumpet offer a space of 27.40 sq ft and 26.67 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

cality

30 35 40252015105

Banjara Hills

Begumpet

Kukatpally

Rajendra Nagar

L.B Nagar

Tellapur

Miyapur

Kondapur

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

Banjara Hills 18,500 69,534.7333 27% 8

Begumpet 15,000 34,161.9677 44% 2

Kondapur 15,000 33,277.6486 45% 1

Kukatpally 9,500 31,066.8507 31% 4

L.B Nagar 7,000 26,203.0955 27% 7

Miyapur 6,500 24,434.4572 27% 6

Rajendra Nagar 9,000 30,301.9147 30% 5

Tellapur 11,000 25,318.7763 43% 5

*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.

Banjara Hills, L.B Nagar and Miyapur have the least rent to buy ratio. This signifies the fact that the property prices of these localities are not being translated to the rental value in the locality. Renting is cheaper than owning a house by at least 73%. Begumpet, Kondapur and Tellapur have 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 0.45 and the average monthly out of pocket cost of Owning house being moderate, rents being relative higher Kondapur ranks high in the urgency to buy ratio. Begumpet and Tellapur rank 2nd and 3rd in the urgency to buy rankings.

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

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 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 matchup of cost of ownership

and renting in Begumpet, Kondapur and Tellapur happens in 11 years. The costs don't

matchup in the case of Banjara Hills, Kukatpally, L.B Nagar, Miyapur and Rajendra Nagar.

The planned length of stay in the house becomes an important aspect in deciding whether

to buy or rent.

4.5 Break Even Horizon

Break Even Horizon

Lo

cali

ty

12 14 16108642

L.B Nagar

Rajendra Nagar

Kukatpally

Tellapur

Kondapur

Begumpet

Banjara Hills

Miyapur

Copyright 2012 www.arthayantra.com Page No:16


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

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

Banjara Hills

Begumpet Kondapur

Kukatpally

L.B Nagar Miyapur Rajendra Nagar

Tellapur

8 Lakhs 55 75 75 55 67.5 67.5 67.5 77.5

10 Lakhs 55 87.5 87.5 67.5 80 80 67.5 90

12 Lakhs 55 90 90 80 80 80 80 90

15 Lakhs 55 90 90 80 80 80 80 90

20 Lakhs 55 90 90 80 80 80 80 90

25 Lakhs 55 90 90 80 80 80 80 90

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

of Hyderabad

Banjara Hills : The score of 55 for a professional with a salary range of 8-20 lakhs signifies he

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

can afford to rent and buy. But the low rental prices compared to the high EMI payments

mean that the professional should rent.

Begumpet : The ABRS score of 75 for a professional with a salary of 8 lakhs signifies the fact

the rental value is critically high but a professional in this salary range cannot afford to buy.

A professional whose salary range is between 9-25 lakhs is better off owning a home than

renting it.

Kondapur : The ABRS score of 75 for a salary of 8 lakhs signifies the fact the rental value is

critically high but a professional in this salary range cannot afford to buy. A professional

whose salary range is between 9-25 lakhs is better off owning a home than renting it.

Kukatpally : A professional with a salary of 8 lakhs can afford to rent in this locality but

cannot afford to buy. A professional with a salary range of 9-11 lakhs is rent neutral, that

means that he can afford both renting and buying in this locality but is advised to rent. A

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




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

L.B Nagar : A professional with a salary of 8 lakhs is rent neutral, that means that he can

afford both renting and buying in this locality but is advised to rent. A professional with a

salary range of 9-25 lakhs is advised to buy as the rents are higher when compared to the

property prices.

Miyapur : A professional with a salary of 8 lakhs is rent neutral, that means that he can afford

both renting and buying in this locality but is advised to rent. A professional with a salary

range of 9-25 lakhs is advised to buy as the rents are higher when compared to the property

prices.

Rajendra Nagar : A professional with a salary range of 8-11 lakhs is rent neutral, that means

that he can afford both renting and buying in this locality but is advised to rent. A

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

Tellapur : The ABRS score of 77.5 for a professional with a salary of 8 lakhs signifies that he is in

a neutral zone. He can afford to rent and buy. A professional whose salary range is between

9-25 lakhs is better off owning a home than renting it.

*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

Banjara Hills

Localities Kondapur

Begumpet

Miyapur Rajendra Nagar

Tellapur

Initial

Corpus required

for owning*(INR)

1,550,000

750,000

No.of Years to save for the corpus

7 4

Average No.of sq.ft per INR 1lakh

12.90 26.67 27.40 29.41 35.09

37.74 30.18 36.36

Initial

corpus required for renting**

52,500 42,000

42,000

24,000 30,000

Break Even year

15+ 11 11 15+ 15+ 15+ 15+ 11

L.B Nagar

680,000

Kukatpally

730,000

4 3 3 3 3

25,500 18,000



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

570,000 530,000 662,700 550,000

4

16,500

0.27 0.44 0.45 0.31 0.27 0.27 0.30 0.43

Average

out of

pocket

cost ***

Table 6: Other important numbers

Based on the current real estate markets, Miyapur and L.B Nagar 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 Miyapur and L.B Nagar provide a better lifestyle option.

The real estate market of Tellapur and favors the home owners because of its moderate

property prices and high rental value. Though the moderate property prices of Rajendra

Nagar and Kukatpally make a strong case of ownership for professionals with higher

salaries, the low rental values make renting a better option. Banjara Hills 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 Hyderabad 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 Pune:

Banjara Hills, Begumpet, Kondapur, Kukatpally, L.B Nagar, Miyapur, Rajendra Nagar and

Tellapur.

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:

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

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

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

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

localities of Hyderabad

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

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

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 Hyderabad

Table 4 : ArthaYantra Buy vs. Rent Score Explanation Table 5 : ArthaYantra Buy vs. Rent scores for different salary ranges across eight

major Localities of Hyderabad.

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)-Hyderabad

Real Estate

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