ArthaYantra Buy vs. Rent Score (ABRS)-Kolkata

BUY VS. RENT A PERSONAL FINANCE PERSPECTIVE

Kolkata 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 Jadavpur and Salt Lake

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

values of Jadavpur is higher than EM Bypass by 8%, the average rental value is less by

nearly 10%. The same case goes with PA Shah Road and Salt Lake City. Though their

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

nearly 27%.

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 2 years to

save for the required corpus in Howrah. In Lake Town and Behala it takes 3 years and in EM

Bypass and Jadavpur it takes 4. In PA Shah Road, Jodhpur Park and Salt Lake City a

professional has to save for at least 5 years and it takes 9 years in Alipore 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 52.63 per INR 1

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

amount of money compared to other 8 localities. This implies that for a given price one can

get the largest space in Howrah followed by Lake Town, Behala, EM Bypass, Jadavpur, PA

Shah Road and Salt Lake City. Jodhpur Park and Alipore 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 0.49 shows that the rental values in PA Shah

Road 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 EM Bypass, Howrah, Lake Town

and PA Shah Road, 12 for Behala and 13 years for Alipore, Jadavpur, Jodhpur Park and Salt

Lake City. 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

Alipore : The rent to buy ratio of 0.39 meant that the rental prices are moderately high. A

salary range of 15-25 lakhs a professional can only rent as the property values are very high.

Behala : A professional with a salary range of 8-10 lakhs can afford to rent and buy. A

professional with a salary range of 11-25 lakhs is advised to buy as the rents are high.

EM Bypass : The ABRS score of 75 for a salary range of 8-10 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 13-25 lakhs is better off owning a home than

renting it.

Howrah : The rent to buy ratio of 0.39 meant that the rental prices are low. A salary range of

8-25 lakhs allows a professional to buy.

Jadavpur : The rent to buy ratio of 0.38 meant that the rental prices are low. The rent is low

compared to the EMI that has to be paid in case of buying a house. A salary range of 12-25

lakhs allows a professional to buy.

Jodhpur Park : The rent to buy ratio of 0.38 meant that the rental prices are low. The rent is

low compared to the EMI that has to be paid in case of buying a house. A salary range of

16-25 lakhs allows a professional to buy.

Lake Town : A professional with a salary range of 8-10 lakhs and 10-25 lakhs has an ABRS

score of 87.5 and 100 respectively. This signifies that a professional with these salary ranges

should buy in this locality.

PA Shah Road : The rent to buy ratio of 0.49 meant that the average rental value of

residential property is high compared to the average property price. This makes PA Shah 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 (fastest of the

nine localities).

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

professional with a salary 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

more than 15 lakhs are advised to buy.





Buy Vs. Rent in Kolkata

RENT NEUTRAL BUY

PlacePlace Salary

range Lacs ( )

ABRS Score Sq feetper Lac ( )

No of Yearsto Buy

(1000 Sq feet)

Jadavpur 8 - 1112 - 1516 - 25

21.74

Jodhpur Park 8 - 1819 - 2223 - 25

100

100

90

9016.47

Howrah8 - 25

90

52.63

Alipore8 - 14 40

15 - 25 65 8.00

PA Shah Road

Salt Lake City

8 - 14

8 - 14

15 - 1920 - 25

15 - 19

20 - 25

20.00

18.90

EM Bypass23.52

Lake Town8 - 11

12 - 25 30.76

Behala8 - 10

8 - 10 75

11 - 25

11 - 12 87.5

77.5

77.5

87.5

87.5

77.5

77.5

13 - 25

90

90

100

30.76

2

3

5

5

5

4

3

9

465

65

75

65

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



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 nine major localities of Kolkata: Alipore, Behala, EM Bypass, Howrah,

Jadavpur, Jodhpur Park, Lake Town, PA Shah Road and Salt Lake City.

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

Kolkata as a city has recorded a raise of 96% in its NHB Residex value compared to the base

year of 2007. Zone 9 of Kolkata has recorded the highest raise in index by 172%. Zone 10

and Bidhan Nagar have followed up with a 153% raise when compared to the base year.

Howrah and Zone 13 recorded an index raise of 99% and 85% respectively. Zone 12, South

Dumdum and Zone 11 have also recorded a raise of 69%, 53% and 47% respectively, when

compared to their base year index. While Zones 9 and 10, Bidhan Nagar and Howrah have

outperformed the city average, Zones 11, 12, 13 and South Dumdum have

underperformed.

Alipore falls under Zone 9, Behala under Zone13 and EM Bypass under Zone 12. Howrah falls

under Howrah zone, Jadavpur under Zone 11 and Jodhpur Park under Zone 10. Lake Town

falls under South Dumdum and Salt Lake City falls under Bidhan Nagar.

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.

50100150200250300350 Zone 9

Zone 10

Zone 11

Zone 12

Zone 13

Howarh

Bidhan Nagar

South Dumdum

NHB Residex of Kolkata

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 seven major cities of India. The bar graph depicts the average property

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

The evident base effect in property prices that can be observed in the other cities is missing

in the case of Kolkata. While comparing the NHB Residex and current Property Prices of

Kolkata, one can observe a steady rise in the prices. Alipore scored high in the rise of NHB

Residex value as well as the property prices. Except Alipore the prices in all the other regions

are in affordable level for a professional with a yearly gross income of 12 lakhs. Though all

the regions of Kolkata recorded a steady rise in the property prices, still the property prices

remain moderate.

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

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

corresponding rental values. EM Bypass's average property price (INR 4,250,000) is less than

that of Jadavpur (INR 4,598,000) by 8%. But the Average rental value of EM Bypass (INR

16,500) is higher than that of Jadavpur (INR 15,000) by nearly 10%. The same case has been

observed with PA Shah Road and Salt Lake City. Though their average residential property

values are identical, the average rental value of PA Shah Road (INR 21,000) is higher than

that of Salt Lake City (INR 16,500) by 27%.

Comparisons of Average Rents and Average Property Prices

Average Price of Residen�alProperty Average Rental Value

Rs. 12,000,000 Rs. 40,000Rs. 14,000,000 Rs. 45,000

Rs. 10,000,000 Rs. 35,000Rs. 80,000,00 Rs. 30,000Rs. 60,000,00 Rs. 20,000Rs. 40,000,00 Rs. 15,000

Rs. 20,000,00 Rs. 10,000Rs. 0.00

Rs. 0.00Rs. 5,000

Locality

How

rah

Lake

Tow

n

Behal

a

EM B

ypas

s

Jada

vpur

PA Sha

h Roa

d

Salt L

ake

City

Jodh

pur P

ark

Alipor

e

Figure 3: Average property price and rental values across nine major localities of Kolkata



*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

Alipore 9 9

Behala 2 2

EM Bypass 5 4

Howrah 12

Jadavpur 4 5

Jodhpur Park 7 8

Lake Town 3 3

PA Shah Road 8 6

Salt Lake City 6 7

1 1

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 nine major localities

of Kolkata. Howrah stands out as the most affordable place for a professional to rent as well

as buy. Alipore stands out as the least affordable place in both scenarios. Behala and Lake

Town are the second and third most affordable places respectively. The rank of

affordability to Rent matches with the rank of affordability to Buy in the case of above

mentioned 4 cities. This means that the high/low property prices of the 4 cities are

translated to their relative rental prices.

Jadavpur ranks 4th on the affordability to rent where as it ranks 5th on affordability to buy.

EM Bypass ranks 5th on the affordability to rent where as it ranks 4th on affordability to buy.

This means that the average property price in EM Bypass is less than that of Jadavpur but

the rental value is higher. Salt Lake City ranks 6th on the affordability to rent where as it ranks

7th on affordability to buy. Jodhpur Park ranks 7th on the affordability to rent where as it

ranks 8th on affordability to buy. PA Shah Road ranks 8th on the affordability to rent where

as it ranks 6rd on affordability to buy. This means that the average property price in PA Shah

Road is less than that of Salt Lake City and Jodhpur Park 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 in Howrah

in 2 years. In Lake Town and Behala a professional has to save for 3 years. In EM Bypass and

Jadavpur a professional has to save for 4 years. In PA Shah Road, Salt Lake City and

Jodhpur Park a professional has to save for at least 5 years to afford the down payment

amount required. To afford a house in Alipore a professional will need to save for 9 years. A

professional from EM Bypass and Jadavpur needs to save two fold to buy a house in

Alipore, while a professional from Howrah will have to save for 7 more years to afford a

house in Alipore. 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 nine major localities

of Kolkata

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

Alipore

Salt Lake City

PA Shah Road

Jadavpur

EM Bypass

Behala

Lake Town

Howrah

Jodhpur Park

1 2 3 4 5 6 7 8 9

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 nine major localities of Kolkata.

4.4 Area



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

Alipore, being the costliest locality to buy a home out of the nine localities considered,

offers the least space of 8 sq ft per INR 1 lakh. Even though Jodhpur Park is the second

costliest city offering a living space of 16.48 sq ft per INR 1 lakh, it offers twice the living

space for the same amount compared to Alipore. Howrah, being the cheapest city to buy

a home out of the nine localities considered offers the largest living area of 52.63 sq ft per

INR 1 lakh. This means that a professional who wants to own a home in Alipore and Jodhpur

Park has to spend seven times and three and half times more respectively than what he

spends in Howrah for the same no of sq ft. Lake Town and Behala are the next cheapest

localities to buy a home in. They provide a living space of 30.77 sq ft per INR 1 lakh. A

professional from Alipore will get four times more area in Lake Town and Behala for INR 1

lakh. EM Bypass offers the third largest living space of 23.53 sq ft per INR 1 lakh. Jadavpur

and PA Shah Road come in next at 21.75 sq ft and 20 sq ft per INR 1 lakh respectively. Salt

Lake City offers a living space of 18.90 sq ft for INR 1 lakh. Figure 4 attuned to the

Affordability to Buy Ranking mentioned above.

Average No.of sqft per INR 1lakh

Lo

cality

605040302010

Alipore

Jodhpur Park

PA Shah Road

Jadavpur

EM Bypass

Behala

Lake Town

Howrah

Salt Lake City

No.of sq ft

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

Alipore 45,000 11,1539.8924 39% 5

Behala 12,000 29,740.37202 40% 4

EM Bypass 17,500 38,583.56341 45% 2

Howrah 7,000 17,802.06364 39% 6

Jadavpur 16,000 41,660.99401 38% 7

Jodhpur Park 21,000 54,669.32854 38% 8

Lake Town 13,000 29,740.37202 44% 3

PA Shah Road 22,000 45,215.95695 49% 1

Salt Lake City 17,500 47,780.48245 37% 9

*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.

All localities in Kolkata have a high rent to buy ratio. This implies that it is favorable to buy than rent in these localities, but one should also take into consideration the affordability to buy ranking while buying a house. Even though Salt Lake City has the least rent to but ratio value among all the localities it is still high. Renting is only 63% cheaper compared to buying a house based on the monthly charges one bares in both the cases. It ranks 7th in the affordability to buy rankings. PA Shah Road scores highest making the decision to buy easier once in a position to afford the EMI payments and required down payment. It ranks 6th in the affordability to buy rankings. While Howrah places 6th in the urgency to buy rank, it is the most affordable to buy. EM Bypass has the second highest rent to buy ratio at 0.45. Buying a house costs INR 21,083 more than renting. It ranks 2nd in the urgency to buy rankings but 4th in the affordability to buy rankings. Jodhpur Park ranks 8th in the urgency to buy ratio with an out of pocket cost of INR 21,000 and INR 54,669 to rent or buy a house respectively. It ranks 8th in the affordability to buy rankings. Only Jodhpur Park and Lake Town rank the same in urgency to buy and affordability to buy rankings.

Table 3:Rent to Buy ratio and Urgency to buy rank of nine major localities across Kolkata

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 seven cities. 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 EM Bypass, Howrah, Lake Town and PA Shah Road happens after 11 years. The

costs matchup happens at 12 years for Behala. The costs matchup happens

approximately after 13 years in Alipore, Jadavpur, Jodhpur Park and Salt Lake City. 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 14108642

Jodhpur Park

PA Shah Road

Jadavpur

Salt Lake City

Howrah

EM Bypass

Behala

Alipore

Lake Town

Copyright 2012 www.arthayantra.com Page No:16


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

The ArthaYantra Buy vs Rent Score (ABRS) is determined based on two most important

criteria: Can I afford to buy a home? If I can afford it, what is the additional monthly cost I

am bearing compared to renting. The affordability to buy and rent is determined taking into

account the monthly earnings excluding the taxes and payments towards any existing

loans. The rental price of the house is compared to its value to assess the profitability

associated with both renting and owning the house. ABRS aids you in making the renting vs

buy decision by giving an explanatory score based on the rental value, Property value and

the current financial state.

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

Alipore Behala EM Bypass

Howrah Jadavpur

Jodhpur Park

Lake Town

PA Shah Road

Salt Lake City

8 Lakhs 40 77.5 75 90 65 65 87.5 75 65

10 Lakhs 40 77.5 75 90 65 65 87.5 75 65

12 Lakhs 40 90 87.5 90 77.5 65 100 75 65

15 Lakhs 65 90 100 90 77.5 65 100 87.5 77.5

20 Lakhs 65 90 100 90 90 77.5 100 100 100

25 Lakhs 65 90 100 90 90 90 100 100 100

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

of Kolkata

Alipore : A professional with a salary range of 8-14 lakhs cannot afford to stay in this locality.

A professional with a salary range of 15-25 lakhs has an ABRS score of 65. This 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.

Behala : A professional with a salary range of 8-10 lakhs can afford to rent and buy. A

professional with a salary range of 11-25 lakhs is advised to buy as the rents are high.

EM Bypass : The ABRS score of 75 for a salary range of 8-10 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 13-25 lakhs is better off owning a home than

renting it.

Howrah : The score of 90 signifies that though the rents are high, a professional with a salary

range of 8-25 lakhs should buy in this locality. The EMI payments to be made in case of

ownership are affordable.

Jadavpur : 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.




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Jodhpur Park : A professional with a salary range of 8-15 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 16-20 lakhs falls in the neutral zone i.e. he can afford both

renting and buying. A professional with a salary range of 21-25 lakhs is advised to buy.

Lake Town : A professional with a salary range of 8-10 lakhs and 10-25 lakhs has an ABRS

score of 87.5 and 100 respectively. This signifies that a professional with these salary ranges

should buy in this locality.

PA Shah Road : The ABRS score of 75 for a salary range of 8-12 lakhs signifies the fact the

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

a salary of 15 lakhs a professional to should buy because the rents are higher. A professional

whose salary range is between 16-25 lakhs is better off owning a home than renting it.

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

professional with a salary 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

more than 15 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

AliporeLocalities EM Bypass

Behala Jodhpur Park

Lake Town

P A ShahRoad

Salt Lake City

Initial

Corpus required

for owning*(INR)

2,500,000

650,000

No.of Years to save for the corpus

8 3

Average No.of sq.ft per INR 1lakh

52.63 21.75 30.77 20 16.48

18.90 23.53 30.77 8

Initial

corpus required for renting**

425,000 110,000

165,000

120,000 210,000 165,000

Break Even year

13 12 11 11 13 13 11 11 13

Jadavpur

380,000

Howrah

850,000

4 4 5 3 5 5

60,000 150,000



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

919,600 1,213,800 650,000 1,000,000 1,058,000

2

200,000

0.39 0.40 0.45 0.39 0.38 0.38 0.44 0.49 0.37

Average

out of

pocket

cost ***

Table 6: Other important numbers

Based on the current real estate markets, Howrah, Lake Town and Behala are the best

places to own a house. The property prices and rental values in these two cities are low,

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

larger residential spaces offered by Howrah, Lake Town and Behala provide a better

lifestyle option. The real estate market of PA Shah Road favors the home owners because of

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

of Salt Lake City 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 Jodhpur Park make the decision to rent easier. Alipore 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 nine 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 Kolkata:

Alipore, Behala, EM Bypass, Howrah, Jadavpur, Jodhpur Park, Lake Town, PA Shah Road

and Salt Lake City.

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 Kolkata

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

Figure 3: Average property price and rental values across nine major localities of Kolkata

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

localities of Kolkata

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

Figure 6: Break even horizon for the nine major localities of Kolkata

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 nine major localities of Kolkata

Table 4 : ArthaYantra Buy vs. Rent Score Explanation

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

major Localities of Kolkata.

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)-Kolkata

Real Estate

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