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
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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
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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: A PERSONAL FINANCE PERSPECTIVE
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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
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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
BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
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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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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
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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
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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)
BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
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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
BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
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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
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Copyright 2012C www.arthayantra.com Page No:11
*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.
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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
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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
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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
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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
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
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Copyright 2012C www.arthayantra.com Page No:17
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.
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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
BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
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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
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
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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:
BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
Copyright 2012C www.arthayantra.com Page No:22
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+)
BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE
Copyright 2012C www.arthayantra.com Page No:23
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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