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28 March, 2016
All the people who are working have this question of ages would quickly suggest buying a house since it is a life time investment, however many people worry about the increased financial burden, EMI's, etc, while buying a house and instead prefer to rent out by paying a much smaller amount. It still remains an argument because it has wisdom and justifications on both the sides and the variables make it look like a third standard maths calculus.
People who are “pro renting” will feel that the benefits of house ownership are exaggerated and costs are underestimated. Whereas the defenders of buying will give a feeling of “locking in payments month on month”, “loan interest rate deduction”, “forced savings” and “money wastage on rent”. They might also trigger your social nerve by highlighting the communal benefits of ownership mentality. Buying a property is a huge investment decision and it becomes mandatory to weigh the pros and cons of both the options available. So in this article let’s take a look at the economics of owning a house while giving the rent promoters their due.
Financially speaking, staying on rent is much more viable rather than buying your own house but arriving at this decision is a little too early when we think of the tax benefits on home loans. As soon as the family decides to stay permanently at a particular location and have the required funds to pay as down payment and to support the future repayments, it is advisable that they should buy their own home. But if you think that your career is still uncertain and you might need to move in the near future then buying will tie you down to a greater extent and renting would be advisable.
One of the reasons for buying is that in Indian society it becomes a social norm to own your own house, even if it has a hefty loan amount. The feeling of security and stability that your own house brings along (even if it comes with EMIs for life long) cannot be quantified.
Many people feel that the money saved by renting an accommodation can be wisely invested somewhere else, whereas this is not the case, as people have a tendency to indulge in forced savings in the form of EMI for loan repayment rather than looking for an alternative investment option.
Renters should always remember that do not have control on their accommodation destiny. If the landlord plans to sell the property, then you are left with no options. He will also increase the rent annually even if you are very well behaved and have been a model tenant. You will also have to face problems in getting things fixed by the landlord who might take days and weeks to get damage repaired or might ask for a deposit upfront for repairs.
The cost of commuting to workplace is also a major factor. Often the rental accommodations are near job places, amenities and on the way than homes on the outskirts thus saving on cost and time.
While there are some other disadvantages in owning a property like affordability, interest rates going high, market fluctuations affecting the value of property, cutting down on the family entertainment budget, high maintenance cost and less flexibility than in renting, but a house ownership has many benefits like once the loan is paid off, the property is yours and you don’t have to bother to pay for place where you live. While paying rent you are adding equity to your landlord’s bank account whereas in home loan with every installment you pay your degree of ownership in your house increases. The cost of purchasing a house is expected to offset by the increased value and accrued equity. And in case of reductions in the interest rates, one might also get the home loan refinanced and pay a little smaller monthly amount. If the value of the house increases the equity can be utilized to buy a bigger place or fund a comfortable living in old age or after retirement. The house owners besides building equity can even take tax benefits. Even if you have to move to a different city, you can earn a rental income on the property that can become a second source of income. In Metropolitan cities, rents are very high and can help you save money, even after you relocate.
The improvements or renovations in the house can be done at your discretion and as per your tastes without taking anybody’s approvals which might even add to the net value of the house. You can let your children freely color the walls to their desires, make their own corner and the sense of permanency of having your own home can be very fulfilling. Once you buy your own house you become more settled in the community/ society also because you know that they are going to be with you for years. You get to know your neighbors, become members of a society or association and even volunteer for welfare projects for the community or the area.
Buying a house is the biggest investment decision of life and should not be taken lightly and when compared with low housing loan interest rates that make purchasing affordable and increasing rentals the plus and minus of both the situations should be taken care of. Long time house owners even in those cases when the value of house depreciated during slow property market scenario can accumulate wealth to fund their retirement or pay for major family expenditures. As long as one can comfortably afford the payments and are emotionally committed to shoulder the responsibilities of ownership, purchasing a home can be a wise financial step.
The government has also eased the burden on first time home buyers by increasing the tax exemption limit for home loans up to 50 Lakhs. With the new real estate bill, developers have also become accountable and the home buyers have also received support from the government, which will propel the real estate market upward over the next few years. Thus buying a house ownership is a much wise decision rather than renting one in the current market scenario and will help you secure your future. As Mark Twain said, "Buy Land they are not making it anymore!"
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