A few years back, Rent v/s Buy remained the hottest topic for debate on real estate – be it in social media or be it among home seeking couples. The proponents of Rent (typically the husband in home debates) would argue that when the rent costs just 2% of the capital value borrowing at 9% to buy home did not make sense. The other side would support its case through the long term appreciation that real estate has delivered over years.
Interestingly, such debates are now more conspicuous either by their absence or by their significantly reduced intensity. And this is despite the fact that neither the number of rental transactions have shrunk nor have the number of home purchases So, why has this debate been losing steam ?
A decco at the composition of home seekers market throws some light. Home seekers today comprise :
- The Young Home Seeker
This segment comprises those in twenties and discovering their life which is focussed generally around career and friends. Home for them means either a co-living space, a rental home or for the fortunate ones – the parent’s home. Marriage, family, home buying etc. are low on their agenda and therefore for social media debates, they have many more interesting topics than the Rent v/s Buy debate.
- The Mobile Home Seeker
This segment comprises people after 5-15 years of their job – single or married. There remains uncertainty on the location of their job or their spouse’s job. These people, therefore, want to have the freedom to move across employers and across cities and hence, would not want to attach any strings that could possibly restrict their freedom. Therefore, renting remains their clear choice and when there is a clear choice, one sees no value in participating in a debate.
- The Settled Community
These are home seekers who have more or less zeroed in on the city of their permanent residency. New jobs for them would typically be in the same city. In case of their job transfer, they would still want their kids to be studying in the same school. Therefore, in this segment buying a home clearly remains the preferred choice. So again their participation in any debate on Rent v/s Buy would remain limited.
- The Upgrade Segment
This is a sub-set of the Settled Community which is seeking a new home to upgrade its lifestyle from 1 BHK to 2 BHK, from 3 BHK to 4 BHK and so on. Having already lived in ownership homes for long, renting is unthinkable for them and therefore for them Rent v/s Buy is definitely not a topic that requires any debate.
Now, within each of the above four segments, the Rent v/s Buy debate does remain relevant for certain group of people. Firstly amongst those homes seekers who genuinely have limited capital and therefore their mind debates whether the cost and risk of borrowing that extra capital justifies the qualitative benefits of home ownership – stability in life, neighbourhood value, community building for every member of the family etc. However, over the years, fall in interest rates on home loans from 9% to now at 6.5%, stagnant property prices and increase in salary levels have made the EMI to disposable income ratio more and more comfortable. As a result, this comfort has shifted the pendulum towards the proponents of BUY, thus leaving fewer people in the arena to participate in the Rent v/s Buy debate
Hence, the only group of people which remain active and vociferous in such debates comprises home seekers who compare return on investment in equities and MF v/s residential property.
For this segment, the answer will always be that renting is a better option. And this answer will continue till they see home purely as an investment product and not as something that also offers qualitative benefits. But till they continue doing that the debate for them is not about Rent v/s Buy but is actually about whether home buying is a pure investment activity or is it something beyond that.
While the heat around Rent v/s Buy has come down on social media but in home debates, the heat is still on, though on a different subject – whether the temperature of the A.C. should be 23 degrees or 24 ☺ . Debates after all are as much part of our lives as our home is – be it rented or be it owned.