Deciding to buy a house is one of the biggest decisions we make in our life time. It involves a lot of thought before making the decision. As it is a big ticket investment, upfront payment for the purchase is difficult. Hence we seek refuge with home loans. And then we remain stuck with Equated Monthly Installments (EMI) for a long period. Is it worth paying EMIs and owning a home or is staying in a rented home better?
The most common argument for EMIs is that you could rather pay the amount of rent towards EMIs and own an asset at the same time. As simple as it may sound, we definitely think there are more points that you should bear in mind before buying a house.
Let us first explore the benefits of owning a home.
Tax benefits
Besides getting to own an asset, you also get to claim benefits on Income Tax. The principal repayment of your home loan is eligible for deduction under Sec 80C.
It means you are better equipped to make use of the entire deduction allowed. Also, interest payable of up to Rs 2 lakh is deductible from your income. What’s more? If it is a joint home loan, both the spouses are eligible to claim deductions up to Rs 2 lakh, if the loan repayment is done in equally by both.
Capital appreciation
We have seen appreciation to the tune of 6-10 times in certain areas during the real estate boom between 2002-2013. Though may not be in similar proportion, real estate investments do appreciate over a period of time. When sold after three years, indexation benefit is available and gains taxed at 20% only.
Source of additional income
One can always rent out the property if it not occupied by self. Rental income can be used to pay EMI or at least fund a part of your EMI.
Reverse mortgage
Own house can be set for reverse mortgage during your golden years making for a much-needed source of income.
Do we see you veering towards the ‘Buy Home’ brigade? Wait till you read out the benefits of a rented home.
Flexibility
This is the age of career consciousness. Job changes happen fast. You do not want to be tied down to a city/locality for your home. Unless you decide to settle down, an owned home may not make much sense.
Lower deposits compared to down payments
A rented home requires you to make a security deposit to the tune of 6-10 months of rent. But down payment for buying a property often ranges between 15-25% of the property cost, which would run into a few lakhs of rupees.
HRA benefits
A salaried employee can claim the benefit of exemption of tax on HRA paid as a part of the salary if he pays rent. Remember this benefit is not available for those residing in self-occupied houses.
Lesser expenditure on maintenance
An owned home requires expenditure on regular maintenance in the form of painting, upkeep etc. Whereas, a tenant is only expected to bear minor repair expenditure. A home owner has to pay property taxes and incur other expenses such as registration, stamp duty etc., while buying.
The benefits of owning vs renting seem to be stacked evenly. So we would like you to make an informed decision of buying/renting after carrying out an analysis of your financial position, debt-income ratio, need vs want of owning a home, expected trends in the property markets and other factors. For investments are not done in a jiffy.
This article was originally published on www.thehindu.com dated August 29,2017
You have forgotten 2 important points- 1. Rental income on houses is 3-4% of invested money, better to have the money in equity +money market ( should get 9% with the mix as of 2018 or more)
second apartments depreciate over time