The millennial generation has realized that buying a house may not be as beneficial or important as it is made out to be by the elders.
For salaried individuals and working professionals, buying a house has always been one of the biggest decisions of their life, if not the biggest. Generations of Indian jobbers have utilized their hard earned life savings to invest in a house, burying many dreams and desires to secure a roof over one’s head. But is buying a house really that important? Not for modern professionals. The millennial generation, so accustomed to investigating every financial decision in depth, has realized that buying a house may not be as beneficial or important as it is made out to be by the elders.
Enlisted below are a set of 5 key pointers that point to the growing trend of renting among modern Indian workforce, which might also help you to decide wisely on a choice that often has irreversible implications:
1. Cost: Buying a house is 4X as expensive in India than renting a space. On an average, home loans have 8.5% interest rate vs 2% rental yield. This differential is highest in India compared to most major economies. In many countries like Germany, UK and Canada, the rental yield is more than home loan rates! You might be tempted to say – but house is an asset/investment. True, but home (real estate), if considered as an investment, gives you inferior long-term returns to other products such as mutual funds. Money saved through renting can get you much better returns.
2. Workforce mobility: The nature of work today has become such that workforce needs to be ready to shift to different regions for a relatively long period of time. Working couples or individuals who love to explore new places often look forward to working from different places. For such professionals, blocking one’s savings in an illiquid asset with high interest rates is not a smart choice.
3. Flexibility: Renting gives you immense flexibility over buying a house, which often brings along a huge debt. People’s needs change over years, but a self-owned house doesn’t. Selling/buying a house is also an ordeal in itself, as the valuation is vague and often not matched by the market. Modern day technology enabled renting platforms have also made the task of rental home-seeking much easier, with hundreds of quality property listings available on a smartphone, specifically curated to the needs, preferences and profile of the prospective home-seeker.
4. Income stability and benefits: In the uncertain job market of today, a fixed, high and regular demand on funds such as home loan EMI might become difficult to manage in times of crisis or in between jobs. It creates unnecessary financial stress in such a scenario. Living on rent, on the other hand, gives the individual an option to move into a space which costs lesser. Additionally, homeowners also lose HRA tax benefits for employed professionals, not sufficiently compensated by interest rate rebates.
5. Home loan EMI inculcates financial discipline: Home ownership does have benefits. Being a big investment, home loans force you to commit your income for years to come. At some level, it’s a forced investment of your income which you might have splurged away in needless expenses. It enforces financial discipline in those who are not good at it and are looking to develop the same. Additionally, for professionals who do not want the stress of putting funds in investments with greater short term fluctuations, buying a house is probably a better option.
(By Pallav Pandey, CEO & Co-founder, FastFox.com)