High price-to-rent ratio, increasing trend of co-living make buying home unattractive

By: |
June 18, 2019 6:55 PM

Buying a house is traditionally a dream come true for Indians. But the trend is changing, as buying a house within the city limits or near the office areas becoming too costly compared to get one on rent.

price-to-rent ratio, co-living, property price, rental value, rental yield, buying home, Annual Rent, monthly EMI, millennial, real estateMillennial prefer to stay near their offices, to cut commuting time and lead a quality life.

Buying a house is traditionally a dream come true for Indians. But the trend is changing, as buying a house within the city limits or near the office areas becoming too costly compared to get one on rent. Moreover, easy car loans and ready availability of cars in showrooms as well as the show off tendency make the city roads over congested making commuting time very long. As a result millennial prefer to stay near their offices, to cut commuting time and lead a quality life.

Although, instead of staying on rent, buying a house is considered as asset building, but real estate price in India is too high compared to rental value of same property. For example, the price to rent ratio, which is calculated as, Price of Property / Annual Rent of the Property in Mumbai or Gurgaon would be as high as 41.67 considering price of a property in prime location of these cities is around Rs 2 crore, while annual rent is around Rs 4,80,000 (Rs 40,000 per month). However, globally, when a price-to-rent ratio is 21 or more, staying on rent is considered much better than buying a property. On the other hand, when a price-to-rent ratio is between 1 and 15, it is considered as much better to buy a property rather than staying on rent, while even a ratio of 16 to 20 indicates it is typically better to stay on rent rather than buying a property.

So, while in the prime locations of top metropolitan cities in India, the price-to-rent ratio is more than double of the limit above which staying on rent is considered as much better option to stay on rent than buying a property, even in other top cities like Pune and Hyderabad, the price-to-rent ratio is as high as around 26.67 and 29 respectively. Such high price-to-rent ratio means the monthly EMI would be more than double the amount of monthly rent in top cities, while the difference becomes 3 to 4 times in prime locations of top metropolitan cities.

Apart from high price-to-rent to rent ratio, high mobility of millennial from one city to another and even to other countries make it handy to stay on rent rather than sticking to a place after buying a home.

Apart from low rental value, the increasing trend of co-living makes staying on rent even cheaper, making home buying even more unattractive. Although, co-living makes staying on rent cheaper, it improves rental yield for the landlord as they earn more rent from multiple tenants staying on same accommodation. So, it is a win-win situation for both tenants and landlords, which may entice landlords to acquire more properties, thus creating a demand pull in the liquidity-hit real estate sector.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Common mistakes to avoid while investing in mutual funds
2Budget 2021 Expectations: What FM may do on direct tax front
3Income guaranteed for life! Canara HSBC Oriental Bank of Commerce Life Insurance launches new plan