Renting Vs Buying a House Dilemma

I recently read an article in Economic Times. It talked about virtues of buying versus renting a house. Here is a sample calculation done by the author. I fail to understand that why everyone talks about buying a house as biggest thing in your life. In India, parents or peer pressure causes each individual to think on the lines of getting their first house as soon as possible. You finish your education, get married, buy a house, have kids so on and so forth. Some things remain same. Times are changing and so should the needs and priorities.

If you are an individual who has been pressured into buying a house to "build an asset", dont panic. Think really thoroughly before jumping into the buying spree. Here are few questions you can ask yourself before you think of buying a house:

1) Will you be changing the city in few years owing to greater opportunity? If yes, postpone the buying idea.

2) Do you want to settle abroad in coming few years, or you think your spouse might get an opportunity to do that, postpone buying. Everyone now a days wants to settle outside India.

3) Do you or your spouse, wish to pursue higher education (usually MBA), then wait for the house. A higher education can cost a handsome money.

4) Can you really afford the EMI without sacrificing your other needs? There are lot of people (middle class) who want to see the world. You can't do that when you are old and your body doesn't help you. Life is short, enjoy it.

5) Are you thinking of starting your own company? Most of the people don't start companies since they never come out of rat-race. The vicious cycle of adding responsibilities, liabilities and then never able to coming out of it. Think seriously.

  • There is no major income tax advantage with buying Vs Renting for the salaried.
  • Buying a house would imply less money in hand for other needs/enjoyment in life
  • Rent will always be less than the EMI you shell for the entire life typically in a metro
  • A house is usually an asset for you when you retire and have no income. Then it saves your monthly outgo for rent. But with your old age, there are chances that your children will no longer be in India or in the same city. So why purchase a big house which you cannot maintain.
There are so many better avenues to put your hard earned money and getting much better returns that you can think of putting your money for them for long term. Once you are settled in a city, then you can think of encashing that money for buying a house.

If you still think buying a house makes lot of sense, buy a house in a city where you want to retire and stay for rest of your life.


  1. What about buying an house for investment purposes. Property costs are touching new heights everyday. Don't relate yourself to the house. Actually if you are with big company with decent salary you can get good home loan. Buy a house with that money sell it after a two to three years and earn substantial amount in metro city with very less of your own investement. I had seen many of my colleagues doing that. What is your opinion? And yes remember as you said rent is always a liability. EMI is a contribution towards the asset you are building.

  2. Hi

    I agree with you that renting a house especially a long 3 year ones is in most cases a better proposition.

    Leave aside the emotional side to it and the peer pressure, purely on financials, rent is a better bet than EMI.

    Average rent yields are in the range of 4-5 %. So as opposed to buying a house if u had invested that money into any asset class which gives greater return then you are better off taking the house on rent.

    Equities would provide u better returns and they have done so historicaly.

    Also in this country we live in this great illusion that real estate prices dont move down. I m sure that is going to / or has in some markets after the current bubble.



  3. Hi
    Your post reminds me of a classic - the greedy algorithm. According to it, one should take a decision which is beneficial for the immediate next step. There are no long-term considerations, not beyond one step ahead.
    Your point of view regarding buying a house seems to be similar to this algorithm :) Nothing wrong, the algorithm did well in the computer software world for quite some time till they saw that it also produces the worst possible solutions in some cases.

  4. Anonymous7:05 PM

    Thanks Himanshu for comments. I guess you did not understand the post properly. :-)


  5. Hi Abhijit, what you are telling seems to me similar to investing in stocks but with more hassles. How about investing a lump-sump in stock market and selling in 2-3 years. You can definitely think of real estate as investment but only if you have time to devote. But always think about the risks involved.