Home Choices: The Pros and Cons of Renting vs. Buying
Updated on 7th Feb 20256 Min read
In India, the aspiration for homeownership is a mark of stability, success, and security. However, deciding whether to buy or rent a home is becoming more difficult than ever. Soaring property prices put ownership out of reach for many, while alternative lifestyles centered on job flexibility push us to rent. Meanwhile, traditional social norms that once equated homeownership with the attainment of the “good life” are beginning to fade. Most of us know someone who has chosen to rent rather than buy. Still, the appeal of homeownership persists. Is it better to buy or to rent? The answer is not simple and relies on a host of individual factors that will be spoken about here.
Costs of Buying
A significant upfront cost is required to purchase a home. Usually, the buyer must set aside about 20% of the property’s value as a down payment. Take, for example, a mid-range property in Mumbai that costs about ₹1 crore. The down payment alone comes to around ₹20 lakhs. The buyer is also liable for a staggering amount of additional expenses, which may run into lakhs of rupees, and are typically required to be paid before the sale is finalised, including:
Stamp duty and registration fees
These can be between 8% and 10% of the property value.
Brokerage charges
These are often incurred when using real estate agents.
Property taxes and upkeep costs
These are mandatory expenses for homeowners to manage.
Monthly EMIs (Equated Monthly Installments)
These can become onerous, especially over long loan tenures, and yet, real estate generally suffers from low liquidity; selling a house can take a long time depending on how the market is doing. This lack of liquidity can be a critical consideration for buyers who must access their capital pronto.
Costs of Renting
By way of contrast, renting is typically much less expensive. The basic financial obligations tied to renting encompass:
- Security deposit: An amount which is usually 3 to 6 months’ rent.
- Minimal brokerage fees: These are often lower than the fees associated with purchasing a home.
- Monthly rents: These payments frequently amount to far less than the EMIs required for a home loan. For example, while the EMI for a house worth ₹1 crore might run around ₹80,000, rent for the same house could be as low as ₹25,000.
Renters also enjoy numerous benefits:
- No property taxes or maintenance costs: These obligations are the responsibility of the landlord.
- Flexibility: Renting allows you to move easily and quickly without the long-term commitment of homeownership.
Lifestyle and Flexibility
The flexibility of renting is practical for young professionals and others whose work requires them to move regularly. In booming job markets like Bengaluru and Gurgaon, renting allows people to live close to their jobs without the burdens of long-term commitments.
Conversely, owning a home offers:
- A feeling of permanence and a sense of place: For many, an owned home is an anchor that allows them to weather various storms of life.
- The ability to express oneself: Unlike the restrictions that often come with renting, a homeowner can truly make their living space their own.
- Security for one’s family: Knowing that one owns the roof over one’s head offers a kind of peace not typically available to renters.
Psychological and Cultural Considerations
In India, homeownership is frequently seen as a path to financial success that is dedicated to future generations. Renting, on the other hand, can sometimes seem like a back road to the same destination, or a waiting area right before the door to homeownership in India’s urban areas.
Cost Considerations: An Investor’s Viewpoint
Understanding the concept of opportunity cost—the possibilities foregone by selecting one choice over another—. To illustrate:
- Funds that could be used for a down payment might better serve individuals if they were to invest them in higher-return platforms like mutual funds or stocks.
- From a larger perspective it seems that real estate commonly appreciates over time and, in many instances, far exceeds the rate of inflation.
That said, “Money doesn’t make money unless it’s in motion,” as Thomas J. Stanley, coauthor of The Millionaire Next Door, put it. Investing in large, costly assets like homes ties up in one place much of an individual’s capital.
How to Decide? Key Questions to Ask Yourself
As you work your way through the renting versus buying confusion, keep these important questions in mind:
Q1. How financially ready are you?
Can you manage the costs associated with down payment, monthly instalments, and the ongoing expenses of homeownership without detracting from other important financial goals?
Q2. What is your lifestyle choice?
Are you someone who values flexibility and the ability to move? Or do you want the kind of stability and satisfaction that comes with the declaration: “I own my own home”?
Q3. What is your long-term vision?
Is this city where you’re currently living the place you’re going to live for the next 7 to 10 years? Because that’s about the time it takes to “break even” on the kind of investment that real estate is.
Q4. How much risk are you willing to accept?
Are you okay with the idea of property value going down or the market crashing while your funds are tied up in the EMIs of your home?
| Buying | Renting | |
| Pros | – Grows wealth over time | – Reduced initial expenses (only a security deposit) |
| – A stable feeling with a sense of lasting permanence | – Flexibility to relocate without being tied down long-term | |
| – Possible tax advantages | – Typically no responsibility for maintenance and property taxes | |
| – Freedom to customise and renovate | – Monthly lease payments frequently lower than mortgage EMI payments | |
| – Represents financial prosperity and cultural accomplishment | – Possibility of residing in coveted locales without the steep price tags of homeownership | |
| Cons | – Substantial initial costs (down payment, fees) | – No building of equity; rent payments do not lead to ownership |
| – Selling a property can take a long time | – Monthly equated instalments can be a financial drain | |
| – Continuing expenses (maintenance, property taxes) | – The amount paid for rent may increase over time | |
| – Property values have a chance of going down | – More uniform living environments | |
| – Can feel less stable or more temporary | – Homeowners have little freedom to make desired changes |
Deciding whether to rent or buy a home all depends on your personal desires and your financial condition. Most experts would say that buying a home is a better decision in the long run. Yet, many individuals enjoy the prospect of renting. Having a home to call your own can give you an intense feeling of security, not to mention the surge of pride that comes with ownership. However, renting also has its benefits. Flat living can be a less fraught existence than living under the pressures of large EMIs. And with timely notice, a renter can have the freedom to move anywhere they want. Renting or buying have their own benefits; the choice is yours.
This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
