ArthaYantra Buy vs. Rent Score (ABRS)-Pune

BUY VS. RENT A PERSONAL FINANCE PERSPECTIVE

Pune Edition

CCopyright 2012Cwww.arthayantra.com

Buy Rent

ArthaYantraA CFO FOR EVERYONE

Table of Contents

C

Summary 3

1. Introduction 6

2. Methodology 7

3. Assumptions 8

4. Findings

4.1 Historical data of Real estate prices 9

4.2 Property Cost vs Rental Value 10

4.3 Down Payment 12

4.4 Area 13

4.5 Rent to Buy Ratio 14

4.6 Break Even Horizon 15

TM5 ArthaYantra Buy vs Rent Score (ABRS ) 17

6. Other Important Numbers 20

7. Conclusion 21

8. Limitations and Concerns 21

9. Appendix 22

Copyright 2012Cwww.arthayantra.com

Property cost vs Rental Value: The Residential Property prices in Pimpri-Chinchwad and

Kharadi are not being translated to their rental value. Though the average residential

property values of Pimpri-Chinchwad is higher than Wakad by 3%, the average rental

value is less by nearly 9%. The same case goes with Hadapsar and Kharadi. Though their

average residential property values are identical, their average rental values differ by

nearly 8%.

Down payment: The years of saving required to afford the initial down payment i.e. 20% of

the property price determines how sooner we can buy a house. It takes at least 4 years to

save for the required corpus in Pimpri-Chinchwad, Kondhwa, Hinjewadi, Hadapsar,

Kharadi and Wakad. In Kothrud a professional has to save for at least 6 years to afford the

down payment amount required.

Area: The average number of square feet per INR 1 lakh determines the amount you need

to pay for the desired area of occupancy. The average number of sq ft of 33.33 per INR 1

lakh in Mysore Road makes it the place where you can get the highest area for the same

amount of money compared to other 6 localities. This implies that for a given price one can

get the largest space in Mysore Road followed by Hosur Road, Kanakapur Road,

Whitefield, Tumkur Road, Bellary Road and Old Madras Road. Indiranagar offers the least in

terms of space.

Rent to Buy Ratio: The ratio compares the monthly cost of renting house to the monthly cost

of owning the same place. The ratio undermines the necessity and urgency with which the

house has to be bought. The rent to buy ratio of 0.39 shows that the rental values in

Hadapsar and Wakad are higher and makes them an “immediately buy when you can

afford” place. The ratio of 0.33 for Kondhwa gives ownership of house an advantage over

renting.

Annual out of Pocket Costs: The annual out of pocket costs in case of ownership include

the monthly EMI being paid including the maintenance charges and the amount of tax

being paid. The values have been calculated and compared across the average loan

tenure of 15 years. The year at which the annual costs match determines the minimum stay

period in the house. The minimum stay period is 13 years for Hadapsar and Wakad, 14 for

Pimpri-Chinchwad, Hinjewadi and Kharadi, 15 for Kondhwa and above 15 years for

Kothrud. The tax benefits received under the HRA allowance dominate the tax benefits

received in case of ownership over the period of 15years.

ArthaYantra Buy vs Rent Score: ArthaYantra Buy vs. Rent Score (ABRS) not only aids in

making the rent vs. Buy decision but also explains the affordability and need to buy or rent

in a given place. The three important factors on which scale is based are: affordability to

rent, affordability to buy and a comparison of rent and EMI.

Summary

BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Copyright 2012C www.arthayantra.com Page No:3

Hadapsar : The rent to buy ratio of 0.39 meant that the average rental value of residential

property is high compared to the average property price. This makes Hadapsar a place to

buy. The moderate prices and decent number of sq ft per INR 1 lakh make it a place where

in you need to buy a house as soon as you can afford it. The out of pocket costs also in favor

of buy with the breakeven being achieved at 13th year (fastest of the seven localities).

Hinjewadi : The rent to buy ratio of 0.36 meant that the rental prices are high and it is

advisable to buy. The years required to save for down payment (4 years, which is least

among the seven localities) and the property prices being in an affordable range makes it

the second most affordable locality (out of the seven).

Kharadi : The second highest in terms of average property prices. The rent to buy ratio of

0.35 meant that the average rental value of residential property is high, but can be

considered less when compared to its higher prices. Renting is the best option.

Kondhwa :The rent to buy ratio of 0.33 meant that the rental prices are moderately high

and it is advisable to buy. The years required to save for down payment (4 years, which is

least among the seven localities) and the property prices being in an affordable range

makes it an affordable locality.

Kothrud : The highest in terms of average property prices. The rent to buy ratio of 0.25 meant

that the average rental value of residential property is very less compared to its higher

prices. The least number of sq ft per INR 1 lakh(among the seven localities) make it a place

to rent.

Pimpri-Chinchwad : The average residential property values of Pimpri-Chinchwad is higher

than Wakad by 3%, the average rental value is less by nearly 9%. A rent to buy ratio of 0.35

and moderately high property prices makes it a place to Rent.

Wakad : The rent to buy ratio of 0.39 meant that the average rental value of residential

property is high compared to the average property price. This makes Wakad a place to

buy. The moderate prices and decent number of sq ft per INR 1 lakh make it a place where

in you need to buy a house as soon as you can afford it. The out of pocket costs also in favor

of buy with the breakeven being achieved at 13th year (fastest of the seven localities).





Buy Vs. Rent in Pune

RENT NEUTRAL BUY

PlacePlace Salary

range Lacs ( )

ABRS Score Sq feetper Lac ( )

No of Yearsto Buy

(1000 Sq feet)

Kothrud

8 - 11

8 - 1516 - 25 13.64

Pimpri -Chinchwad

8 - 9

10 - 1112 - 25 90

90

28.99

Kondhwa8 - 9 65

10 - 14 77.5

77.5

15 - 25 9025.97

Hadapsar65

12 - 14

15 - 25 9023.53

Kharadi22.99

Wakad

8 - 9

10 - 1112 - 25

29.85

Hinjewadi8 - 9

8 - 11

65

65

10 - 11

12 - 14

77.5

77.5

77.5

77.5

12 - 25

15 - 25

90

90

29.85

6

4

4

4

4

4

4

55

67.5

65

65

Figure 1: Graphical Representation of Buy Vs. Rent in Pune



1. Introduction

Buying a home is one of the most important decisions in one's life. It is a tough decision to

make and emotions cloud the decision making process. Often buying a home is given a

high weightage by our family, friends and society at large. People associate the

advantages of housing security, physical asset creation and property appreciation with

home ownership. Renting is associated with expenditure. However, renting on the other

hand gives flexible lifestyle options, high level of mobility and is easy on the purse when

compared to the EMI to be paid.

From a personal finance perspective there is always a tussle between buying a home and

renting it. Is it prudent to buy? Is there an upside to taking a place on rent? How the lifestyle is

going to be affected? What is the impact of the locality chosen? There are numerous other

Questions that crop up when this topic is discussed. This research paper tries to find the

answers for these questions. As a part of this research we aim to objectively address the

major factors which impact the decision of buying or renting.

The common assumption that the residential property always appreciates is inconsistent.

The appreciation of a residential property is dependent on several factors. So one can't

actually determine the rate at which the residential property is going to appreciate or

depreciate. A school of thought supporting the rent argument says the amount invested in

a home when invested in equities for the common horizon of 15 years, yields the same or

better rewards. The real estate market scenario is similar to that of equity markets because it

is unpredictable.

The other common assumption held is buying a home eventually results in increased tax

savings. But provided the fact that the EMI payments accounting for principal payment of

home loan come under the same section as Provident fund and required risk cover for self

and family, one can't enjoy major tax benefits under section 80C. The tax benefits received

under section 24B i.e. the interest payments made towards house loan can be matched up

with HRA allowance in case of renting. So a professional shouldn't base the decision of

buying a house on the tax savings he/she is going to receive.

So eventually the three factors which play a predominant role in making the decision are:

Current Property price which determines the EMI to be paid, current monthly Rental value

and the current gross income. Monthly rent or the EMI being paid shouldn't end up

consuming most of the salary which in turn affects the lifestyle. It is not a good financial

decision to buy if the rental value is low compared to the EMI to be paid in case of

ownership.

As a part of this research we aim to provide a quantitative answer to the question of buying

vs. renting a home. We analyzed the costs associated with owning a house and renting a

house across eight localities in Pune: Hadapsar, Hinjewadi, Kharadi, Kondhwa, Kothrud,

Pimpri-Chinchwad and Wakad.

Property prices and rental prices of various residential properties were collected from

multiple data sources to generate the primary and secondary data for the analysis. The

public data sources including the data by National Housing Board (NHB) of India, data

from various real estate reports and data from major real estate aggregators is collated.

The primary research has been performed by collating information from over 100 real

estate agents across the localities considered.

The methodology used for arriving at results considers various key parameters derived from

the initial data collected: Price of the residential property and their rental value. Various

important factors like the years of saving required for a professional to accumulate the

corpus for down payment and the number of square feet per INR 1 lakh are derived from

the average property price.

The main idea behind this research was to quantify the buy vs. rent decision from a personal

finance perspective. The main factors which drive the decision are: how much more

money does a professional need to shell out for buying a home compared to renting it?

Can the professional afford this additional amount? ArthaYantra's Buy vs. Rent Score tries to

address these questions and come up with a comprehensive scoring system. The scoring

system not only tells whether it's better to buy or rent but also tells whether it's affordable to

buy or rent.

2. Methodology

Copyright 2012


C www.arthayantra.com Page No:7

Factors associated with buying a home Factors associated with renting a home

Down payment for home loan Security Deposit

No. of Years required to save for down payment

Monthly Rent

EMI on home loan Yearly increase in rent

Monthly property maintenance charges Monthly property maintenance charges

Annual repairs Income tax savings under HRA exemption

Annual property tax

Income tax savings under section 80c and 24 b

Table 1: Factors associated with home ownership and renting



The sale price and rental values are calculated for 1000 sq ft area ready to occupy

residential property.

20% of the cost of the house is considered as the required down payment to buy a

house.

The loan tenure is 15 years.

The lending rate for the loan is 10.50%.

Average savings rate is 25%.

The minimum gross income required to buy a house is calculated by considering

50% of monthly take home salary= Monthly EMI to be paid.

The gross income of the professional increases 10% annually.

1.5% of the property value is considered as the property tax to be paid.

10% annual increase in rent is considered.

Property appreciation is not considered.

3. Assumptions



4.1 Historical data of Real estate prices

National Housing Board India's Residential Index (NHB Residex) tracks the movement of

prices in the different zones of the city. Figure 1 shows the historical NHB Residex values since

its inception in 2007.

4. Findings

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)



4. Findings

Pune as a city has recorded a raise of 100% in its NHB Residex value when compared to the

base year of 2007. The East Zone of Pune has recorded the highest raise in the index value

by 195%. West zone and Other zone followed up with a 140% and 129% raise respectively.

Central and South zone have recorded a raise of 89% and 66% respectively when

compared to base year. East, West and Other zones have performed better than the city

while Central and South zones have underperformed. Kharadi falls under the East Zone.

Kothrud falls under West Zone. Wakad and Hinjewadi fall under Other zone. Pimpri-

Chinchwad falls under the Central Zone. Kondhwa and Hadapsar fall under the South

Zone.

It is evident that each of the localities under different zones has different real estate market

and different expectations from real estate. The effort is to identify the places that are most

affordable for a professional, given the current scenario. It is important to look at these

graphs to get a high level perspective of the general movement of real estate in each of

the zones. We delve into each zone's prospect in the later sections. The relative nature of

the index hides many interesting facts.many interesting facts.many interesting facts.

NHB Residex of Chennai

50100150200250

300350

Central Zone

East Zone

South Zone

West Zone

Others Zone

NHB Residex of Pune

2007

Inde

x

Jan-

Mar

201

0 In

dex

Apr-J

un 2

010

Inde

x

Jun-

Sep 2

010

Inde

x

Oct

-Dec

201

0 In

dex

Jan-

Mar

201

1 In

dex

Apr-J

un 2

011

Inde

x

Jul-S

ep 2

011

Inde

x

Oct

-Dec

201

1 In

dex

Jan-

Mar

201

2 In

dex

Apr-S

ep 2

012

Inde

x



4.2 Property cost Vs. Rental Value

The graph compares the property price and rental value of 1000 sq ft ready to occupy

house across seven localities of Pune. The bar graph depicts the average property price

in the locality and the line graph depicts the average rental value in the locality.

The most important thing that strikes out while assessing the current residential property

prices and NHB Residex is the base effect. Kharadi's property prices (INR 4,350,000) as per

NHB Residex have grown two fold but still remains almost identical with that of Hadapsar

(INR 4,250,000) which recorded a raise of only 66%.Wakad's and Hinjewadi's property prices

(INR 3,350,000) as per NHB Residex have grown by 129% but still are identical to that of

Pimpri-Chinchwad (INR 3,450,000) and Kondhwa (INR 3,850,000) which have recorded a

raise of 89% and 66% respectively. This means that the property prices of Kharadi, Wakad

and Hinjewadi were less compared to the other localities in the base year.

The most important factor that stands out from the rental value of the properties across the

seven localities is the anomaly of the property values not being translated to the

corresponding rental values. Wakad's property price (INR 3,350,000) is less than that of

Hinjewadi (INR 3,350,000), Pimpri-Chinchwad (INR 3,450,000) and Kondhwa (INR 3,850,000)

by 0%, 3% and 15% respectively. But the Average rental value of Wakad (INR 11,000) is

higher than that of Hinjewadi (INR 10,000), Pimpri-Chinchwad (INR 10,000) and Kondhwa

(INR 10,500) by 9%, 9% and 5% respectively. The same case has been observed with

Hadapsar and Kharadi. Though their average residential property values are identical, the

average rental value of Hadapsar (INR 14,000), is higher than that of Kharadi (INR 13,000) by

8%.

Comparisons of Average Rents and Average Property Prices

Average Price of Residen�alProperty Average Rental Value

Figure 3: Average property price and rental values across seven major localities of Pune

Rs. 8,000,000.00

Rs. 6,000,000.00

Rs. 4,000,000.00

Rs. 2,000,000.00

Rs. 0.00

Rs. 20,000,000

Rs. 15,000,000

Rs. 10,000,000

Rs. 5,000,000

Rs. 0.00

Locality

wak

ad

Hin

jewad

i

Pimpr

i-Chi

nchw

ad

Kondh

wa

Had

apsa

r

Khara

di

Kothr

ud



*On a scale of 1 to 7 with 1 being most affordable and 7 being least affordable based on the average property prices.

Table 2: Locality wise ranking based on the affordability to rent and buy

Locality Affordability to Rent Rank Affordability to Buy Rank

Hadapsar 6 5

Hinjewadi 1 2

Kharadi 5 6

Kondhwa 12 4

Kothrud 7 7

Pimpri-Chinchwad 2 3

Wakad 4 1

3 4

The above table shows the affordability to rent rank and the affordability to buy rank based

on the average property prices and average rental values across the seven major localities

of Pune. Wakad stands out as the most affordable place to buy while Hinjewadi stands out

to be the most affordable place to rent. Kothrud stands out to be the least affordable place

in both scenarios. Hinjewadi is the second most affordable place to buy and Pimpri-

Chinchwad is the second most affordable place to rent. Kharadi is the second least

affordable place to buy and Hadapsar is the second least affordable place to rent.

Kondhwa takes the 3rd place on affordability to rent and 4th place on affordability to buy.

Wakad takes 4th and Kharadi takes 5th on affordability to rent rankings. Pimpri-Chinchwad

ranks 3rd and Kondhwa ranks 4th on affordability to buy. Hadapsar takes the 5th place in

affordability to buy.

The rank of affordability to Rent does not match with the rank of affordability to buy in the

case of any of the seven localities. This means that the high/low property prices of the seven

localities are not translated to their relative rental prices. This signifies the fact that people of

different localities have different expectations from their real estate markets.



The average property prices translate to the number of year's professional needs to save

for the required corpus for down payment. Based on the above stated assumption and

average property prices a professional can afford the down payment required to buy a

house in Pimpri-Chinchwad, Kondhwa, Hinjewadi, Hadapsar, Kharadi and Wakad in 4

years. In order to own a house in Kothrud professional has to save for 6 years.

Figure 4: No.of years required to save the corpus for down payment across seven major localities

of Pune

A critical decision in purchasing a home is the down payment required to make in order to

avail the facility of housing loan. It is often a substantial amount of money to be paid

upfront in order to own the house. While some of the professionals depend on their

extended family to provide for this amount, often they do need to save for it. Assuming a

20% of property price as the down payment and saving rate of 25% for a professional with a

gross income of 8 lakhs, based on the current average property prices, the time required to

save the corpus determines how sooner one can afford to buy a home.

4.3 Down payment

No.of Years Required to save corpus for downpayment of buying a house

Lo

cality

6

Kothrud

Pimpri-Chinchwad

Hinjewadi

Hadapsar

Kharadi

Wakad

Kondhwa

1 2 3 4 5

The area of residential occupancy is an important aspect of life style. It determines the size

of the home that is provided for the family. Figure 4 compares the average number of sq ft

that can be bought for 1 lakh rupees across seven major localities in Pune.

4.4 Area



Figure 5: Average no. of sq ft per INR 1lakh across seven major localities of Pune

Kothrud being the costliest locality offers a space of 13.64 sq ft per INR 1 lakh. Wakad and

Hinjewadi being the cheapest localities offer a space of 29.85 sq ft per INR 1 lakh. Pimpri-

Chinchwad offers a space of 28.99 sq ft per INR 1 lakh. This means that for the same amount

of living area, a professional who wants to buy a house in Kothrud has to spend at least 2

times the amount he spends in Wakad, Hinjewadi and Pimpri-Chinchwad. Kondhwa offers

a space of 25.97 sq ft per INR 1 lakh. Hadapsar and Kharadi offer a space of 23.53 sq ft and

22.99 sq ft per INR 1 lakh respectively. Figure 4 attuned to the Affordability to Buy Ranking

mentioned above.

Average No.of sqft per INR 1lakh

Lo

cality

30252015105

Kothrud

Kharadi

Kondhwa

Pimpri-Chinchwad

Hinjewadi

Wakad

Hadapsar

Locality Average monthly out of pocket

cost(Ren�ng the house) (INR)

Average monthly out of pocket

cost(Owning the house) (INR)

Rent yo Buy Ra�o Urgency to buy rank

Hadapsar 15,000 38,584 39% 1

Hinjewadi 11,000 30,625 36% 3

Kharadi 14,000 39,468 35% 4

Kondhwa 11,500 35,046 33% 6

Kothrud 16,500 65,843 25% 7

Pimpri-Chinchwad 11,000 31,509 35% 5

Wakad 12,000 30,625 39% 2

*On a scale of 1 to 8 based on the monthly cost of renting and monthly cost of buying with 1 being buy as soon as

possible and 8 being renting is better than buying.

Kothrud has the least rent to buy ratio. This signifies the fact that the higher property prices of the locality are not being translated to the rental value in the locality. Renting is cheaper than owning a house by at least 75%. Kondhwa and Pimpri-Chinchwad also have low rent to buy ratios. Hadapsar and Wakad have the high rent to buy ratio.

The urgency to buy rank assigned signifies the fact that higher the rent to buy ratio, the sooner a professional needs to buy a home in the locality. With a rent to buy ratio of 0.39 and the average monthly out of pocket cost of Owning house being moderate, rents being relative higher Hadapsar and Wakad rank high in the urgency to buy ratio. Hinjewadi and Kharadi are also ranked high on urgency to buy rank.

Table 3:Rent to Buy ratio and Urgency to buy rank of seven major localities across Pune

The rent to buy ratio explains the additional monthly payments to be paid in case of

ownership compared to renting. The ratio also helps in understanding whether the

property prices are being translated to the rental value or not. The ratio is calculated

based on the average monthly cost of renting i.e. monthly rental value + monthly

maintenance and average monthly cost of ownership i.e. monthly EMI being paid in case

of owning the house + monthly Maintenance charges.

4.5 Rent to Buy Ratio





Ignoring the price escalations of the residential property, one important question to be

answered is the breakeven horizon i.e. how long a new home buyer would have to own the

home to justify the decision of buying instead of renting in financial sense. Figure 5 shows the

graphs of the annual out pocket costs incurred in case of ownership and renting based on

the average property prices and average rental prices across the seven localities. The

annual out of pocket cost in case of renting include the annual amount paid towards the

rent, the annual maintenance charges paid and the amount of income tax being paid.

The annual out of pocket cost in case of ownership include the annual amount paid

towards the EMI payments of the house loan, annual maintenance and repair charges and

the amount of income tax being paid.

The income tax being paid is considered in calculations because most of the professionals

feel buying a home will do a world good for their tax savings. The idea is to compare the tax

benefits received in case of buying a home and renting the home. The payments made

towards the principal amount of the home loan are considered under section 80C. The

payments made towards interest on home loan are considered under section 24b. In case

of renting one can claim tax benefits under house rent allowance.

The provident fund received and required risk coverage for self and family also come

under section 80C. These items do fill up most of the 80C part. Out of the EMI payments

being made, in the initial years most of the amount accounts for interest payments rather

than the principal amount. By the time the payment towards principal increases, one can

also expect the salary of the professional to increase in turn increasing the Provident fund

being received. So, the tax benefit under section 80C in case of ownership doesn't actually

add much of advantage.

Though the tax benefits in case of ownership are higher during the initial years, renting the

same place gives better tax benefits over the next few years. The benefits of renting are

higher especially in the regions where the costs of ownership and renting don't match up

during the average loan tenure of 15 years. The breakeven year i.e. the year at which the

annual cost of owning house is equal to the annual cost of renting the same place is

calculated over the average loan tenure i.e. 15 years. The matchup of cost of ownership

and renting in Hadapsar and Wakad is 13 years. The cost matchup in Pimpri-Chinchwad,

Hinjewadi and Kharadi happens in 14 years. In Kondhwa, it takes 15 years. The costs don't

matchup in the case of Kothrud. The planned length of stay in the house becomes an

important aspect in deciding whether to buy or rent.

4.5 Break Even Horizon

Break Even Horizon

Lo

cali

ty

12 14 16108642

Hinjewadi

Pimpri-Chinchwad

Hadapsar

Kothrud

Kharadi

Wakad

Kondhwa

Copyright 2012 www.arthayantra.com Page No:16


Figure 6: Break Even Horizon for the seven major localities of Pune

The property price and rental value of the place speaks volumes about why one should rent

or buy the place. They have an impact on the amount of money being spent on the house

(be it rent or EMI), the tax savings being received and many other important things. But one

can't only rely on the rent to buy ratio and make the decision to buy without assessing his

affordability. Similarly a decision to buy a house just because one can afford the EMI is not

advisable. ArthaYantra came up with a unique scoring system called ArthaYantra Buy vs.

Rent Score (ABRS) which is an effort to seamlessly integrate the above two aspects. We

even added another layer of parameter, the rental value. So given a locality, based on the

income of the professional ABRS describes a suitable action from wide range of options

spanning from why one can't rent to why one has to rent though he/she can afford to buy to

why one should buy.

As a part of this research report we have considered the average property prices and

rental values of the localities and calculated the ABRS score across different salary ranges.

In this research, the scope of the scoring system is confined to rental value and price of the

corresponding property of the same region. It can be extended to compare the rental

value of one region and property prices of a different region. This makes ABRS a powerful

tool to logically gauze the pros and cons of renting and buying a house.

TM5 ArthaYantra Buy vs Rent Score (ABRS )

Score Recommended Ac�on

100 Buy (Rents are very high)

90 Buy (Rents are high)

87.5 Buy ( Rents are higher)

80 Can afford both ownership and Renting but because of low Rent to Ownership Rent is recommended.

77.5 Buy/Neutral (Can afford both ownership and rent )

75 It is Advisable to buy but EMI can't be afforded. Have to Rent.

67.5 Rent/Neutral (Can afford both ownership and rent but rent/EMI ratio is low)

65 Rent (Rents are high but can't afford to buy)

55 Can afford to Rent but can't afford to Buy.

<50 Can't afford both ownership and renting.

Table 4: ArthaYantra Buy vs. Rent Score Explanation



Gross Income/ Cities

Hadapsar

Hinjewadi Kharadi Kondhwa

Kothrud Pimpri-Chinchwad

Wakad

8 Lakhs 65 65 65 65 55 65 65

10 Lakhs 65 77.5 65 77.5 55 77.5 77.5

12 Lakhs 77.5 90 77.5 77.5 55 90 90

15 Lakhs 90 90 90 90 55 90 90

20 Lakhs 90 90 90 90 67.5 90 90

25 Lakhs 90 90 90 90 67.5 90 90

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across seven major Localities

of Pune

Hadapsar : A professional with a salary range of 8-10 lakhs is better of renting. Even though

rents are high, he really can't afford to buy so he should rent. A professional with a salary of

11-14 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but

have to make a few adjustments to the current lifestyle in order to afford the additional

amount for EMI payments. The professional with a salary range of more than 15 lakhs are

advised to buy.

Hinjewadi : A professional with a salary of 8 and 9 lakhs is better of renting. A professional

with a salary of 10 and 11 lakhs falls in the neutral zone i.e. he can afford to buy and it is

advisable to buy but have to make few adjustments to the current lifestyle in order to afford

the additional amount for EMI payments. The professionals with a salary range of more than

12 lakhs are advised to buy.

Kharadi : A professional with a salary range of 8-10 lakhs is better of renting. Even though

rents are high, he really can't afford to buy so he should rent. A professional with a salary of

11-14 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable to buy but

have to make a few adjustments to the current lifestyle in order to afford the additional

amount for EMI payments. The professional with a salary range of more than 15 lakhs are

advised to buy.

Kondhwa : A professional with a salary range of 8 lakhs is better of renting. A professional

with a salary of 9-14 lakhs falls in the neutral zone i.e. he can afford to buy and it is advisable

to buy but have to make few adjustments to the current lifestyle in order to afford the

additional amount for EMI payments. The professionals with a salary range of more than 15

lakhs are advised to buy.




www.arthayantra.com Page No:17Copyright 2012C www.arthayantra.com Page No:19

Kothrud : The score of 55 for a professional with a salary range of 8-19 lakhs signifies that the

monthly cost of renting is cheaper than buying by more than 70%. A professional with a

salary range of more than 20 lakhs cannot afford to rent or buy. But the low rental prices

compared to the EMI also meant that though the professional cannot afford it renting is a

better option.

Pimpri-Chinchwad : A professional with a salary range of 8 and 9 lakhs is better of renting. A

professional with a salary of 10 and 11 lakhs falls in the neutral zone i.e. he can afford to buy

and it is advisable to buy but have to make few adjustments to the current lifestyle in order

to afford the additional amount for EMI payments. The professionals with a salary range of

more than 12 lakhs are advised to buy.

Wakad : A professional with a salary range of 8 and 9 lakhs is better of renting. A professional

with a salary of 10 and 11 lakhs falls in the neutral zone i.e. he can afford to buy and it is

advisable to buy but have to make few adjustments to the current lifestyle in order to afford

the additional amount for EMI payments. The professionals with a salary range of more than

12 lakhs are advised to buy.

*Ini�al corpus required for owning = 20% of the Average property price (down payment for house loan)* * I n i � a l c o r p u s r e q u i r e d fo r r e n � n g = A m o u n t e q u i v a l e n t t o 1 0 m o n t h s o f r e n t a l v a l u e *** (Ren�ng the house) / Average out of pocket cost (Owning the house)The gross income of 8 lakhs per annum is considered.

6 Key Factors

Hadapsar

Localities KharadiHinjewadi

Pimpri-Chinchwad

Wakad

Initial

Corpus required

for owning*(INR)

850,000

670,000

No.of Years to save for the corpus

4 4

Average No.of sq.ft per INR 1lakh

23.53 29.85 22.99 25.97 13.64

28.99 29.85

Initial

corpus required for renting**

140,000 100,000

130,000

110,000

Break Even year

13 14 14 15 15+ 14 13

Kothrud

770,000

Kondhwa

870,000

4 6 4 4

105,000 155,000



Here are some important numbers to look at before making the decision:

1,466,500 690,000 670,000

4

100,000

0.39 0.36 0.35 0.33 0.25 0.35 0.39

Average

out of

pocket

cost ***

Table 6: Other important numbers

Based on the current real estate markets, Hinjewadi and Wakad are the best places to own

a house. The property prices and rental values in these two localities are low, thus making

them the most affordable places for a professional to rent or own a house. The larger

residential spaces offered by Hinjewadi and Wakad provide a better lifestyle option. The

real estate market of Hadapsar and favors the home owners because of its moderate

property prices and high rental value. Though the moderate property prices of Pimpri-

Chinchwad and Kondhwa make a strong case of ownership for professionals with higher

salaries, the low rental values make renting a better option. The high property prices and

low rental values of Kharadi make the decision to rent easier. Kothrud is the least affordable

locality for a professional because of its high property prices and rental values.

The research addresses the fact that Buy vs. rent decision has a huge impact on the

personal finance of a professional. Buying a home is an integral part of every one's dream.

But a very calculated and merit based judgment is needed before taking the decision to

own the house. The comprehensive ArthaYantra Buy vs. Rent Score (ABRS) suggests the

decision a professional should take across the seven major localities of Pune based on the

current rental values, property prices and the salary. If a professional finds himself in the rent

zone as per the ABRS but still wants to buy a house, one has to make sure that their

Emotional Premium attached with buying a house is going to match the EMI premium

being paid.

7 Conclusion



The data is related to following localities of Pune:

Wakad, Kharadi, Hadapsar, Hinjewadi, Kondhwa, Pimpri-Chinchwad and Kothrud..

The property tax to be paid is considered as 1.5% of the property value. The property tax calculation reforms need some stringent reforms to regulate the process. In most places the value is calculated based on the rental value. The rental values being shown in the related local governing bodies website varies from the actual rental prices.

The tax benefits received under section 80C is considered as INR 1.2 lakh both in the case of house ownership and renting.

8. Limitations and Concerns:

9. Appendix

FIGURES:

Figure 1: Graphical Representation of Buy Vs. Rent in Pune

Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex)

Figure 3: Average property price and rental values across seven major localities of Pune

Figure 4: No. of years required to save the corpus for down payment across seven major

localities of Pune

Figure 5: Average no. of sq ft per INR 1lakh across seven major localities of Pune

Figure 6: Break even horizon for the seven major localities of Pune

TABLE:

Table 1 : Factors associated with home ownership and renting

Table 2 : Locality wise ranking based on the affordability to rent and buy

Table 3 : Rent to Buy ratio and Urgency to buy rank of seven major localities of Pune

Table 4 : ArthaYantra Buy vs. Rent Score Explanation

Table 5 : ArthaYantra Buy vs. Rent scores for different salary ranges across seven

major Localities of Pune.

Table 6 : Other important numbers

SOURCES:



National Housing Board, India: www.nhb.org.in

Jones Lang LaSalle: www.joneslanglasalle.co.in

Makaan: www.makaan.com

Magic Bricks: www.magicbricks.com

Multiple Primary sources (100+)



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