An apartment complex at Raghuvanahalli. Pic for representation.
Credit: DH Photo/Pushkar V.
Billionaire stock broker Nikhil Kamath is being slammed on the Net for buying a house after advocating renting all along. Some dubbed his advice hypocritical, and aimed at “only poor folks”. Others spoke of the perils of taking “influencer opinions” seriously.
Kamath, who co-founded the stock broking platform, Zerodha, is also popular as a podcaster. In a recent episode, he acknowledged there is one disadvantage to renting. He said he had to move out of a house in which he “might have liked to stay longer”. Kamath is in his late 30s.
Finance experts say there is no straight answer to the question of what is better — ownership or renting. Mrin Agarwal, founder of Finsafe, says it all boils down to personal choice, which takes into account one’s earnings and expenses, appetite for risk, lifestyle, and psychological needs.
Cost-effective?
Chartered accountant Sathish K V, who specialises in personal finance, says renting works out cheaper than buying.
“People with a renting mindset see more value in investing Rs 20 lakh in equity than in using it towards a home down payment. Returns on equity or other investments would be at least over 4-5% higher than income earned from renting out a house. The rental yield is 2-3%,” he says.
But Mrin says one doesn’t save “a significant amount” by living in a rented house.
She also feels it is not wise to underestimate the value of a house as an asset. “People rarely stay committed to market investments (such as mutual funds) for 20 years,” she reasons.
Sayi Krishna S, senior manager, PeakAlpha Investment Services, says it’s critical to factor in your retirement plan. “If one stops earning at 60, will it work in one’s favour to keep paying rent?”
Emotional quotient
Paulomi and Vishnu were looking for a house to buy two years ago but have now decided against it. The couple is in their mid-30s. “Houses in Bengaluru are so expensive, we don’t want to get stuck with paying EMIs. We would rather travel with that money. Plus, there’s the risk of construction delays, builders going bankrupt, offices being too far as we move jobs, and areas running out of water or having traffic problems. We would like the convenience of moving out when we want to,” says Paulomi, an IT professional.
On the other hand, digital marketing professional R Prasad, 35, would like his daughter to “have memories of growing up in our own home”.
Sathish and Mrin recommend renting to individuals or families who aren’t emotionally drawn to the idea of owning a house, and want the flexibility to relocate. But will you be comfortable moving houses when you’re old if the landlord wants you out? Krishna wants people to think ahead.
Age is also a factor when making a decision. Krishna says EMIs can be taxing on people who are starting out in their careers. Middle-aged professionals have it easier — they may have invested money towards emergencies and wealth creation, and have a high credit score to avail of loans.
Owning security
A longtime Jayanagar resident prefers buying to renting if the rental contracts are short-term. “Imagine you are taking up a new house every two years. After a year, you start worrying about finding the right place and the right landlord. And every time you move, you have to change your address in your Aadhaar card and other ID documents, and with your banks, your mobile service provider, your gas agency… It is a nightmare and takes up a lot of your time,” he says.
Annual review
Krishna says it is important to review life’s priorities at least once a year. Your financial planning should be in step with your changing circumstances.
Sathish explains why this is critical: “To buy a house, it is ideal to save an amount up to 40% of the total purchase value of the house. Use this for the down payment and get loans for the rest. Pivoting suddenly from renting to buying can get messy, both financially and emotionally.”