PROPERTY
Rent or Buy a Home: What a Fair Comparison Includes
Rent against EMI is the comparison most people make, and it is the wrong one. A fair comparison follows both paths for the same number of years and asks what each leaves you with at the end.
Why rent against EMI misleads
An EMI is part cost and part saving. The interest portion is gone, like rent, but the principal portion becomes equity in the house. Rent is all cost. So setting a ₹25,000 rent against a ₹55,541 EMI makes buying look far more expensive than it is.
It misses the other side as well. The buyer puts a down payment and stamp duty into the house on day one. The renter keeps that money and can invest it, and the return it would have earned is a cost of buying that the EMI never shows.
What a fair comparison counts
For the buyer: the down payment, stamp duty and registration, the EMIs, maintenance, property tax and insurance, and at the end the value of the home minus whatever is still owed on the loan.
For the renter: rent that rises every year, and an investment pot that starts with the money the buyer spent up front. In any month when owning costs more than renting, the renter invests the difference. When renting costs more, the buyer does.
Most comparisons, including the one on this site, leave out selling costs, moving costs and tax on a later sale. Those tend to favour renting when the stay is short.
An example where renting comes out ahead
Take an ₹80 lakh home with a ₹16 lakh down payment, buying costs of 7%, a loan at 8.5% over 20 years, and upkeep of 1% of the home's value a year. A similar home rents for ₹25,000 a month. Rent and home prices both rise 5% a year, and money invested earns 10%.
After 10 years, renting and investing leaves the renter ₹37,50,958 better off. The gap widens the longer it runs, to ₹76,58,228 after 15 years.
The home costs 26.7 years of rent. At that price, with the house growing more slowly than the investments, the money tied up in it earns less than it could elsewhere.
An example where buying comes out ahead
Change three things. The same home rents for ₹45,000, rent rises 7% a year, and home prices grow 8% a year while investments earn 8%. The price is now 14.8 years of rent, and after 15 years the buyer is ahead by ₹1,64,01,271.
The house itself did not change. Rent was higher relative to the price, and the home grew as fast as the alternative investment.
The three things that decide it
- The price-to-rent ratio. The more years of rent a home costs, the stronger the case for renting. Where rents are high relative to prices, buying looks better.
- Home price growth against investment return. Buying needs the house to appreciate close to what the down payment could have earned. In the first example, raising price growth from 5% to 7% cut renting's lead after 15 years from about ₹76.6 lakh to ₹27.1 lakh.
- How long you stay. Buying carries large one-time costs, and short stays rarely earn them back.
What the numbers cannot capture
A home you own cannot be taken back by a landlord, can be changed however you like, and fixes your biggest housing cost while rents rise. Renting leaves you free to move for work, spares you the maintenance bills and keeps your savings in something you can sell in a day. For many families these considerations decide the question before any spreadsheet does.
Under the old tax regime, home loan interest and principal repayments can reduce your tax, which tilts the numbers towards buying for people who claim those deductions.
Running your own comparison
Use rents and prices from listings in the area you are considering, a price growth figure that is cautious rather than based on the last few years, and a return you could realistically earn. The rent vs buy calculator follows both paths month by month and charts net worth over the whole stay. Before buying, the home affordability calculator shows the price your income supports and the stamp duty calculator the charges on top.