Buy if you’ll stay put for 7+ years, the price-to-rent ratio is attractive (≈≤20), your EMI ≤ 30% of monthly income, and you value stability. Rent if mobility matters, price-to-rent ≥ 25, or the after-tax ownership cost exceeds rent after factoring opportunity cost and maintenance.
Why this decision matters
For most Indian families, a home is the single largest asset and debt. Making a data-driven buy vs rent decision protects cash flow, optimises taxes, and preserves optionality—especially in high-priced metros like Mumbai and Bengaluru where EMIs can dominate your budget.
This guide gives you a clear framework, simple formulas, and India-specific examples to decide confidently.
The 5-step framework (India focused)
Start with the Price-to-Rent (P/R) ratio
- Formula:
P/R = Property Price / (Annual Rent) - Reading it:
- ≤ 15–20: Typically favourable to buy (subject to cash flow & tenure).
- 20–25: Borderline; compute total cost vs rent.
- ≥ 25–30: Often better to rent and invest the difference.
Compute your after-tax cost of ownership
Consider:
- EMI interest (less eligible tax benefits) under current law.
- Property tax + society/maintenance + insurance (≈1–1.5% of property value annually for many apartments—use your building’s actuals).
- Repair capex (major paints, lifts, waterproofing—budget a sinking fund).
- Lost HRA (if you move from renting to self-occupied and lose HRA exemption).
- Opportunity cost of the down payment + stamp duty/registration.
Compare with the rent path
- Assume rent inflation of 3–6% p.a.
- If you rent, you may retain HRA benefits, and you can invest your down payment plus monthly EMI–rent gap.
Layer in appreciation & investment returns
- Property CAGR (assumption) vs market return on investments (e.g., diversified equity/debt).
- Simple CAGR formula:
CAGR = (Final Value / Initial Value)^(1/n) − 1
Overlay life goals & flexibility
- Job mobility, children’s schooling, lifestyle, proximity to family, desire to customise.
- Diversification: HNIs already concentrated in real estate may prefer renting plus REITs/AIFs for liquidity.
The core math: side-by-side
A. EMI and affordability
- EMI formula:
EMI = P × r × (1+r)^n / ((1+r)^n − 1)
where P = loan principal, r = monthly interest rate, n = number of months. - Guardrails (practical):
- EMI ≤ 30% of net monthly income (stretch to 35% only with strong buffers).
- Home value ≤ 4–6× of gross annual household income.
B. Total annualised ownership cost (simplified)
- After-tax Interest Cost
- Maintenance & Society
- Property Tax & Insurance
- Opportunity Cost of (Down Payment + Stamp Duty/Registration)
− Expected Real Appreciation (optional, conservative)
Compare this with Annual Rent (inflating). Choose the lower total for your expected stay duration.
Worked examples (illustrative, round numbers)
Assumptions below are for method illustration only. Replace with your quotes.
Example 1: Mumbai (city centre, premium micro-market)
- Price: ₹2.4 crore
- Market rent: ₹80,000/month → ₹9.6 lakh/year
- P/R = 2.4 cr / 9.6 lakh ≈ 25 → Renting looks favourable on first pass.
- If buying: 20% down (₹48 lakh), loan ₹1.92 cr for 25 years @ 8.5%:
- EMI ≈ ₹1.55 lakh/month; EMI/Income needs high cash flows.
- Society + sinking fund + taxes ≈ ₹3–3.5 lakh/year (varies).
- Opportunity cost on ₹48 lakh + ~₹15 lakh stamp/registration ≈ ₹63 lakh (investible elsewhere).
Indicative decision: If you’ll stay <7 years or value mobility, rent and invest the difference. Buy only with strong affordability and long tenure.
Example 2: Pune (established suburb)
- Price: ₹90 lakh
- Rent: ₹25,000/month → ₹3 lakh/year
- P/R = 90 lakh / 3 lakh = 30 → On ratio alone, rent seems better.
- But if rent inflation is high and you plan to stay 10+ years near a good school, buying may still work—run the full cost model with your actual maintenance and taxes.
Decision shortcuts (use with caution)
- Rule of Tenure: If you’ll stay <5–7 years, renting often wins due to transaction costs (stamp duty, brokerage, GST on under-construction) and lower flexibility.
- Rule of P/R:
- ≤ 20: Start favouring buy (if EMI ≤ 30% of income).
- ≥ 25: Lean toward rent unless you have lifestyle/legacy reasons.
- Rule of Cash Flow: If EMI > rent by >50% and you can invest the gap while renting, renting + disciplined SIP can outperform.
Taxes: what to keep in mind (at a glance)
- Home loan interest (self-occupied): Deduction available up to statutory caps under the Income-tax Act (subject to prevailing rules).
- Principal repayment: Eligible within overall savings deductions basket (subject to prevailing limits and conditions).
- HRA vs Home Loan: Shifting from rented accommodation (with HRA exemption) to self-occupied may reduce your net tax benefit; run the numbers both ways.
- Let-out property: Rental income taxable; certain deductions may apply against interest/standard deduction as per current rules.
Tip: Tax provisions change. Re-check limits, eligibility conditions, and city-specific stamp duty/registration before deciding.
Hidden costs buyers forget
- Transaction costs: Stamp duty, registration, brokerage, legal diligence, bank processing, GST on under-construction.
- Maintenance creep: Ageing buildings need higher capex (lifts, façade, waterproofing).
- Vacancy risk (if moving later and letting): Months without rent, repainting, brokerage.
- Concentration risk: Over-allocation to one illiquid asset vs diversified portfolio.
When buying makes strong sense
- You’re rooted for 7–10+ years in one city/micro-market.
- P/R is reasonable (≤20) and EMI ≤ 30% of net monthly income.
- You have an emergency fund (6–12 months EMI + living) and term insurance.
- You value the non-financial utility: school catchment, parents nearby, ability to customise.
When renting is smarter
- High P/R (≥25) or EMI-to-income is stretched.
- You foresee job/location changes in 1–5 years.
- You prefer liquidity and diversification; you can access REITs, SGBs, or balanced funds while renting.
Mini checklist (copy-paste)
- My P/R ratio is _____ (≤20 good for buy; ≥25 rent-lean).
- EMI/Income would be _____% (aim ≤30%).
- I’ll likely stay _____ years (≥7 favours buy).
- All-in annual ownership cost ₹_____ vs annual rent ₹_____.
- I maintain EMI buffer of _____ months.
- I’m comfortable with lower liquidity and higher concentration if I buy.
FAQs
Is rent “wasted money”?
No. Rent buys flexibility and preserves investable capital. Money is “wasted” only if you don’t invest the EMI–rent gap productively.
What appreciation rate should I assume?
Be conservative. Use a range (e.g., 3–6% real, 6–9% nominal) and stress-test outcomes rather than relying on best-case projections.
Should I buy under-construction to save cost?
Only with strong developer diligence and comfort with delay risk. Factor GST, rent during construction, and possession timelines.
Alternative to buying for exposure to real estate?
Consider REITs for income-generating Grade-A commercial exposure with liquidity and lower ticket sizes. For larger tickets, evaluate fractional/leased commercial only after rigorous tenancy and title diligence.
Summary: how to decide today
- Compute P/R for your target property.
- Run the cash-flow math (after-tax EMI + all ownership costs vs rent).
- Stress-test tenure, mobility, and buffers.
- If numbers are close, value flexibility and prefer renting; if numbers and life fit align, buy with a 7–10-year lens.
Author’s note: This article provides a decision framework. For tax limits, city-specific duties, and product selection, use current regulations and professional advice.