If you are a working couple with a school-going kid, you would want to live at a place that is central to both offices and the school. But how do you find out whether buying a house in the area you have chosen makes sense? In the absence of any data on rates and location, till now buying a house depended largely on the advice of real estate agents, friends and relatives. However, now you have some data to rely upon.
Property portal Makaan.com has come with a research-based buy versus rent index. Says Aditya Verma, chief operating officer, Makaan.com, “A property seeker today is confused between paying a rent or giving that rental amount as equated monthly instalments for his own house. The index will empower him with research-based analysis.”
What is it
The first of its kind in the Indian market, the index covers at least 100,000 properties spread across seven cities: Delhi-NCR, Mumbai, Bangalore, Pune, Hyderabad, Chennai, Ahmedabad and Kolkata. At least 82% of the total residential transactions in the country happen in these cities.
It arrives at its conclusions taking into account factors such as average capital value of property, average rental value, rental yield, historical capital and rental price movement and inflation. The index will be revised every quarter based on fresh data.
How to use it
It assigns a number to every area covered, denoting whether it is cheaper to live on rent in a particular area or buying a house. The higher the number assigned by the index, the costlier it is to buy a house in that area compared with the renting option. The values it assigns start at 1.
Also See | What to do (pdf)
When should you buy: If the index is between 1 and 20, it shows that it is less expensive to buy a home here than to stay on rent. Says Shakti Nath, chief managing director, Logix Group, a company building residential and commercial spaces, “Even within the metro regions, there are places which offer buying options within affordable limits.”
Makaan.com’s findings corroborate Nath’s observation. In Delhi region, places such as Gurgaon, Faridabad and Noida offer opportunities in the form of low-priced properties. The index values them at 19, 17 and 18, respectively.
When should you rent: Any value above 25 denotes that it is cheaper to stay on rent than buying a house. For instance, Delhi’s Dwarka, north and east regions have got maximum points on this index, suggesting that these areas are more expensive. Similarly, central Bangalore is an expensive locality for buying.
Neutral stance: Wherever property prices have already touched the levels of 2008, it would be costly to buy. Mumbai and Pune fall in this category.
When the index is between 21 and 25, it means that it is relatively more expensive to buy a home than to stay on rent in these cities and sub-cities. Most localities mentioned in the Mumbai region are either falling in the neutral zone or are inching towards the expensive side. “Property seekers looking at investing here are advised to take the final decision based on their financial situation and requirement,” adds Verma. Most of the areas falling in the neutral category have high rental income.
What it means
In spite of a developed methodology, the index is limited in its scope. “All it indicates is the advice to stay on rent or to buy,” adds Verma.
A high value on the index signify localities that may be overheated. Verma says: “Areas with higher values indicate the possibility of over-pricing. Since the index will be revised every quarter, chances are that the status may change depending on the supply and demand dynamics.” Since the index is subject to change every quarter and long-term decisions cannot be based on it.
Says Sanjay Dutt, CEO (business), Jones Lang LaSalle India, real estate consultants: “This kind of index will be primarily for investors who want to make profits from rental income and investments in the secondary market. Also, this would help those who want to invest in a property in a different city. An end-user who wants to buy for self use will buy depending on his requirement.” So if you want to settle down in the city where you work, you may want to buy a property, irrespective of the price.
Watch this space as we’ll update the index every quarter.
Graphics by Yogesh Kumar/Mint
Illustration by Jayachandran/Mint