ArthaYantra

A CFO FOR EVERYONE

BUY VS. RENT

A PERSONAL FINANCE PERSPECTIVE

Hyderabad Edition
Buy Rent

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Table of Contents

Summary 1. Introduction 2. Methodology 3. Assumptions 4. Findings

4.1 Historical data of Real estate prices 4.2 Property Cost vs Rental Value 4.3 Down Payment 4.4 Area 4.5 Rent to Buy Ratio 4.6 Break Even Horizon

3 6 7 8

9 10 12 13 14 15 17 20 21 21 22

5 ArthaYantra Buy vs Rent Score (ABRSTM) 6. Other Important Numbers 7. Conclusion 8. Limitations and Concerns 9. Appendix

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Summary
Property cost vs Rental Value: The Residential Property price in Tellapur is not being translated to its rental value. Though the average residential property value of Tellapur is higher than Miyapur by 3.8%, the average rental value is higher by nearly 81.82%. The same case goes with Kukatpally and Kondapur. 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 3 years to save for the required corpus in L.B Nagar, Rajendra Nagar, Miyapur and Tellapur. In Kukatpally, Kondapur and Begumpet it takes 4 years. It takes 7 years to afford the down payment amount required in Banjara Hills. 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 37.74 per INR 1 lakh in Miyapur makes it the place where you can get the highest area for the same amount of money compared to other eight localities. This implies that for a given price one can get the largest space in Miyapur followed by Tellapur, L.B Nagar, Rajendra Nagar, Kukatpally, Kondapur and Begumpet. Banjara Hills 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 0.45 shows that the rental values in Kondapur are higher and makes it an immediately buy when you can afford place. 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 11 years for Begumpet, Kondapur and Tellapur. The costs don't matchup in the case of Banjara Hills, Kukatpally, L.B Nagar, Miyapur and Rajendra Nagar. The tax benets received under the HRA allowance dominate the tax benets 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.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Banjara Hills : The highest in terms of average property prices and rental values among the eight localities considered. The rent to buy ratio of 0.27 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 eight localities) make it a place to rent. Begumpet : The rent to buy ratio of 0.44 meant that the average rental value of residential property is high compared to the average property price. This makes Begumpet 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 11th year. A professional with a salary range of 9-25 lakhs can afford to buy in this locality. Kondapur : The rent to buy ratio of 0.45 meant that the average rental value of residential property is high compared to the average property price. This makes Kondapur 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 11th year. Kukatpally :The rent to buy ratio of 0.31 meant that the rental prices are moderately high and it is advisable to buy. The years required to save for down payment (4 years) and the property prices being in an affordable range makes it an affordable locality. A professional with a salary range of 12-25 lakhs is advised to buy in this locality. L.B Nagar : The rent to buy ratio of 0.27 meant that the average rental value of residential property is very less compared to its property price. A professional with a salary range of 925 lakhs can afford to buy in this locality but due to the low rents is advised to rent. Miyapur : The rent to buy ratio of 0.27 meant that the average rental value of residential property is very less compared to its property price. A professional with a salary range of 925 lakhs can afford to buy in this locality but due to the low rents is advised to rent. Rajendra Nagar : The rent to buy ratio of 0.30 meant that the rental prices are moderately high and it is advisable to buy. The years required to save for down payment (3 years, which is least among the eight localities) and the property prices being in an affordable range makes it an affordable locality. A professional with a salary range of 12-25 lakhs is advised to buy in this locality. Tellapur : The rent to buy ratio of 0.43 meant that the average rental value of residential property is high compared to the average property price. This makes Tellapur is a place to buy. The moderate prices and second highest number of sq ft per INR 1 lakh make it a place where 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 11th year. A professional whose salary range is between 9-25 lakhs can afford to buy in this locality.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Buy Vs. Rent in Hyderabad

Place

Place
Miyapur

Salary range Lacs ( )

8-9 10 - 25 8-9 10 - 25 8-9 11 - 25 8 - 10 11 - 25 8-9 10 - 11 12 - 25 8-9 10 - 11 11 - 25 8-9 10 - 11 11 - 25 8 - 20 21 - 25

ABRS Score

Sq feet per Lac ( )

No of Years to Buy (1000 Sq feet)

67.5 80 77.5 90 67.5 80 67.5 80 55 67.5 80 75 87.5 90 75 87.5 90 55 80

37.74

3 3 3 3 4 4 4 7

Tellapur

36.36

L.B Nagar

35.09

Rajendra Nagar

30.18

Kukatpally

29.41

Kondapur

27.40

Begumpet

26.67

Banjara Hills

12.90

RENT

NEUTRAL

BUY

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

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

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 exible lifestyle options, high level of mobility and is easy on the purse when compared to the EMI to be paid. From a personal nance 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 nd 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 benets under section 80C. The tax benets 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 nancial 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 Hyderabad: Banjara Hills, Begumpet, Kondapur, Kukatpally, L.B Nagar, Miyapur, Rajendra Nagar and Tellapur.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

2. Methodology
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 nance 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. Factors associated with buying a home Down payment for home loan No. of Years required to save for down payment EMI on home loan Monthly property maintenance charges Annual repairs Annual property tax Income tax savings under section 80c and 24 b Table 1: Factors associated with home ownership and renting Factors associated with renting a home Security Deposit Monthly Rent Yearly increase in rent Monthly property maintenance charges Income tax savings under HRA exemption

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

3. Assumptions
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.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4. Findings
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.

NHB Residex of Hyderabad Chennai

250 200 150 100 50

de x
20 10 In de x

West Zone South Zone North Zone

x 20 10 c In x 20 10 In x 2 1 01 In x 2 1 01 Ju In x 2 1 01 O In x 2 1 01 J In x 20 12 In x 20 12 In x

20

07
Ja

In

-M

ar

Ap

u r-J

20

10 Ju

In

de

de

de

de

de

de

de

de

de

Central Zone Others Zone East Zone

e -S

t-D

ec

an

-M

ar

Ap

u r-J

e l-S

t-D

ec

an

-M

ar

-J pr

un

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

Hyderabad as a city has recorded a decline of 15% when compared to the base year of 2007. The Other Zone of Hyderabad has recorded the highest raise in the index value by 96%. East Zone followed up with a 20% raise. West and North Zones have recorded a decline when compared to base year by 6% and 19% respectively. South and Central Zones have also recorded a decline of 32% and 36% respectively. Other, East and West Zone have performed better than the city while North, South and Central Zones have not done as well as the city. Banjara Hills falls under the Central Zone. Begumpet falls under the North Zone. Kondapur, Kukatpally, Miyapur and Tellapur fall under the West Zone. Rajendra Nagar falls under the South Zone and L.B Nagar falls under the East 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.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

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 eight localities of Hyderabad. The bar graph depicts the average property price in the locality and the line graph depicts the average rental value in the locality.

Comparisons of Average Rents and Average Property Prices

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 Rs. 0
iy ap ur lla Te pu r L. B N ag ar nd ra N ag ar Ku t ka pa lly Ko a nd pu r Be m gu pe t nj a ra H ills

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
M Ba

20,000 18,000 16,000 14,000 12,000 10,000 8,000 4,000 2,000 0

e aj

Locality
Average Price of Residen alProperty Average Rental Value

Figure 3: Average property price and rental values across eight major localities across Hyderabad

The anomaly of rental prices not being proportionate with the property prices is evident from Figure 2. The average property price in Tellapur (INR 2,750,000) is higher than that of Miyapur (INR 2,650,000) by 3.8% but the average rental price is higher by 81.82%. Similarly the average property price in L.B Nagar is higher than that of Tellapur by 3.5% but the rental value is less by 40%. The same case can be observed in case of Kukatpally and Kondapur. Banjara Hills stands out as the costliest place in terms of both rental value and property prices. The important factor that stands out when from the rental value of the property prices is that in Hyderabad, the rental values are directly proportional to the property prices excluding the area of Tellapur. If we actually exclude the rental prices and property prices of Tellapur and look at the graph, we can observe the rental prices getting higher once the property prices increase.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Locality
Banjara Hills Begumpet Kondapur Kukatpally L.B Nagar Miyapur Rajendra Nagar Tellapur

Aordability to Rent Rank

8 7 6 4 12 2 1 3 5

Aordability to Buy Rank

8 7 6 5 3 1 4 2

*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

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 eight major localities of Hyderabad. Miyapur stands out as the most affordable place in Hyderabad to rent or buy. Tellapur is the second most affordable place to buy but it ranks 5th on the affordability to rent because of its higher rental price. L.B Nagar is the second most affordable place to rent. Banjara Hills is the least affordable place to buy or rent. Begumpet and Kondapur are the second and third least affordable places to buy or rent. As discussed above, excluding Tellapur the affordability to rent and affordability to buy ranks match up for the other eight localities, proving the proportionality of rental prices to property prices in Hyderabad.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.3 Down payment

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.

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

Banjara Hills Kukatpally Kondapur Locality Begumpet Tellapur Rajendra Nagar Miyapur L.B Nagar 1 2 3 4 5
6 7

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

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 L.B Nagar, Rajendra Nagar, Miyapur and Tellapur in 3 years. A professional will need to save for 4 years to be able to afford a house in Kukatpally, Kondapur and Begumpet. In order to own a house in Banjara Hills a professional has to save for 7 years.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.4 Area
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 eight major localities in Hyderabad.

Average No.of sqft per INR 1lakh

Banjara Hills Begumpet Kondapur Locality Kukatpally Rajendra Nagar L.B Nagar Tellapur Miyapur
5 10 15 20 25 30 35 40

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

Banjara Hills being the costliest locality offers a space of 12.90 sq ft per INR 1 lakh. Miyapur being the cheapest locality offer a space of 37.74 sq ft per INR 1 lakh. Tellapur offers a space of 36.36 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 Banjara Hills has to spend at least 3 times the amount he spends in Miyapur and Tellapur. L.B Nagar offers a space of 35.09 sq ft per INR 1 lakh. Rajendra Nagar and Kukatpally offer a space of 30.18 sq ft and 29.41 sq ft per INR 1 lakh respectively. Kondapur and Begumpet offer a space of 27.40 sq ft and 26.67 sq ft per INR 1 lakh respectively. Figure 4 attuned to the Affordability to Buy Ranking mentioned above.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.5 Rent to Buy Ratio

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.
Locality Average monthly out of pocket cost(Ren ng the house) (INR) 18,500 15,000 15,000 9,500 7,000 6,500 9,000 11,000 Average monthly out of pocket cost(Owning the house) (INR) 69,534.7333 34,161.9677 33,277.6486 31,066.8507 26,203.0955 24,434.4572 30,301.9147 25,318.7763 Rent yo Buy Ra o Urgency to buy rank

Banjara Hills Begumpet Kondapur Kukatpally L.B Nagar Miyapur Rajendra Nagar Tellapur

27% 44% 45% 31% 27% 27% 30% 43%

8 2 1 4 7 6 5 5

*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.

Table 3:Rent to Buy ratio and Urgency to buy rank of eight major localities across Hyderabad

Banjara Hills, L.B Nagar and Miyapur have the least rent to buy ratio. This signies the fact that the property prices of these localities are not being translated to the rental value in the locality. Renting is cheaper than owning a house by at least 73%. Begumpet, Kondapur and Tellapur have high rent to buy ratio. The urgency to buy rank assigned signies 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 0.45 and the average monthly out of pocket cost of Owning house being moderate, rents being relative higher Kondapur ranks high in the urgency to buy ratio. Begumpet and Tellapur rank 2nd and 3rd in the urgency to buy rankings.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

4.5 Break Even Horizon

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 nancial 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 eight 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 benets 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 benets under house rent allowance. The provident fund received and required risk coverage for self and family also come under section 80C. These items do ll 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 benet under section 80C in case of ownership doesn't actually add much of advantage. Though the tax benets in case of ownership are higher during the initial years, renting the same place gives better tax benets over the next few years. The benets 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 Begumpet, Kondapur and Tellapur happens in 11 years. The costs don't matchup in the case of Banjara Hills, Kukatpally, L.B Nagar, Miyapur and Rajendra Nagar. The planned length of stay in the house becomes an important aspect in deciding whether to buy or rent.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Break Even Horizon

Tellapur Rajendra Nagar Locality Miyapur L.B Nagar Kukatpally Kondapur Begumpet Banjara Hills
2 4 6 8 10 12 14 16

Figure 6: Break Even Horizon for the eight major localities of Hyderabad

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

5 ArthaYantra Buy vs Rent Score (ABRSTM)

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 conned 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.

Score
100 90 87.5 80

Recommended Ac on
Buy (Rents are very high) Buy (Rents are high) Buy ( Rents are higher) Can afford both ownership and Renting but because of low Rent to Ownership Rent is recommended. Buy/Neutral (Can afford both ownership and rent) It is Advisable to buy but EMI can't be afforded. Have to Rent. Rent/Neutral (Can afford both ownership and rent but rent/EMI ratio is low) Rent (Rents are high but can't afford to buy) Can afford to Rent but can't afford to Buy. Can't afford both ownership and renting. Table 4: ArthaYantra Buy vs. Rent Score Explanation

77.5 75 67.5 65 55 50

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

Gross Income/ Cities

Banjara Hills

Begumpet

Kondapu r

Kukatpall y

L.B Nagar

Miyapur

Rajendr Tellapur a Nagar

8 Lakhs 10 Lakhs 12 Lakhs 15 Lakhs 20 Lakhs 25 Lakhs

55 55 55 55 55 55

75 87.5 90 90 90 90

75 87.5 90 90 90 90

55 67.5 80 80 80 80

67.5 80 80 80 80 80

67.5 80 80 80 80 80

67.5 67.5 80 80 80 80

77.5 90 90 90 90 90

Table 5: ArthaYantra Buy vs. Rent scores for different salary ranges across eight major localities of Hyderabad

Banjara Hills : The score of 55 for a professional with a salary range of 8-20 lakhs signies he can't afford to buy but can afford to rent. A professional with a salary range of 21-25 lakhs can afford to rent and buy. But the low rental prices compared to the high EMI payments mean that the professional should rent. Begumpet : The ABRS score of 75 for a professional with a salary of 8 lakhs signies the fact the rental value is critically high but a professional in this salary range cannot afford to buy. A professional whose salary range is between 9-25 lakhs is better off owning a home than renting it. Kondapur : The ABRS score of 75 for a salary of 8 lakhs signies the fact the rental value is critically high but a professional in this salary range cannot afford to buy. A professional whose salary range is between 9-25 lakhs is better off owning a home than renting it. Kukatpally : A professional with a salary of 8 lakhs can afford to rent in this locality but cannot afford to buy. A professional with a salary range of 9-11 lakhs is rent neutral, that means that he can afford both renting and buying in this locality but is advised to rent. A professional with a salary range of 12-25 lakhs is advised to buy.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

L.B Nagar : A professional with a salary of 8 lakhs is rent neutral, that means that he can afford both renting and buying in this locality but is advised to rent. A professional with a salary range of 9-25 lakhs is advised to buy as the rents are higher when compared to the property prices. Miyapur : A professional with a salary of 8 lakhs is rent neutral, that means that he can afford both renting and buying in this locality but is advised to rent. A professional with a salary range of 9-25 lakhs is advised to buy as the rents are higher when compared to the property prices.

Rajendra Nagar : A professional with a salary range of 8-11 lakhs is rent neutral, that means that he can afford both renting and buying in this locality but is advised to rent. A professional with a salary range of 12-25 lakhs is advised to buy. Tellapur : The ABRS score of 77.5 for a professional with a salary of 8 lakhs signies that he is in a neutral zone. He can afford to rent and buy. A professional whose salary range is between 9-25 lakhs is better off owning a home than renting it.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

6 Key Factors
Here are some important numbers to look at before making the decision:
Begum Konda pur pet Miyapur

Localities Banjara Hills

Kukat pally

L.B Nagar

Rajendra Nagar

Tellapur

Initial Corpus required 1,550,000 for owning* (INR) No.of Years to save for the corpus Average No.of sq.ft per INR 1lakh Initial corpus required for renting**

750,000

730,000

680,000

570,000

530,000

662,700

550,000

12.90

26.67

27.40

29.41

35.09

37.74

30.18

36.36

52,500

42,000

42,000

25,500

18,000

16,500

24,000

30,000

Average out of pocket cost ***

0.27

0.44

0.45

0.31

0.27

0.27

0.30

0.43

Break Even year

15+

11

11

15+

15+

15+

15+

11

*Ini al corpus required for owning = 20% of the Average property price (down payment for house loan) **Ini al corpus required for ren ng= Amount equivalent to 10 months of rental value *** (Ren ng the house) / Average out of pocket cost (Owning the house) The gross income of 8 lakhs per annum is considered.

Table 6: Other important numbers

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

7 Conclusion
Based on the current real estate markets, Miyapur and L.B Nagar 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 Miyapur and L.B Nagar provide a better lifestyle option. The real estate market of Tellapur and favors the home owners because of its moderate property prices and high rental value. Though the moderate property prices of Rajendra Nagar and Kukatpally make a strong case of ownership for professionals with higher salaries, the low rental values make renting a better option. Banjara Hills 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 nance 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 eight major localities of Hyderabad based on the current rental values, property prices and the salary. If a professional nds 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.

8. Limitations and Concerns:

The data is related to following localities of Pune: Banjara Hills, Begumpet, Kondapur, Kukatpally, L.B Nagar, Miyapur, Rajendra Nagar and Tellapur. 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 benets received under section 80C is considered as INR 1.2 lakh both in the case of house ownership and renting.

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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

9. Appendix
FIGURES:
Figure 1: Graphical Representation of Buy Vs. Rent in Hyderabad Figure 2: Historical values of National Housing Board India Residential Index (NHB Residex) Figure 3: Average property price and rental values across eight major localities of Hyderabad Figure 4: No. of years required to save the corpus for down payment across eight major localities of Hyderabad Figure 5: Average no. of sq ft per INR 1lakh across eight major localities of Hyderabad

Figure 6: Break even horizon for the eight major localities of Hyderabad

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 eight major localities of Hyderabad

Table 4 : ArthaYantra Buy vs. Rent Score Explanation Table 5 : ArthaYantra Buy vs. Rent scores for different salary ranges across eight major Localities of Hyderabad. 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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BUY VS. RENT: A PERSONAL FINANCE PERSPECTIVE

ArthaYantra is a young and innovative company started by a group of alumni of the Indian School of Business (ISB) Hyderabad. It provides integrated personal nance services using its unique proprietary framework, Personal Financial Lifecycle Management (PFLM)TM, which helps clients achieve their nancial goals. ArthaYantra's vision is to provide independent, high quality, customized nancial planning solutions and their efcient execution to individuals. It employs proprietary nancial models and enable investments through well balanced passive investment strategies. ArthaYantra's clientele includes individuals from India, US, Europe and Middle East.

Our Mission
To positively impact the future of our customers & their families.
For more information on this report please contact ArthaYantra Corporation Pvt. Ltd. visit us online: www.arthayantra.com or Write to : contactus@arthayantra.com Website: www.arthayantra.com : h p://twi er.com/arthayantra : h p://www.facebook.com/arthayantra :h p://www.linkedin.com/company/arthayantra

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ArthaYantra
A CFO FOR EVERYONE

Plot #319, Second Floor, Ayyappa Society, Madhapur, Hyderabad - 500081, AP, India. Phone : +91- 040-66245874, Fax : +91-040-66245. www.arthayantra.com, contactus@arthayantra.com