The Mathematics of Indian Real Estate
Society tells you that "renting is throwing money away." But in India, the mathematical reality is far more complex. The decision to rent or buy boils down to two critical percentages: Rental Yields vs. Mortgage Rates.
In major Indian cities (Mumbai, Bangalore, Delhi NCR), the average rental yield is between 2% to 3%. This means you can live in a ₹1 Crore home by paying just ₹25,000 a month in rent. However, if you choose to buy that exact same home, a home loan will cost you around 8.5% to 9% in interest, resulting in an EMI upwards of ₹80,000.
Opportunity Cost (The Secret Variable)
The reason renting often wins mathematically in India is due to Opportunity Cost.
When you buy a house, your cash is locked into a down payment and heavy EMIs. When you rent, you have a massive cashflow surplus (the difference between what the EMI would have been and your actual rent). If you rigorously invest that surplus into an Equity Mutual Fund (which historically yields 10-12%), that liquid portfolio will frequently outgrow the value of the physical house over 20 years.
When SHOULD You Buy?
Despite the math often favoring renting, buying is the right choice under specific conditions:
- • Stability: You plan to live in the exact same city and the exact same neighborhood for at least 10 to 15 years.
- • Lack of Discipline: If you rent but spend your EMI savings on cars and vacations instead of investing it in Mutual Funds, renting will bankrupt your future. An EMI acts as forced savings.
- • Emotional ROI: You cannot put a price tag on the psychological peace of mind that comes with owning the roof over your family's head.