We are a 33-year-old working couple and want to know whether it would be wise to buy a house with the help of a home loan or continue to live in a rented accommodation in Delhi. We have sufficient saving for the down payment and have also bought a residential plot but it is situated outside the city.
Leaving the plot aside, just focus on choosing between buying a house or living on rent. Continuing to live on rent may not be a bad idea as rental yields today are very low. Let me explain the meaning of rental yields. If you plan to buy a house worth Rs 1 crore but the same house is available on rent at say Rs 40,000 per month. Assuming Rs 40,000 on a house of Rs 1 crore, which you intend to buy right now, the annual rental outflow will come out to be Rs 4.8 lakh. This Rs 4.8 lakh on Rs 1 crore is 4.8 per cent, which is a very high rental yield. Typically, in Delhi, rental yields are not more than 2-3 per cent of the capital value.
Both these decisions - living on rent or buying your own house - have their advantages and disadvantages. The key disadvantage of living on rent is that you cannot derive that emotional comfort which comes from owning a house. Besides, landlords may throw you out often. So, you have to keep moving every couple of years. But if you have a good landlord, the desired stability and you are able to provide inflation-adjusted income to the landlord, then it is fine. Lastly, the annual cash outflow may look risky. But it's not provided you are careful about what otherwise you will do with your money. So, these are three negatives.
The positive is that our needs change and at different stages of life, we have different requirements. So, one can be extremely flexible and don't get stuck and be hostage to the house that you own. Also, I come across a lot of people whose career choices sometimes get influenced by the location of the house they own. Of course, a child's education, school and many other things play an important role. So, owning a house becomes a drag which reduces the owners' flexibility. Then, comes the flexibility of requirement. In early stages, you may have your children and parents with you but in later stages, children may leave and you will be a fairly minimal thing. So, these needs change and maybe at a later stage, you should have a house. But the earliest stages are quite dramatic -sometimes you might need a four-bedroom house or just need a two-bedroom house.
But if you decide to buy this house, then consider two things. First, make sure that you are not stretching more than a third of your income towards the repayment of your loan. Second, make sure to live in the house to save on the rent. Another crucial aspect is that don't trust anyone and make sure to get the keys when you pay the money.