Renting vs buying a home in an Indian city: the numbers people skip

The usual version of this argument goes: "I'm paying ₹25,000 a month in rent anyway. For a bit more I could pay an EMI and own the place." It sounds reasonable, and it's the wrong comparison. Rent is a pure cost. An EMI is part cost, part savings. And buying comes with large costs that never show up in the monthly number at all.

I don't think there's a universal answer to rent versus buy. There's a set of numbers specific to your city, your flat and your plans. Here's how I'd lay them out.

Start with rental yield versus the loan rate

Rental yield is the annual rent a property earns divided by its price. Say a flat costs ₹1 crore and a similar one nearby rents for ₹25,000 a month. Annual rent is 25,000 × 12 = ₹3,00,000, so the gross yield is 3,00,000 ÷ 1,00,00,000 = 3%.

Now compare that with what borrowing costs. If a home loan is at 8.5% (an illustrative rate; check what lenders quote you), you're borrowing at 8.5% to own something that saves you 3% a year in rent. The other 5.5 percentage points, plus maintenance and property tax, have to come from the property's price going up. That's not impossible. It's just a bet on appreciation, and it should be made knowingly.

Residential yields in large Indian cities are often low compared with loan rates, which is why this framing usually makes renting look better than the EMI comparison does. Check the yield for the specific flats you're looking at: ask a broker for the rent on comparable units in the same building.

The upfront money, and how much of it is gone

On a ₹1 crore flat with a 20% down payment, the down payment is ₹20 lakh. That's yours; it becomes equity. But there's more cash needed on day one, and some of it doesn't come back.

Stamp duty and registration. Rates differ by state, and sometimes by city, property value and buyer category, with concessions for women buyers in some states. Say the combined rate in your state works out to 7%. On ₹1 crore that's ₹7 lakh, paid to the government and never recovered when you sell. The stamp duty calculator lets you plug in your state's rates; verify them on the state registration portal before you rely on the figure.

Interiors. A new flat usually arrives with bare walls. Wardrobes, a kitchen, lights, fans and curtains could easily be ₹6 lakh. Some of that adds to resale value, much of it doesn't, and all of it ages. I'd treat most of it as spent.

Add those up and the buyer needs 20 + 7 + 6 = ₹33 lakh in cash, of which ₹13 lakh is sunk. Then there's legal fees, loan processing charges, and brokerage if any.

The renter has upfront costs too: a security deposit, which in some cities runs to several months' rent, brokerage, and moving. The deposit comes back, mostly. These are real but much smaller than ₹13 lakh.

What the down payment could have earned

The ₹33 lakh doesn't vanish if you rent instead. It stays invested. That foregone return is a genuine cost of buying, and people skip it because it never shows up as a bill.

Pick a modest assumption, say 7% a year, roughly what a mix of debt and equity might reasonably be expected to earn over long periods. That's an illustration, not a forecast. On ₹33 lakh, 7% is ₹2,31,000 in the first year. If you'd rather think about what kind of investment that money would sit in, the guide on SIP vs FD covers the trade-off between the two most common choices.

Putting year one side by side

Take the ₹1 crore flat with an ₹80 lakh loan at 8.5% for 20 years. The home loan EMI calculator gives an EMI of about ₹69,426. In the first year, about ₹6,73,892 of the EMIs is interest and about ₹1,59,218 repays principal. The principal is savings, so I'd leave it out of the cost. Add society maintenance, say ₹4 per sq ft on 1,100 sq ft, which is 4 × 1,100 × 12 = ₹52,800 a year.

The buyer's unrecoverable cost is 9,57,692 − 3,00,000 = ₹6,57,692 higher in year one. For the two to come out even, the flat would need to appreciate by about 6.6% in that year, and that's before recovering any of the ₹13 lakh of stamp duty and interiors. Interest falls slowly each year and rent rises, so the gap narrows over time. That's why the next number matters so much.

How long you'll actually stay

The ₹13 lakh of sunk costs is paid once. If you sell after 3 years, that's 13,00,000 ÷ 3 = about ₹4,33,333 a year. If you stay 15 years, it's 13,00,000 ÷ 15 = about ₹86,667 a year. Selling also costs money, typically brokerage and some repair to make the place presentable, and that hits the short stay harder too.

So the stay period is the single most important input, and it's the one people are least honest about. A likely job change, a transfer, a partner's career in another city, a child's school a long commute away: any of these makes a long stay less certain. If you can't say with reasonable confidence that you'll live there for a decade or more, the numbers have to work very hard for buying to win.

Tax benefits, accurately

Home loan tax benefits are often quoted as a reason to buy. For a self-occupied home they're only available if you choose the old tax regime. Under it, interest on a self-occupied home loan is deductible up to ₹2 lakh a year, and principal repayment counts towards the 80C limit of ₹1.5 lakh. The new regime doesn't allow either for a self-occupied home.

In the example, first-year interest of ₹6,73,892 is far above the ₹2 lakh cap, so the deduction is ₹2 lakh. At a 30% slab plus 4% cess, that saves 2,00,000 × 30% × 1.04 = ₹62,400. Useful, but it only trims the ₹6,57,692 gap to about ₹5,95,292. And the principal deduction often adds little, because many salaried people already fill the 80C limit through EPF.

Whether the old regime makes sense for you depends on all your deductions, not just the home loan. The guide on old vs new tax regime covers that. This is one place where a CA's view of your full return is worth having before you count on the saving.

What the numbers don't capture

Not everything that matters is a rupee. Owning means no landlord asking you to leave at the end of an 11-month agreement, freedom to renovate, and a fixed place for children's schooling. Renting means you can move when work or family changes, and you aren't holding most of your net worth in one flat in one neighbourhood.

I'd do the numbers first, then decide how much the non-financial side is worth to you. If buying comes out slightly behind and stability matters a lot, buying can still be the right call. If it comes out far behind, that's worth hearing. And if you do buy, keep an emergency fund separate from the down payment; an EMI with no cash buffer is fragile. The emergency fund guide covers sizing.

Take a flat you're actually considering, find out its price and what a similar unit rents for, and run both through the rent vs buy calculator with three stay periods: 5, 10 and 15 years. If buying only wins at 15 and you're not sure you'll stay 10, you have your answer for now. If you go ahead, the guide on home loan prepayment is worth reading before the first EMI.