Rent Vs Buy: How India's Soaring Rents Are Shaping Housing Decisions In 2024

As property prices surge across India's major cities, renters are facing an increasingly difficult decision—whether to buy or continue renting. The rapid rise in residential rents, as highlighted in the report Residential Rents on the Rise: A Report on Rental Property in India, 2024 conducted by Housing Research (a division of Housing.com), has reshaped the housing market, especially the urban centres like Mumbai, Bengaluru, and Gurugram. The report has gathered over 10,000 respondents from different cities and has analysed in detail how these trends are changing the landscape of homeownership and rental decisions.

Rising Rents: A Growing Concern

India's residential rental market has witnessed unprecedented hikes; average rents have gone up by as much as 30 per cent in key metros compared to pre-pandemic levels. Cities like Gurugram and Bengaluru have seen double-digit rent hikes since 2021, with no signs of slowing down anytime soon. For many, that has led to a shift in thinking: Is it still worth buying a home or is renting the better and more financially viable option?

City-level rent-to-income ratio has become unsustainable in places such as Mumbai and Delhi NCR, reaching median monthly rents of Rs. 1,00,000 and above for premium locations. Rental increases have overwhelmed wage growth so the middle class is questioning whether renting is a better option than buying or vice versa, given increasing housing costs.

The Rent vs. Buy Dilemma

The decision to buy a home in India has long been based on a balance between investment potential and emotional factors. However, with mortgage rates shooting up sharply over the past year and property prices still rising, many potential buyers are now more than just hesitant. According to the report, more and more homebuyers are now seeking rental properties as a short-term solution, especially in Gurugram, Pune, and Noida, where prices have increased by 20 per cent or more in the last three years.

The other key factor in this decision is the price-to-rent ratio, which is the cost of owning compared to renting a property. In cities like Mumbai, according to the report, the ratio has been pushed up to a point where renting has become more financially sensible than buying. With property prices far higher than rental yields, renters prefer flexibility, considering the uncertainty of real estate markets post-pandemic.

Financial Gains from Renting

For many, the immediate monetary relief offered by renting is something of a godsend. Since they do not have to worry about the down payment and the EMIs on a home loan, tenants are free to pool their resources toward other investment avenues such as mutual funds or stocks. The fluidity in shifting locations that renting affords is also an advantage for professionals who may have to shift places often for work.

Moreover, renting allows the freedom to avoid the long-term commitment of owning property in cities where prices are getting too high. With rents still below the cost of homeownership, the trend of renting remains sense for many in India's urban centres, especially in cases where housing markets tend to be overheating.

Changing Trends for Homebuyers

However, the growing trend of renting does not signal the end of homeownership. According to the report, the reason why millennials and Gen Z prefer more significant rental homes is the growth in hybrid work arrangements. There is a rise in the rental of larger houses to serve both personal and professional purposes in cities such as Bengaluru and Hyderabad. Even with these new changes, the desire to have a house remains strong for most, encouraged by cultural factors and long-term financial benefits through property appreciation.

Future of Renting and Buying

The demand for rental properties in India is likely to increase in the future and the growth of rental property sales is only going to expand with further limited housing supply in metros. The same report said that increasing rental house demand would make the current owners review the pricing. Further, property prices are expected to remain stable over the next several years so purchasing will remain a more long-run friendly investment for house buyers.

As the dynamics of renting versus buying continue to change, it is evident that soaring rents in 2024 are going to make renters a bit more choosy and wary when it comes to choosing a house. For most people, the increase in the rent might just be enough of a push for rentals to become the preferred option in Indian cities, at least for the short to medium term.