To buy or to rent?

PROPERTY INDEX

To buy or to rent?

Imagine a property seeker in Bangalore confused between opting for a rented accommodation or giving that rental amount as EMI for buying a house. In the absence of a robust and reliable tool, these decisions were traditionally taken with gut feel or with the guidance of a close relative / friend, leaving scope for error. The latest report from makaan.com recommends Bangaloreans to buy property rather than staying on rent. The recent makaan.com Buy vs Rent index (MBRI) for the period between January and March 2011 says: When it comes to Bangalore, the city is divided into five sub-cities and MBRI is calculated for each sub-city to enable seekers make informed choice in their respective areas of interest. Let’s look at some recommendations for buying Vs. renting property in Bangalore.

Buying destinations in Bangalore

Sub-cities of Bangalore East, Bangalore North, Bangalore South and Bangalore West are recommended for buying vs renting. Typically if the MBRI for a sub-city is between 1 and 20, it denotes that it is much less expensive to buy a home than to stay on rental in these sub-cities. Property seekers looking at investing are advised to buy property rather than staying on rentals.  Neutral destinations in Bangalore Typically if the sub-cities have an MBRI of 21-25 they fall under the neutral range. This denotes that it is relatively more expensive to buy a home than to stay on rent. The current MBRI release does not identify any sub-city in Bangalore where the MBRI is in this range.

Rental destinations in Bangalore

According to the report, Bangalore Central is recommended for renting vs buying. This sub-city has an MBRI value of 25+ indicating that it is much more expensive to buy a home than to stay on rent. Property seekers investing here are advised to stay on rent rather than buy the property. 

Shift in Bangalore trends over past quarter

If one compares the current report with the previous report (released for the period October – December 2010), the MBRI for sub-cities of Bangalore East, Bangalore North and Bangalore South has dropped by three MBRI points, each. This indicates that rentals in these sub-cities have risen more than the capital values, making these sub-cities relatively less attractive for rentals.

The report was released for seven Indian cities. The MBRI for Ahmedabad (19), Bangalore (18) and Chennai (17) shows an overall preference for buying vs rent.

MBRI for Pune (24) and Hyderabad (25) came out neutral territory and MBRI for Delhi NCR (28) and Mumbai (26) shows an overall preference for renting Vs. buying. 

The buy vs rent index is a quarterly initiative and is updated every three months.

MBRI is a numerical value, arrived at after taking into account several factors including average capital value of property, average rental value, rental yield, historical capital price movement, historical rental movement and inflation. A low MBRI indicates that it is much less expensive to buy a home than to stay on rental whereas a high MBRI denotes that it is much more expensive to buy a home than to stay on rental. MBRI has been collated both at city and sub-city level.

How to interpret MBRI?

MBRI of 1-20:

This denotes that it is much less expensive to buy a home than to stay on rental, in these cities / sub-cities. Property seekers looking at investing here are advised to buy a property than staying on rentals.

MBRI of 21-25:

This denotes that it is relatively more expensive to buy a home than to stay on rental, in these cities / sub-cities. This is a neutral range and property seekers looking at investing here are advised to take the final decision based on their financial situation.

MBRI of 25+:

This denotes that it is much more expensive to buy a home than to stay on rental, in these cities / sub-cities. Property seekers looking at investing here are advised to rent a property rather than buying. 

Selection of cities

Coverage - The MBRI covers Ahmedabad, Bangalore, Chennai, Delhi-NCR, Hyderabad, Mumbai, and Pune. Other cities may be added in subsequent issues. These cities account for over 80% of the Indian real estate market. Factors that have been taken into consideration while selecting the cities:

Population – The real estate sector is dependent on the demand of houses, which in turn is dependent on the population. Populous and ever growing urban agglomerates like Mumbai and NCR have an ever growing demand for housing.

Economic Importance – Cities which are hubs of certain industries have constant influx immigrants from across the country, which also creates a strong demand for housing – beyond the needs of the resident populations – e.g. Bangalore, Pune. Hence such cities have also been included.

Methodology

Coverage - Each city is divided in sub-cities (micro-markets) and micro-markets into localities. Prices of properties are obtained across micro-markets through listings on makaan.com as well as makaan.com’s nationwide sales force Database - The current Index comes from 32 micro-markets across the above cities. The Index is based on minimum database size of 20,000 data points every month.

New & resale properties - The MBRI database includes a good representation of new as well as resale properties. Most reports on the property sector today are based on new developments, whereas actually new properties are relatively small % of the real estate supply with resale being the majority of supply.

Index algorithm - The Index is calculated quarter-on-quarter for each of the above cities & sub-cities. It is a derived index using an advanced algorithm which factors in the average value of properties available for sale and rent.

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