Renting or buying: the arithmetic nobody does before signing

The usual framing is that rent is money down the drain while an EMI builds an asset. Both halves of that are incomplete, and the comparison people actually need is rarely the one they run.

What buying really costs each year

The EMI is the visible part. Underneath it:

• Interest. In the early years, most of the EMI. On a ₹60 lakh loan at 8.6% over twenty years, roughly ₹5 lakh of the first year's payments is interest — the part that genuinely does not build equity. The amortisation schedule makes the split visible year by year.
• Opportunity cost of the down payment. ₹20 lakh invested at 10% would have earned ₹2 lakh in year one. That is a real cost of owning, and the one most often left out.
• Maintenance and society charges. Budget 0.5% to 1% of property value a year, plus society fees.
• Property tax and insurance.
• Transaction costs, amortised. Stamp duty, registration and brokerage come to 7% to 9% on purchase and 1% to 2% on sale. Spread over a five-year holding, that is nearly 2% a year. Over twenty years, under 0.5%.

What renting really costs

The rent, rising at 5% to 8% a year, and the loss of security of tenure. Against that, the down payment stays invested, and the difference between rent and the full cost of owning can be invested too.

If you are renting, the HRA exemption is a genuine offset under the old regime — frequently ₹2 lakh to ₹3 lakh of exempt income a year in a metro, which is money a buyer does not get.

The ratio that gives a quick answer

Annual rent divided by property price. In most Indian cities this sits between 2% and 3.5% — a flat worth ₹1 crore renting for ₹2.5 lakh a year is a 2.5% yield.

When the yield is well below the home loan rate, as it is almost everywhere in urban India, buying is expensive relative to renting on a pure cash basis. The case for buying has to rest on something else: security, the discipline of forced saving, or an expectation of appreciation.

Appreciation is the assumption to be careful with

The arithmetic is dominated by what you assume prices do. Over a long period, Indian residential property has broadly tracked inflation, with sharp local exceptions in both directions. Between 2013 and 2019 much of the market was flat in nominal terms, which means it fell in real terms.

Run the comparison at 4% appreciation, not 10%. If buying only works at 10%, the plan depends on a forecast rather than on arithmetic.

The question that usually settles it

How long will you stay? Transaction costs of 8% to 10% round-trip need time to amortise.

• Under five years — renting wins almost always. The costs alone consume any likely gain.
• Five to ten years — it depends on the rental yield, the loan rate and appreciation. Worth running properly.
• Over ten years — buying usually wins, mostly because the loan is repaid with increasingly inflated rupees while rent compounds.

The things arithmetic does not capture

Security of tenure, with children in a school you do not want to move them from. Freedom to renovate. Not negotiating with a landlord every eleven months. Against those: mobility, no exposure to a single illiquid asset in a single city, and not being locked into a job market because of a mortgage.

These are real and personal. The point of doing the arithmetic is not to override them — it is to know what they are costing, so the choice is made deliberately.

If you do buy

Keep the EMI under about 35% of net income rather than the 50% a lender will allow. Keep the emergency fund intact — do not empty it into the down payment. And check the eligibility figure against affordability: they are different numbers, and only one of them has to live with the consequences.