India is the 2nd most populous country in the world with nearly 1.35 billion people scattered across the cities, towns and the rural areas of the Country, and due to the abundant job opportunities, people from all over the country move to the cities. The cost of living in urban India is quite high when compared to its rural counterparts. An urban dweller must know how to choose the right place that is accessible and affordable. Even if you find a place in which the rent is affordable you would have to look at the distance it is from your workplace. It is not plausible to rent a home that is 30-40 km away from your place of work. So, what is the ideal rent that you should be paying?
Don’t pay more than 30% of your monthly income
Considering the economic aspect of the upper-middle-class society in India the most common evaluation by experts is that the ideal rent in the urban areas of India is not more than 30% of your income. Consider a scenario where your monthly income is ₹50,000 then 30 % of ₹50,000 would be ₹15,000. Your ideal monthly rent including the maintenance and other miscellaneous charges should not be more than ₹15,000.
Let us talk about the rent situation in Chennai specifically, Mr. Ashok an IT employee who lives in Perumbakkam says, “I chose Perumbakkam because of its proximity to OMR. I came from Madurai nearly 7 years back for work, now I’m married and live with my wife in a 1 BHK. Monthly rent comes up to ₹8000 including maintenance, water, and electricity. At present, I’m able to afford the rent considering my salary and expenses but in the near future when our child comes along I might have to move to a bigger place and it makes me wonder if I would be able to afford that much for rent”. When asked what would be his plan to tackle the situation he says, “I’m planning to buy an affordable apartment in the same location. I would have to pay a little more than the rent I pay right now but I would have a secure investment in hand”, he concluded. This is the plight of most of the Chennai residents. Either the place they can afford is far away from their place of work or the place close to their place of work is not affordable.
Let us compare: Rent vs EMI in Chennai
Porur is located in the south-west of Chennai and it is the fastest growing suburb in the city. The IT SEZ in Porur has drawn people and made it a fine spot for residential real estate. Currently, the rent for a 2BHK apartment in Porur ranges between ₹20,000-₹23,000 per month. Now, if you were to buy an apartment in Porur then the starting price is ₹50 lakhs. Consider your initial payment as 10 % of 50 lakhs i.e. 5 lakhs. The rest of the amount as EMI for 20 years comes up to ₹18,000 per month and for 15 years it comes up to ₹30,000 per month. If you are to buy in Porur it is likely to appreciate twice within a few years. The previous situation establishes that it is prudent to buy a house rather than renting. Even if the EMI is a bit higher than the rent that you pay, the EMI is an investment and the rent isn’t.
Regardless, if you are renting in Chennai here are a few ideas that might help
- Always follow the 30% rule. Do not under any circumstances rent a place that is more than 30% of your monthly income.
- Ask yourself this question, ‘Where will I live in 10 years?’ If the answer is the same place you are residing at present then it is time for you to cut costs and save money to buy a home rather than renting.
- Do not compromise on the accessibility just to cut down a little bit on the rent. Prioritise your expenses accordingly and rent a space that is close to your work.
- To rent a house you need to pay a security deposit which is usually the 10 months of rent paid as an advance. This amount should also be taken into consideration when you are about to rent a house. If your rent is ₹20,000 then the security deposit might come up to ₹ 2,00,000.
- If you live with your family it is important for you to take your kids’ needs into consideration. You need to locate a space that is close to educational institutions and hospitals.
- You might get a good house that factors into account all of your needs but the rent seems a bit more than what you had calculated then you would have to cut down on your other expenses to make ends meet.
If you are a single person who is coming to the city for education or work, then renting is the best option for you; but, if you have been a Chennai resident for the past 5 years and is planning on settling in the city then it is time that you started focusing on buying rather than renting.