Rent vs. buy: myth busting

continuing the myth busting on rent vs. buy ….

“Renting is for poor people.”
Of course renting is for poor people – very much true. But it’s for rich people, too. I know if I name some of the people who live in rented houses – with their designations some of you might torch me. The closest I can come to sharing the name is to call it the ‘Gandhi Topi’ trick and leave it to you to understand what it means. A few people who I know who have apartments costing upwards of Rs. 15 million have bought it from stunning equity market gains – to ‘redo’ their asset allocation in a bull market. So if there is a school of thought that ‘renting is for poor people’ I will let you live with that thought. Just add that there is one person who I know (net worth circa Rs. 1000 crores at least) who lives in a rented flat. High-income people, presumably with a dose of financial savvy, often rent nice houses instead of buying.

“I’ve made a fortune on my house in recent years. I cannot agree that houses return almost zero percent”

You’re referring to gross returns over a short time period (2002 to 2007 all assets went up) that combined low interest rates, high leveraging, an asset bubble build up, and  greedy lenders all over the world. Over the next 20 years I believe houses will return zero or slightly less after inflation and that stocks will return 7% – I can assure you that this is the most atrocious statement that I have made in a long time, and I hope you come back to me (in 2029) and say, hey it was only 5%. Can live with that!
2009 is likely to be different however – have seen offers at 50% of the ‘offer’ prices for bulk buyers!

“So you’re never going to buy a house?”

In this particular question I am on a sticky wicket. I hopefully will inherit a house from my father when I need it – an old age home in Pune. It is an excellent location, a great house, and will suit me in my ‘retired’ life. This could happen in say 15 years – but the longer I can put it off the more I’ll get out of the shares that i hold. If I have to buy one after some time, it will come from selling some shares rather than ‘borrowing’ and making money for the Hdfc shareholder. I’m going to try to rent for at least 15 more years. If my daughter needs a separate room, I’ll probably move into a bigger apartment. I’ll rent, most likely.

Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

4 Responses to “Rent vs. buy: myth busting”

  1. What you say about renting makes sense. Actually over the past 30 years I have been wondering how a company like Hdfc (main strength is being a Rule Maker)have a free run. Now that SBI may have taken away a few of its borrowers, Mr. Parekh is worried, and cribbing. He surely went after big psu companies while building hdfc bank, did he not? I think falling margins, money guzzling subsidiaries like hdfc standard life, falling property prices (chances of increasing NPAs) – are all bad news for the mortgage giant. The first few nails may have already been hit…

  2. Dr Mohammed Ali Khan on July 30th, 2009 at 4:27 am

    I once went to a property fair in chennai in 2007.. The Builder quoted a price.. I tried to Calculate the value of the house using rental returs as a guide.. The builder had the cheek to say that I should look for future appretiation and not use the rental earnings as a benchmark.. The property was 40 kms from chennai and the rent yield was abysmal there.. Then I read somewhere that in a bubble the earnings get disconnected to the price.. How true

  3. Dr Mohammed Ali Khan on July 30th, 2009 at 4:29 am

    Sorry for the typos.. I was texting from my mobile.. 😉

  4. “old age home in Pune”…please rethink on your decision…visit and stay in pune for couple of days and you will come to know…what city has to offer you…tremendous pollution…
    i know its everywhere but pune has set benchmark for other cities

Leave a Reply

This blog is kept spam free by WP-SpamFree.