New Delhi, 25th April 2012: Rapid urbanization, sound economy and improved infrastructure, make cities a favorite dwelling option. With the recovering market and new projects in store, the inhabitants here end up in utter confusion on whether to stay on rent or to use the rental amount as EMI to buy a home. At times he feels staying on rent is far economical but at times he is drawn by the sentiments of owning a home. The high property prices, increasing home loan rate, and innumerable projects puts him in deep contemplation. 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 a great scope for error. To help out such property seekers Makaan.com launched Makaan.com Buy Vs Rent Index (MBRI), a tool that aims to help property seekers make informed choice between buying and renting of property in top Indian cities / sub-cities home.
The latest Makaan.com Buy Vs Rent Index (MBRI) for the period January to March 2012 recommends Delhiietes to start exploring property options in Faridabad and Noida rather than staying on rental. For better analysis, Delhi NCR is divided into 10 sub-cities and index is calculated for each sub-city to enable seekers make informed choice in their respective areas of interest. The index for the city of Delhi NCR has dropped down from 32 to 31 during Oct-Dec11 period to Jan-March 12, which keeps the overall city on the Rental scale. This shift in MBRI can be attributed to slight softening of property prices in the recent past and / or stable or to slightly hard rental rates in the city. The softening in prices, however, is not sufficient to enable people to buy easily.
Overall a lower MBRI (less than 20) indicates a preference for Buying Vs Renting and a higher MBRI (higher than 25) indicates a preference for Renting Vs Buying.
The recommendations for Delhi NCR are given below
Buying destinations in Delhi NCR : Faridabad and Noida are the two buying destinations in Delhi NCR with their MBRI at 18 and 16 respectively. Property seekers looking at investing here are recommended to buy property here rather than staying on rent. The main reason for this recommendation has been slower pace of property prices appreciation compared to the rental appreciation in these areas.
Neutral destinations in Delhi NCR : Gurgaon and Ghaziabad are the two neutral destinations in Delhi NCR with their MBRI at 23 and 21 respectively. Property seekers looking at investing here can take the call based on their current financial condition. The reasons for this recommendation are different for the two areas. Whereas in the recent past Ghaziabad has seen a drop in property prices compared to rentals; Gurgaon has seen a rise on property price compared with rentals (taking the MBRI up).
Renting destinations in Delhi NCR : All areas in Delhi including Dwarka and Greater Noida are recommended for Renting. The MBRI for East, North, South, West Delhi , Dwarka and Greater Noida is 38, 37, 39, 34, 50 and 31 respectively. Property prices in all these areas are significantly higher compared to prevailing rentals in these markets making it difficult to buy property here.
Nationally, the MBRI for India is on 23 maintaining a neural status for the country as a whole. Key real estate markets in the rental range (MBRI > 25) are Mumbai (29), Delhi (31) and Ahmedabad (29). Cities in the neutral range (MBRI 21 25) are Pune and Chennai. Finally, cities recommended for Buying (MBRI < 20) are Bangalore (19) and Hyderabad (20)
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
· 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.coms 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.
MakaanIQ, is an initiative by real estate website Makaan.com, to provide information, intelligence and tools to help property seekers and real estate industry players take informed property decisions. MakaanIQ offers a host of services for the benefit of the home buyers including latest news on the Indian real estate sector and analysis of the property trends across major Indian cities. The Makaan.com Property Index (MPI) and Makaan.com Buy v/s Rent Index (MBRI) are two periodical indexes released by MakaanIQ that track capital and rental prices in various cities in India . These indexes are referenced by most Tier 1 media companies in the country.