Why Millennials prefer renting over buying a property?

1 Answer(s) | PG & Co-Living

RE: Millennials prefer renting to buying. Here is why

Having your own place to stay is the dream of every hard-working citizen. And accordingly, a large part of our savings were invested in the purchase of a real estate property. However, the real estate sector is seeing a big change in this trend for the past few years.

The newer generation of working-class people, or as we call them ‘the millennials’, are opting to break the centuries-old tradition of owning a place of their own. They are no longer willing to invest in real estate and are choosing to rent a home rather than buying one.

What does this shift indicate?

Millennials are generally the newer working force in the industry, i.e. the people who were born between the early 80s and 2000s. Now at the peak of their earning capacity, they are opting to rent a place of residence, rather than investing in one.

On a psychological level, this indicates that:

  • They are not ready to settle down at this age.
  • They are focused on their job and their career growth.
  • They prefer financial freedom.
  • They truly have the ‘live in the moment’ attitude and are ignorant towards their future.

While the millennials are satisfied with this shift, it has not gone down so well with the real estate as well as house financing companies. Several projects have gone down the drain because of this shift.

Why is this shift happening?

In a trend that has been going on for several years now, millennials are no longer looking at long-term goals and do not want to be bound by physical assets. Here are some of the major reasons why this trend is happening:

  • They prefer to stay within proximity to their workplace.
  • Convenience and momentary pleasures have taken precedence over long-term security.
  • Their unwillingness to stick to one geographical location.
  • The process of renting a home is much easier than owning one.
  • Renting is cheaper than owning a property.

Hence, private guestrooms and apartments available for rent located closer to office spaces are experiencing high demand in the current times. A recent survey indicated that the demand for rental apartments has increased to more than 4 million and will continue to grow in the foreseeable future.

EMIs vs. Rents

A millennial is more likely to spend his/her earning than to save or invest it. This means they will have a limited budget for their place of residence. Hence, they will be more likely to rent a place rather than purchase one.

But why is a millennial shying away from taking the help of financial tools such as loans to purchase a property?

Rent is in most cases lesser than the EMIs one has to pay for a property. But if the difference is negligible, EMIs would help in building a physical asset which would appreciate further over time. Sadly, that is not the case in a country like India.

The EMI to a rental ratio in major Indian cities is very high due to the high prices of properties. For a property worth INR 1 crore, the interest rate would be 7-9% for a tenure of 20 years. In such a case, the EMI would be 70,000-90,000 per month, while the rent would only be around INR 30,000-40,000.

This price comparison clearly shows the reason why millennials are choosing the latter of the options when it comes to buying or renting a property.

Co-living spaces – the millennia’s choice

While the traditional real estate sector is still recovering from this shift, several startups have managed to capture a sizeable portion of the renting market by introducing the concept of co-living spaces in major Indian cities.

Co-living spaces are ready-to-move and fully furnished apartments filled with amenities such as Wi-Fi, laundry services, and gas along with basic amenities of water and electricity. With shorter and flexible lease terms, co-living spaces are the most convenient options for millennials.

Not only do these spaces help them save a substantial amount of money on basic amenities, but they can also save a substantial amount of time one would spend in finding a decent property.

Some of the famous startups that have tapped into the co-living market are:

  • Zolostays
  • CoLive
  • Stanza Living
  • CoHo
  • NestAway

Sensing a growth in this space, investors are lining up to take a share of these companies. Co-living spaces are known to give almost 2.5-3 times the return on money invested as compared to the traditional rental places, which only give a return of 2-4% of an investor’s money.

Conclusion

While the millennials are making a well-informed decision by choosing to rent rather than purchase one, they are neglecting the possibility of a secure future this way. It will take a few more decades before we can see the result of this trend. Rent away till then!

 

 

Answered on July 16, 2020.
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