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High Rents Affecting Renters Finances

October 5, 2015 2 Comments

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There was a time in the real estate market when there were people renting houses and apartments because renting was economic, it was cheaper than owning a home. Having to pay a fixed money at the start of the month and then they are good to use the rest of their income the way they want to. Rather than buying a house, people preferred renting out wherever they lived.

High Rents Affecting Renters Finances

While renting, most of the expenses are taken care of by the landlord, you just had to be regular with your rent and electricity bills that were it. It seems the good days of low rent have to come to end. This great scenario has met its tragic end. These days renting a house has become so costly that there is a very thin, almost no economic difference between buying a house and renting one.

The rental rates are touching the skies. The rate has gone so high that renting a house is almost non affordable at certain places. This trend is felt across the globe, in major cities. In the Indian city of Bangalore, known as Silicon Valley of India, where traditionally people preferred renting.

The renters have to cut back on everything just to pay the rent on time. They have to give up on many things just so they could have enough money to pay their dues.

As per Zillow, people, when facing a high rent, usually cut back on discretionary and health care spending. While prevention is better than cure, people usually finding themselves short of money for preventative care.

Yearly health checkups are the first victims of high rent, decisions to buy electronics and cars are also getting postponed. While renting is, in fact, the first step towards buying a home, where renters save money to pay the mortgage down payment. With high rent, a renter is not able to save enough to buy the house.

  • Why have the rents gone up

Day in and day out there are people from different places that come and settle down in India. This has caused greater demand for houses. Now that the people are living, they will also need facilities like electricity, water, etc. this has caused the rise too.

In cities like Hyderabad, Mumbai, Meerut there are a lot of students and professors too, along with many others that come and settle down. There are many big companies that hire many employees, these employees come and stay in rented accommodations.

These people are ready to spend as many amounts of money as possible and this the rental rates are skyrocketing these days.

  • The rent:

There is a huge hike in the rate of rent. Be it 1, 2, 3 BHK or independent houses or bungalows people are ready to pay whatever amount is told to them by the landlord.

The tenants are ready to pay as much as Rs 15,000 per month for a 2 BHK apartment and Rs 40,000 for the independent houses. There are some places that don’t have these high rents but these properties too are expected to face a hike in the next few years due to better connectivity with the other cities.

The rent depends on the locality, facilities and area of the house but other houses that don’t have any of these things also have a very high rent.

  • Impact on the renters:

A renter has to give up on his savings first and then comes the income. After almost all the savings are gone the renter has to give about 30% or more of his savings just for rent.

People with high incomes are stressed, as they are having a tough time dealing with the constant increase in the rent. People with medium and low-income are stressed as they are unable to pay the rent even for three months. A person’s income is more than 30% gone in the rent which leaves him very little money for his other needs.

Renting is usually said to be the first step of buying a house, but with such high rents there is no room for savings at all for the down payment. This has led to no savings and thus the renter’s dream of owning a house seems to be nowhere near the reality.

This will eventually make the renters unable to pay the mortgages and if theses rate goes on increasing and the income growth fails to keep up, the already unaffordable rents are going to be difficult to pay.

There are also many cases where the renter has to use the emergency money to pay the rent, for a lack of sufficient income. Now, as a reader of this blog you know one the founding principles of personal finance is to build an emergency fund and maintain it throughout your life.

Another area that sees a cut due to high rent is retirement saving. People usually cut back on the retirement saving contribution to keep up with monthly spending. This eventually puts off individual’s retirement. $100 extra every month in retirement saving account would become more than $100,000 in 20 years. So, by paying $100 more every month you are losing a whopping $100,000 from your retirement account.

Before I stop, let me remind you, I wrote about techniques to negotiate lower rents, which was based on my 9 years renting experience, before becoming a homeowner.

Readers, if you are renting, what is your experience? Is renting price, in your area gone up? How are you coping with this high rate?

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Comments

  1. [email protected] says

    October 5, 2015 at 6:39 PM

    Our rent is insane! I hate having to pay so much, but I guess that’s what we get for where we live. Rents are really high right now though and I do think that makes home ownership look more attractive to people.

    Reply
  2. Saiproperties says

    January 12, 2017 at 3:53 AM

    good article! we would like to give some details about a famous real estate consultants in South Bangalore namely Saiproperties.

    Reply

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