Planning to invest in property this financial year? Here are 5 things to keep in mind

Sumit and Sharmili, a Mumbai-based couple in their 30s are planning to buy a house before starting a family. However, before making the decision they need to get their finances in order.

Buying a home is perhaps the biggest financial decision of one’s life. However, since it involves a significant financial commitment, one needs to make an informed decision. Here are five things you need to keep in mind if you are planning to buy a house.

1. Prioritise Financial Clarity

Buying a house is an emotional decision, but it should be driven by financial clarity—not peer pressure.

This is more important, because property prices have remained high in the metros. Average housing prices across the top eight markets in India have seen a 10% Y-o-Y rise during the quarter ended on December 31, 2024, according to a report by CREDAI-Colliers-Liases Foras. In fact, India's average home prices are set to outpace consumer inflation this year according to a Reuters poll of housing experts.

“Buyers must consider their financial stability, including job security and income stability, debt-to-income ratios” says Kanika Gupta Shori, founder and COO, Square Yards, a real estate marketplace.

2.Affordability Vs Aspirations

Remember that buying a house is a long-term financial commitment and you need to be financially on a strong ground.

“Ensure the EMI does not exceed 30–35% of your monthly take-home income. Remember, home ownership is a comfort—not a financial burden. Don't just focus on EMI affordability. Factor in property tax, maintenance, registration costs, and GST implications that often add 15-20% beyond the listed price (for under-construction properties),” says Col Sanjeev Govila (retd), Certified Financial Planner, CEO, Hum Fauji Initiatives, a financial advisory firm. Also, factor in the cost of interior decorations which could be 10-25% of that of the house.

“It is financially wise to take 5X annual income as home cost limit; 20% down payment from own savings and EMI ≤ 30% of net monthly income,” says Govilla. Do not overstretch your budget, as it would lead to serious financial problems later.

3.Get Your Basics Right

Look for areas with upcoming infrastructure (metro, highways, schools, business zones) that can drive capital appreciation.

It is important that you choose RERA-registered properties and reputed builders. Ready-to-move-in or near-possession properties reduce uncertainty and rent duplication, even if they are priced higher.

Also Read: Real estate outlook: Should you rent or buy property in 2025?

“Don’t buy just for Section 80C or 24(b) tax breaks. They’re sweeteners, not reasons to overcommit – in fact, you may not be able to even avail them due to tax regime changes,” says Govilla.

4. Consider Interest Rates

Analyse how RBI's monetary policy could impact home loan rates in FY26. “With potential rate cuts on the horizon, timing your purchase strategically could save lakhs over the loan tenure,” says Govilla.

Lock into a reasonable fixed or floating rate. Longer tenures reduce EMI burden but increase total interest paid.

However, if you have your finances in place and have found a good property, it may not be a wise decision to wait for a further fall in interest rates. As we have seen, during the entire tenure you will have to grow through several interest rate cycles. However, the falling interest rate scenario can be a great time to buy a house.

5. Do Not Buy A House If…

Sometimes, it makes sense to postpone the decision to buy a house.

Individuals who may relocate frequently due to work, or younger professionals at the early stages of their careers may find renting more beneficial than buying. “Renting allows flexibility and avoids significant upfront financial commitments, providing an opportunity to build financial stability before committing to homeownership. Similarly, people with high existing debts or limited savings might prioritize clearing liabilities and strengthening their financial reserves before considering a substantial investment in property,” says Shori.

Also Read: Here’s a look at Income Tax changes impacting homebuyers from April 1

To sum up, if you plan to stay in the city for at least 7–10 years, buying makes sense. Else, rent and invest the difference.

If rent is less than 3% of the property cost annually, renting is often better. Price-to-rent ratio > 25 means the property may be overpriced.

Let us say that a property costs ₹1 crore and the annual rent is less than 3% of the property price (i.e., below ₹3 lakh). In this case, renting might be a better option. The price-to-rent ratio is calculated by dividing the property price by the annual rent. For example, if the rent is ₹ 2.5 lakh per year, the ratio would be 40 (1,00,00,000 divided by 2,50,000). Since a ratio over 25 suggests the property might be overpriced, renting in this case would be more cost-effective.

Also, a stable job, decent emergency corpus (at least 6 months’ expenses), and manageable existing EMIs are prerequisites if you want to buy a house.

Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics