Reporting verb ("said"): The reporting verb "said" is appropriate for conveying what someone stated.

Tense change ("decided" to "had decided"): The verb "decided" in the present changes to "had decided" in the past perfect tense when reported.

Correct structure: The phrase maintains the structure and meaning of the original statement while using "that" to introduce the reported speech.

Thus, the correct option is:
He said that he had decided not to purchase the house because it was near the railway track.

Incorrect options explained:

• Option 2 ("had decides"): Incorrect because "decides" should be in the past participle form "decided."
• Option 3 ("purchased"): Incorrect because "purchased" is the wrong form; it should be "purchase" as it follows "to."
• Option 4 ("told"): Incorrect because "told" should be followed by an object (e.g., "him" or "me") when reporting speech.