Big Story | Four reasons why it is a good time to buy a house now

A house property is considered one of the most valuable assets for an individual and the lifetime goal of many is owning one. The Covid-19 outbreak has, no doubt, made potential home buyers a bit jittery, with pay cuts and, in some cases, job losses as well.

But at the same time, the pandemic also presents an opportunity, with interest rates at multi-year lows, stable housing prices and sops for home buyers from the government to encourage them to take the plunge.

Many industry experts say work-from-home has also helped improve the demand for residential properties, particularly in semi-urban regions.

Here’s why you should act now on your desire for a home buy, if you have a stable occupation and steady cash flows.

Low borrowing rates

As house purchase involves large outflow of cash, one would usually opt for a housing loan. The rate of interest for home loan has been on a downward trend since the beginning of 2019, with a sharper fall since the outbreak of the pandemic. Even in its recent MPC (Monetary Policy Committee) meet, the Reserve Bank of India kept the repo rate unchanged (at 4 per cent), in a bid to encourage economic growth.

Low policy rates help borrowers, as the RBI has mandated banks to link retail loans, including home loans, to external benchmarks such as repo rate. Due to this, the transmission of rate change to the borrowers is quicker, coming in handy in a falling interest rate cycle that we have been in this year.

With a reset period of three months, most banks’ home loan rates have fallen from 8.05-12 per cent in January this year to 6.75-9 per cent in December. While the downside here is that transmission will happen in equal speed when repo rates move up in future, borrowers can take comfort from the fact that the rates prevalent now is the lowest in 3-4 years.

Borrowers should note that with home loan linked to repo rate, your final home loan rate will be at the RBI’s repo rate plus a spread or margin charged by the bank.

That is, a bank may have an RLLR (repo-linked lending rate) of 4 per cent, but the actual home loan rates could be higher because of the spread. There are other charges such as processing fees and legal fees as well.

There are essentially two types of interest rates — floating and fixed. Only a few banks offer interest rates under the fixed option. Further, banks normally charge a high premium for such type of loans.

Under the floating interest rate option, the rates vary based on market movements. Therefore, weigh the costs across lenders and select a home loan based on the rates as well as your repayment ability.

Ample inventories

When you decide to purchase a property, completed properties are a better choice as these help avert risks that come with under-construction projects. Though completed properties are more expensive than under-construction ones, given the current market conditions, the former is a safer bet.

And, as luck would have it, there is huge availability of completed unsold inventories in the market across major cities. According to a report by ICICI Securities, there are about 9.33 lakh units that remain unsold, led by the Mumbai market with 2.89 lakh units unsold, followed by Delhi (NCR) with 1.69 lakh unsold units as of September 2020.

In southern regions, the unsold inventories available are comparatively low. For instance, Bengaluru market has about 95,600 units and Chennai has about 42,400 units remaining to be sold.

The good news is that most of the inventories are concentrated in the affordable housing segment (₹45 lakh and lower) and the mid-income housing segment (usually above ₹45 lakh and less than ₹1 crore).

For instance, in the Mumbai Metropolitan Region (MMR), nearly 32 per cent of the inventory unsold is in the affordable housing category, while for Pune, 49 per cent of the inventories are in the same category as of September 2020, according to a report by ANAROCK, a property consultant.

Bengaluru, on the other hand, has 39 per cent of its unsold units in the mid-income segment and 23 per cent in affordable housing. And most large organised players have inventory spread across many areas in the respective cities in which they operate.

Factors including basic amenities, transport and infrastructure facilities are better around completed properties, which is an added advantage.

Further, some of the developers offer discounts and other deals such as free car park to off-load their completed inventories.

When you go in for new property, make sure they are RERA-registered.

Stable housing prices

With high levels of unsold units across the country and slowdown in demand, the property prices have been more or less stagnant. As per NHB RESIDEX data, the Housing Price Indices (a representation of price changes in residential housing properties across 50 cities), has been at 110-111 levels since September 2019 until March 2020.

Beyond March 2020, as the lockdown and control measures continued between April and July, the property prices in some cities witnessed further decline. For instance, according to ICICI Securities, MMR, a region with huge inventories, witnessed a price decline of about 3.2 per cent y-o-y in Q2FY20 to ₹12,057 per sq ft. Similarly, the Kolkata market, too, witnessed a price decline of 2.9 per cent. According to Siva Krishnan, Head, Residential Services, JLL India, the property prices are likely to remain in the current range until the inventory levels are brought down by the developers; the sales velocity that is being witnessed now is likely to sustain as well. The residential market could see a price increase in the next few months with the current sales momentum.

That said, the price decline is not uniform across cities. While the prices in the Chennai remained stagnant since January this year, property prices in Coimbatore corrected to about 3.3 per cent during the same period. The disparity in prices could be attributed to various factors such as land value, infrastructure and other amenities, according to Krishnan.

Sops for home buyers

Residential real estate, in particular, had already been reeling under pressure from tight liquidity, delay in project deliveries and slowdown in new launches when Covid-19 struck. To bring back home buyers into the market, the Centre has announced various measures — since this year’s Budget in February — to boost the demand in residential real estate.

One, the Centre continues its push on its affordable housing scheme. For individuals, the existing deductions (under Section 80EEA of the Income Tax Act) of ₹1.5 lakh on interest available for housing loans sanctioned during April 1, 2019, to March 31, 2020, was extended up to March 31, 2021. The deduction continues to apply for first-time home buyers purchasing affordable house property (valued up to ₹45 lakh). This deduction continues to be available over and above the ₹2-lakh deduction for interest on housing loan under Section 24.

Two, some of States have reduced the stamp duty rates to encourage property purchase. For instance, Maharashtra has reduced the stamp duty rate from 5 per cent to 2 per cent from September 1 to December 31, 2020. It has kept the stamp duty rates at 3 per cent from January to March 2021.

Three, the Centre announced the extension for claiming loan under the affordable housing Credit Linked Subsidy Scheme (CLSS) till March 2021. Through this scheme, the government provides direct subsidy on home loans taken by buyers of affordable houses, with incomes below specific thresholds.

And lastly, the Centre has relaxed the tax on the differential between the circle rate and the agreement value of a property. The Centre has increased the differential between the agreement value and the circle rate — to sidestep the taxes under the I-T Act — from 10 per cent to 20 per cent. That is, if a property is registered below the circle rate fixed by the respective State government, earlier, a difference of more than 10 per cent was taxable in the hands of both the developer who sells the property at below the circle rate and the buyer who purchases it. Now, only a difference of over 20 per cent will be taxed. This eases the tax burden. This concession is applicable for the primary sale of residential units with a value of up to ₹2 crore from November 12, 2020 to June 30, 2021.

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