Owning a home is indeed a decision of a lifetime for any person. An emotional and financial security, owning a home also elevates your social standing. No doubt, buying a house is an investment that many make only once in a lifetime, therefore there are some considerations that have to be kept in mind. The foremost being- is it the right time to buy property?
Year 2022 had come as bright spot in an otherwise negative scenario of past two years. People stranded in their homes realized how important a home is as a shelter. The government too incentivized people to invest in property through various subsidies, the real estate sector and home financing companies followed suit.
The enticing times of 2021-2022 saw the lowest home loan interest rates in recent times, registration fee waivers, stamp duty cuts and stabilized property rates combined with developers offering best of the deals to sell their inventories.
For those who missed the boat in 2021, taking advantage of the lowest home loan interest rates, government sops and attractive developer’s payment plans, this year could be the last chance to buy property at reasonable rates.
A GOOD TIME TO BUY PROPERTY?
The year 2023 is crucial for those who want buy their first home or upgrade to a bigger home. The developers are still absorbing the cost hike to keep the properties affordable, many new projects have been launched that gives more variety and competitive price choices to the buyers and most importantly, the home loan interest rates though higher than last year are still within the tolerable limits for most homebuyers.
But good times usually don’t last long. There are no more sops available from the state authorities, property prices are steadily climbing given the surge in overall cost of construction, which will continue to rise due to uncertain global supply chain and impact of inflation on construction materials and labour. Home loan interest rates too are bound to go up as RBI is expected to increase the repo rate in a bid to control inflation.
So, this year offers the best opportunity to make good of the property prices before they get dearer and also utilize the competitive interest rates being offered by many banks and NBFCs this year, until the market dynamics change further.
Another reason to take the plunge, is the increasing volatility in the equity markets for the reasons of geo-political influences as well as domestic factors. Against these odds, residential real estate gives a stable investment option with a long term appreciation horizon.
HOW CAN BUDGET HELP
The wish list for all of us this year is that of diminishing of inflation and getting tax rebates in the budget. But if only wishes were horses!
If the budget eases the criteria for eligibility for home loans and for the down payment, it can be one of the big boosters, as it will make easier for home buyers to secure loans.
To counter the negative impact of increasing home loan interest rates that is making affordability a major concern for potential homebuyers, hiking the tax rebate on housing loan interest will help reduce the home loan burden.
Also, with the growing rise in prices, the same unit of housing has become costlier. This demands a change in affordable housing definition, so that the affordable homebuyers can avail the benefits. There is also a need to revise the definition of Metro cities for the calculation of House Rent Allowance (HRA).
A long standing demand has been the GST relief on under-construction and low cost housing projects, that will help make the housing cheaper for affordable housing buyers. To reduce this burden government can consider restoring Input Tax Credit (ITC), capping GST at 1% for under-construction projects and reducing raw material costs in the upcoming budget.
FACT CHECK BEFOREBUYING PROPERTY
- Figure Out your Budget & Affordability – The first step towards buying a house is to know your budget. And the budget will depend on the monthly outgo that you can afford. Remember, a home loan is a long-term commitment of 20-25 or more years. Consider its impact on your finances over the long term and the percentage of the salary that can be accounted for your home loan EMI. A general rule to follow is to keep home loan EMI not more than 35% to 40% of your income, so as to have enough breathing space to meet other financial obligations. Ideally, all your loan EMIs including home, auto and other types of loans should not exceed 40% of your income.
- Know your CIBIL Score & Loan Eligibility – A good CIBIL Score simply means swifter loan approval, more favourable interest rates, and modest eligibility and loan terms. CIBIL score is essentially a credit score offered by the Credit Bureau TransUnion that keeps a credit record of every Indian citizen. In India, the CIBIL score carries immense weightage for most of the financial institutions. It is a 3-digit figure ranging between 300 and 900 as per an individual’s repayment history and credit handling tendencies. The best CIBIL Score for a home loan is 750 or more. Banks, and non-banking financial institutions (NBFCs) assess a loan applicant's creditworthiness and ability to repay the loan. One can usually get a home loan that is 60 times the salary. But a high CIBIL score can instantly help you enhance your home loan eligibility.
- Shop for the Right Property – Once you have the basic financial preparation ready, look around for the best available property as per your budget and loan eligibility. Choose a home based on location and amenities that you would need as per your lifestyle. In case, buying a home as an investment, check the real estate forecast for the next 5 years and make sure you are not buying a property beyond your budget with an intention to sell it in a few years and repay loan as well as make profits. The markets are unpredictable. Also check, if the builder and the project has banks approval. This means that the financial institution has also done their due diligence on the property and the developer.
- Be Legally Safe – Don’t forget, before finalizing any deal, it is important to check all the permissions and sanctions on the project. Make sure the project is registered under RERA and the developer has a clear track record. The land/house/project title should be clear and free of encumbrances. The project master plans are approved by competent local bodies and government authorities. Also, get an estimate on the total cost of ownership, including brokerage, parking charges, stamp duty, registration charges, monthly maintenance charges, etc. A new trend is the home inspection by a qualified agency to be assured of the quality of the project structure and finishing. It is a good idea to get a legal expert to look at the documents to be certain of making the right investment. Experts also suggest taking a home loan Insurance Cover to cover the risk of an outstanding loan liability in case of unfortunate turn of events.
- Find the Best Home Finance – Various banks and NBFCs offer varied home loan rates and follow different eligibility conditions. Therefore, choosing the right lender and the most appropriate loan option is a strategic decision. Apart from comparing the maximum amount one can borrow, the rate of interest and maximum loan tenure availability, the lender with lowest rate might not always be a best choice. Check if the interest is fixed or floating, what is the processing fee and pre-payment charges, as that differs from one lender to another. You may also get a pre-approved home loan that will give a greater clarity regarding the purchase budget. Seeking professional advice is recommended.
- Plan the Loan & EMIs – Lastly, making more down payment will reduce the loan burden. All banks and lending institutions grant 80% of the property value as loan. However, more you pay as down payment, more you will be able to save each month as EMI. Another factor to consider is the fixed rate or floating interest rate. Fixed-rate loans are up to 0.75% to 2% higher than floating rate loans. But, fixed-rate loan remains constant for the rest of the term while, the floating rate loan could go up when rates rise. Also, bank that has selected the repo rate as its external benchmark is preferable because the repo rate is driven by the regulator and does not change frequently, while other benchmarks are market-driven. You also need to choose between a longer tenure that reduces the EMI and a shorter tenure with higher EMIs, as per your affordability.
ACCORDING TO INDUSTRY REPORT, RESIDENTIAL PRICES ARE EXPECTED TO INCREASE NEARLY 7.5 PER CENT ALL OVER INDIA (4-5 PER CENT IN MUMBAI AND DELHI, 5.5-6.5 PER CENT IN CHENNAI AND BENGALURU).
