A Time to Buy

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6The bright signs are there of the economy’s revival. It is time for the home buyer to moderate expectations now as single-digit home loan rates are not coming back nor are property prices going to crash. Even a smaller home now can contribute substantially to a bigger one later whereas procrastination may not pay

There is some cause to cheer for home buyers at last. First is the increase in the tax deduction limit on interest on home loans from Rs1.5 lakh to Rs2 lakh and for principal amount from Rs1 lakh to Rs1.5 lakh. Second, the move by the Reserve Bank of India (RBI) to bring housing loans of up to Rs50 lakh under priority sector lending from up to Rs25 lakh. Third, home loan rates are expected to fall for new borrowers because the RBI has allowed banks to raise long-term funds through bonds for lending to affordable housing and infrastructure sectors.

Home loans up to Rs50 lakh for houses priced up to Rs65 lakh located in six metros of Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi and, Rs40 lakh for houses costing up to Rs50 lakh in other cities carry the affordable housing tag. Banks can raise long-term soft funds from the market to finance such loans. But builders are not eligible for the loans. The infrastructure tag for affordable housing will give a leg-up to the housing sector. It will lead to property prices falling in the long term as developers will be able to get cheaper funds for development of affordable housing. Banks and non-banking financial companies (NBFCs) have started laying the ground to ensure home loan borrowers rush to them and not their opponents when achche din actually set in for the real estate sector. The State Bank of India and HDFC Bank recently reduced their home loan rates for new borrowers, other banks are expected to follow suit.

With the festival season around the corner, this is likely to provide a boost to the realty sector. The National Housing Bank (NHB) is mulling over a proposal to raise the loan-to-value ratio for home loans to 90 per cent of the property value from 80 per cent at present for home loans exceeding Rs20 lakh.

•Home loan rates are expected to fall for new borrowers because the RBI has allowed banks to raise long-term funds through bonds for lending to affordable housing and infrastructure sectors.
•The infrastructure tag for affordable housing will give a leg-up to the housing sector. It will lead to property prices falling in the long term as developers will be able to get cheaper funds for development of affordable housing

All these measures reflect a change in mood. The positivity that pervades the air after the change in regime in New Delhi is expected to percolate to the property market.

According to the National Housing Bank, urban India is facing a shortage of nearly 19 million houses. To add to the woes, people belonging to the middle income group cannot afford to buy houses available in the market. In fact, according to a study, a house in a non-metro city costs more than five years annual income.

As the rush for application forms for flats to be constructed by the Delhi Development Authority (DDA) shows, there is immense latent demand for houses. The consumers have been keeping away mainly because of two reasons. First is their distrust of private developers. The various rulings by the Supreme Court have confirmed their fears. Second is the cost of apartments on sale and the high home loan rates.

The property market is struck in a vicious circle where the buyers are waiting for the property and loan rates to come down and, the sellers are waiting for the buyers to blink.

Both sides need to accept the middle path. The real estate sector cannot be adamant that it will dictate the prices and buyers be damned. The buyers on the other hand must accept the ground reality and moderate their expectations.

Mid single-digit home loan rates are not coming back any time soon. The increase in cost of construction materials and labour wages mean property prices are also not going to crash as often predicted by doomsayers.

With economic growth showing signs of recovery in the first quarter of the current fiscal year, one can expect that the worst is over and things will only get better from here on.

Owning a house is a dream everyone nurtures. The buyers must cut coat according to the cloth and purchase a house that is within their budget instead

•The positivity that pervades the air after the change in regime in New Delhi is expected to percolate to the property market.
• According to a study, a house in a non-metro city costs more than five years’ annual income.
• The consumers have been keeping away mainly because of two reasons. First is their distrust of private developers. The various rulings by the Supreme Court have confirmed their fears. Second is the cost of apartments on sale and the high home loan rates
• The property market is struck in a vicious circle where the buyers are waiting for the property and loan rates to come down and, the sellers are waiting for the buyers to blink.
•Mid single-digit home loan rates are not coming back any time soon. The increase in cost of construction materials and labour wages mean property prices are also not going to crash as often predicted by doomsayers their dream home. The house is an asset you are creating.

Remember as the growth engine revs up and your city becomes a hotspot for IT, ITeS, BPOs, SEZs, industrial parks or FDI, property prices are bound to go up. You can always sell your smaller house to finance a bigger one but sitting tight may prove to be the wrong decision in the long run