Is It The Right Time to Buy Homes?
Deo Shankar Tripathi, MD & CEO, Aadhar Housing Finance Ltd.
Housing within the real estate sector has been preferred investment by citizen. Demand for homes continue to be robust due to rapid urbanization, nuclear families, rise in disposable income and existing huge shortage of dwelling units. Home market which was in slow growth during first 7/8 months of 19-20, had started showing improvement after host of measures announced by government to stimulate demand even before the Covid-19 pandemic outbreak. These incentives were tax benefit up to Rs 3.50 lakh on the interest component on home loan, reduction of GST on under construction properties, in addition to subsidy under PMAY scheme. Swamih Fund of 25000 cr was created to provide last mile funding to stalled residential projects for revival. However, the Covid-19 outbreak and the subsequent disruption in economy due to lock down and shifting of priorities to health care, significantly impacted all sectors including residential and commercial real estate. Buyer’s sentiment have taken a hit and developers are struggling with excess inventory and liquidity.
Along with the incentives offered by the government, the Reserve Bank of India announced various liquidity measures and slashed the repo rate by 115 basis points since March to ease the severe impact of pandemic on economy. The Reduction in the repo rate has a deep impact on home loan interest rates as most of the banks home loans are linked with REPO rate. The model is known as the Repo Rate Linked Lending Rate. Under the system, the benefits of the reduction in the repo rate are passed on to borrowers through lower home loan interest rates, which are lowest at present. Lower interest rate coupled with various government incentives, recent stamp duty reduction announced by many state governments and sops offered by developers etc are favorable indicators for home loan market. Gradually demand for home buying is returning to normalcy with unlocking of economy.
Which cities are the favourable destinations for housing purchase?
The outbreak of Covid-19 has affected the housing market across the country. As per a recent survey, the pandemic has had a major impact on buying intent across metro and tier one cities. Though Covid-19 has hit the entire economy, the impact on the housing market has not been uniform. Large markets like Mumbai and the National Capital Region have borne the maximum brunt of the outbreak. These markets were already suffering from subdued buyer demand and excess inventory. The negative impact of the pandemic has been less severe for some markets in western and southern India like Bengaluru, Hyderabad and Pune. The housing markets in Bengaluru, Hyderabad, and Pune have been among the best performing in the country in the last six months. The dominance of end-users has protected the housing markets in Pune, Nagpur, Coimbatore, Bengaluru, Hyderabad, Lucknow, Ahmedabad, Rajkot, Jaipur, and many tier 2& 3 locations. Demand for affordable housing across all locations is fast returning to pre covid level. However investor-driven markets and luxury housing market witnessed minimal buying activity.
From an investment perspective, which segments of real estate can offer return & appreciation?
Covid-19 has transformed the real estate sector in unimaginable ways. Before the pandemic stuck, office and commercial space was one of the most sought after real estate segments due to favorable rental. Additionally, the demographic constitution of the country ensured that the demand for rental homes remained steady. The outbreak of the pandemic brought paradigm shift to work from home which has become new normal. This resulted in homes being used as offices. Many of the job profiles are likely to permanently shift to a work-from-home model. It is expected to affect demand for office space and simultaneously boost demand for housing units. People living in rental units are likely to seek security in home ownership during the prevailing phase of pandemic fear and financial security. The demand for homes in suburban areas and small towns are likely to get a boost as social distancing becomes the norm. Peripheral area of big cities and towns at commutable distance from cities like Delhi, Mumbai, and Chennai etc may witness increased demand. In the retail segment, the demand is likely to move towards common, open-to-air spaces from commercial shops in malls. Housing units in suburban towns and freehold retail spaces are expected to offer better returns when compared to other segments. However demand for commercial space will return in course of time with economic growth in near future.
What are some things to keep in mind before considering a home purchase?
Buying a house is an important decision in life. For most people, owning a house is a critical life goal. One should, however, be careful while investing in a residential unit. Here are some things to keep in mind while purchasing your home.
Repo rate: The central bank has slashed the repo rate on multiple occasions. It has resulted in a reduction in home loan interest rates, Buyers should keep an eye in the interest rate being offered to them.
Pricing: Along with the interest rate, homebuyers should consider the incentives being provided by the developers. In a slowing market, developers are offering a host of incentives and promotions to attract buyers. Many projects have also witnessed a reduction in unit prices. While considering a project, buyers should look for value-for-money rather than absolute prices.
Conduct thorough research: A slew of reforms in the past few years have weeded out a number of unscrupulous players from the real estate market. However, buyers should not forget to check the developer’s background and the RERA website before zeroing in on a project.
Tax payment status: Before buying a house, an individual should check the tax payment status and ensure that the seller has cleared all the taxes due to various authorities.