Authored by Prateek Mittal Executive Director, Sushma Group
Buying a home or living on rent has always been a crucial choice for many. Each option comes with its own set of pros and cons depending majorly on the financial health of the homebuyer and the property units available. While the popular thought remains rental homes being the cost-effective choice when compared to purchasing a home, a rational individual must assess the whole process before settling on a rental agreement that comes with certain appreciation annually or half-yearly.
Tenants, who wanted to upgrade their living conditions before lockdown, can think of buying a property instead of shifting to another rented accommodation. This is an ideal time as home loans are currently in their best interest rate possible. RBI has cut the repo rate by 40 bps in the wake of the ongoing crisis; this directly affects the lending interest rates of banks. Repo rate currently stands at 4% as compared to 6.25% in 2018, and close to 5.75% in June 2019. SBI, the largest lender of India is providing home loans at just 6.95% interest rate. The fence-sitters who were planning to purchase a home can also utilize this opportunity. Developers with a track record of good quality deliveries will be the best bet in these times. Many of them are open to offering deferment payment plans only up to a definite period, looking at the current market condition.
In a recent consumer sentiment survey conducted by 99acres two out of every third homebuyer is now back in the real estate market. Out of them, 33% are well adjusted to the thought that it is a good time to buy a new house while 32% are in the finalization stage.77% of the home buyers expressed their purpose of purchase as end-use whereas only 23% are willing to purchase the property for investment purposes. Additionally, ready to move in property continues to be the maximum preferred choice as 64% of the homebuyers are inclined on investing in that.
A first-time buyer can choose between banks and housing finance companies for taking loans after considering the terms, procedures, and policies. HFCs don’t have to necessarily follow the repo rate linked lending rate (RLLR) mechanism; they set their rates based on the cost of funds. Buyers looking to purchase property as early as possible for availing some of the benefits and payment deferment offered by developers must consider private banks and HFCs to be the wiser option. The process of sanctioning and disbursing of loans is easier and quicker there when compared to public sector banks. Even though public sector banks offer cheapest interest rates for home loans, but the reduced repo rate cut has significantly lowered the interest rates in private banks as well.
Eligibility to home loan also comes with certain tax benefits, in these times of uncertainty owning an asset that holds the potential of yielding better returns in future comes across as an ideal financial benefit. Thus, it is time you achieve freedom from your monthly rentals, and start putting a share of your income in an asset that will have higher capital value as time passes by.