While home rentals can create significant savings in the short-run, is it a viable long-term investment?
There will remain a huge opportunity in the affordable housing segment due to rapid urbanization, young working population, increase in disposable income, migration of people from rural to urban areas, and nuclearisation of families. There is a growing demand of housing around extended periphery of metro and big cities and also in tier 2, 3 and 4 cities and towns. As per reports, the affordable housing finance segment, largely including EWS category within ticket size of up to Rs 15 lakh, will grow to Rs 6 trillion by 2022 while the overall requirement is huge up to ticket size of Rs 35 lakh.
India’s growing (and young) workforce is set to enter the market and make buying decisions. It is a quandary when you are looking to invest your finances in home rental or homeownership. While home rentals can create significant savings in the short-run, is it a viable long-term investment?
With the government’s focus on Housing for All for 2022, the demand for housing may further increase with the availability of credit linked subsidy under the PMAY scheme, a slash in the GST rate for under-construction and affordable housing units and availability of finance from large number of affordable housing companies/ banks. Out of the total working population in Economic Weaker Section (EWS) and the Low Income Group (LIG) category, 65% in urban areas and 90% in rural area are engaged in unorganized or informal sector.
Moreover approximately 61% of total housing requirement of the country is through self-construction by the beneficiary. They do not have easy access to mainstream HFCs or Banks due to low ticket size of the loan or the kind of property they choose to buy. Housing Finance Companies, such as Aadhar Housing Finance, are offering custom-made home loan solutions to meet this growing need.
Home ownership is a matter of pride, long-term savings, and building equity and offers significant tax benefits with interest deductible for home loans under Section 24 of the Income Tax Act, 1961. Depending on your financial and lifestyle choices, you should make a prudent decision on rental or ownership.
Here are a few factors to consider in favor of home ownership:
1. Homeownership generates an additional income stream through potential opportunities for rental of the property.
2. While you may consider the rental more affordable than EMIs on a purchase in the short-term, the rental cost cannot be recovered in the long-term.
3. As a homeowner, you can use your property to take up a loan in the future.
4. Homeownership brings stability as rental agreements can end at any point in time.
5. Further, now a days, banks and housing finance companies are offering very competitive interest rates reducing borrowing cost for potential homeowners.
6. Financial institutions have designed custom-made home loans to make home loan accessible to every strata of the society including the low income and economically weaker segment, which were considered sub-prime so far.
Lenders check your eligibility for the loan amount depending on your age, stability and continuity of income, assets and liabilities, savings, number of dependents and other factors. The loans can be taken for a maximum tenure of up to 30 years and applied for individually or jointly. The Equated Monthly Installments (EMIs) for the loan depend on the amount of the loan, interest rate, and tenure.
As property prices continue to reduce below the benchmark level when compared to the average annual household income for a few cities in India, the time could not be better for owning your dream home.
(By Rishi Anand, Chief Business Officer, Aadhar Housing Finance)