Home purchase: This is the right time to buy your first house; 3 power points

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Updated: February 21, 2017 4:42 PM

In the last one year, real estate prices have dropped and the inventory of developers across the country has piled up.

The real estate market today is a buyer’s market, which is good to be in, from a buyer’s perspective.

In the last one year, real estate prices have dropped and the inventory of developers across the country has piled up. Home loan rates have come down and banks have moved to a more transparent Marginal Cost of Funds-based Lending Rate (MCLR). But why are buyers staying away from investment in real estate?

During 1997 to 2002, the real estate market witnessed periods wherein investors’ confidence was low and owners of properties were sitting on assets which were not appreciating. In most cases, selling price was lower than purchase price.

First home ownership

The real estate market today is a buyer’s market, which is good to be in, from a buyer’s perspective. The buyer is flooded with options, both on the location as well as price front. Also, with home loan interest rates at an all-time low, it’s a good option to exercise. However, too many options are also confusing. It does not allow one to decide on the property and freeze the option. Waiting for too long to get the optimum price may be misleading. If one is looking for a house to live, one should see the affordability and the budget.

Multiple home ownership

Real estate was the go-to option, if one needed to park surplus money or the bonuses received, especially during the period 2003 to 2014. Making a upfront payment of a few lakhs of rupees and then transferring the ownership midway through was an often repeated strategy by investors.

Also, for those owning multiple homes (through mortgages) and generating a rental income, there was a tax benefit, which only increased the reason for home ownership. But the Finance Bill 2017 has capped the set-off of loss from house property against income from any other source at R2 lakh. So, investors will no longer get the added tax benefit.

Investors bought multiple homes as goal-based investing so that they could sell these to meet children’s higher education, marriage and retirement funding needs. With liquidity becoming a major factor, investors will think twice before investing in multiple homes. Also, with the slowdown in real estate prices, and now, the change in the tax norms, the incentive to go for a second house will further reduce.

Way ahead

If you have multiple homes, then you should look at the opportunity cost. Do analyse your needs and take a call accordingly. Do not get into an investment which is too illiquid and becomes a cause of economic grief in the long-run.

For would-be first-time owners, if the location is as per their liking and if the price fits their budget and their needs, they should go for it. In trying to get the lowest price, more often than not, one can lose the right to own a property.

The writer is partner, BellWether Advisors LLP

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