Planning to take a home or auto loan? This might be the right time for you

Both real estate and automobile sectors, which are pillars of the Indian economy, are currently witnessing severe slowdown and, therefore, buyers in these markets definitely have an edge.

real estate, automobile, home loan, auto loan, consumer sentiment, right time to take home loan auto loan, RERA, NBFC crisis
If you are planning to take a home loan or an auto loan, then this might be the right time to fulfill your dream.

Buying a home or buying an auto, especially a four wheeler, is one of the major financial decisions for an average middle class family. Equated Monthly Installments (EMIs) for a loan, be it a home or an auto loan, constitute a major portion of the disposable income of most households and, therefore, even small savings due to lower interest rates or lower cost of acquisition can accrue into large sums over long periods.

If you are planning to take a home loan or an auto loan, then this might be the right time to fulfill your dream. Both of these sectors which are pillars of the Indian economy are currently witnessing severe slowdown and, therefore, buyers in these markets definitely have an edge. The realty sector is going through a structural transformation catalyzed by new regulations. These changes, although huge positives in the long term, have lead to demand decay in the short term. Several metros across India are witnessing huge inventory buildup, leading to price correction and stagnation forcing developers to hugely incentivize new home sales.

The story is similar for the auto sector. After a phenomenal streak over the last few years, the auto sector in India is saddled with overcapacity and inefficiencies, leading to huge inventory buildup. In addition, muted consumer sentiments, regulatory hurdles and a liquidity crunch have lead to enormous pain which has manifested in 11 month of continuous sales decline, plant closures and massive layoffs. The pain in these sectors has forced auto manufactures and real estate developers to come out with huge incentives to buy a home or to buy an automobile, creating a win-win environment for the consumers.

Attractive Rates and Optimal Timing for Real Estate Investments:

The overall slowdown in the economy, coupled with factors like the NBFC crisis, developer defaults and bankruptcies, has slackened the sentiments of the sector, especially for the residential segment. Sonsumer sentiment has worsened in the second quarter of FY 2019. During the last one year several Indian cities have witnessed an absolute price fall which in other word means that property price increase has been lower than the consumer price inflation. Except for Hyderabad, prices are down in real terms across India. After the rollout of RERA, builders are playing safe. Not many new projects are being launched. Instead, builders are focusing on completing their ongoing projects. The following table summarizes the trend of property prices across major metros in India:

To address this growing slowdown concerns, the government and the Central Bank have taken several steps to boost consumer sentiment. GST rate cuts, reduction in the interest rates have increased the affordability of home ownership. In the last three quarters the repo rate has been cut by 135 bps and out of this cut 35 to 50 bps has already been passed on to the consumers.

Interest Rate Cuts and Incentives for Real Estate Investors:

The Reserve Bank of India has mandated all banks to offer loans with interest rates linked to external-benchmarks from October 1, 2019, that may be 1) RBI’s repo rate, 2) Government of India 3-month treasury bill yield, 3) Government of India 6-month treasury bill yield or 4) Any other benchmark market interest rate published by the Financial Benchmarks India Private Ltd. Therefore, in order to comply with the RBI diktat, all banks are bound to launch the new loan scheme on these lines and have to link their interest rate to external benchmark from Oct 1, 2019, that will help benefit the borrower in the form of quick & adequate transmission of the policy rate into the lending rate by banks. The country’s largest lender, the State Bank of India (SBI), has already withdrawn the repo-rate linked home loan scheme that it launched in July and now has relaunched its repo-linked home, automobile, MSME loans to comply with regulatory norms that kick in from October 1. It is expected that more banks will follow suit and the impact of Central Bank rate reductions would be passed on to the consumers effectively.

What is Repo Linked Lending Rate, Home Loan? RLLR meaning, comparison vs MCLR

The government has also responded by extending the credit linked subsidy scheme till March 2020, which provides interest subsidies ranging from Rs 2.30 lakh to Rs 2.67 lakh on home loans for Economically Weaker Section (EWS), Low Income Group (LIG) and Middle Income Group (MIG) under the Pradhan Mantri Awas Yojana. In addition to the lower interest rates and interest subsidy, the consumers can also benefit from several incentives and schemes that are being provided by the banks in preparation of the upcoming festival season. These incentives include, processing fee waiver, discounted interest rates and gift schemes. An average consumer can avail the benefits of these schemes and save up to Rs 50,000 if the quantum of the borrowing amount is higher.

Opportunities & Incentives for Auto Buyers:

Traditionally festive season is the best time of the year to make auto purchases due to multitudes of offers and incentives available in the market place. However, this year the consumer is being rewarded even more due to the ongoing slowdown. In an attempt to enthuse potential car buyers and lift the sagging fortunes of the automobile sector, a majority of banks/NBFCs have reduced the auto loan rates. Leading PSU bank, the State Bank of India (SBI) has reduced its auto loan rate to 8.45 per cent – the lowest since 2006. The government has also played a constructive role by offering several incentives which include reduced GST on select vehicles, exemption from registration for new vehicles. The idea is to bring down the overall cost of ownership of automobiles so that the consumer sentiment perks up

As we head into the festive season, vehicle manufacturers have started offering discount/benefit schemes to boost sales. These discounts and incentives are steeper as compared to the previous years, owing to weak consumer demand. Offers available in the marketplace include cash discounts, exchange bonus, corporate discounts, free accessories, free insurance, free registration, and free warranty and free or discounted annual maintenance contract. A list of some of the popular schemes and offers for automobile buyers has been collated in the table below.

To sum up, if there was a right time for buying either a home or an automobile, perhaps it’s now. Hor consumers/investors who have been holding on to their decisions of getting into to the market, it is strongly adviced that they should take the advantage of all the schemes and incentives that are available for the taking. A combination of weak consumer sentiment and an economic slowdown has made it possible for an average consumer to save money not just in terms of reduced interest rates, but also from all the attractive offers that are currently available in the market.

(By Rahul Agarwal, Director, Wealth Discovery/EZ Wealth)

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