By Ganesh Vasudevan
The real estate sector in India has seen sluggish sales in the last 15 quarters. There has not been any drastic price movement in most of the markets and prices have remained stable with minimal price appreciation. Post demonetisation many experts predicted a sharp price drop, but the market witnessed minimal price movement. The government is encouraging buyers and has introduced many reforms, but its main focus is on affordable housing.
To buy or not to buy is one of the biggest dilemmas we all face when it comes to buying a property today. Is it the right time to buy a piece of property? Should I wait for the market to correct? Should I save a little more before buying my first house? What percentage of the family income can go towards paying the EMI? There are endless doubts property seekers have which delay their home purchase. Since property purchase is one of the biggest investments most of us make in our life time, it is obvious that we all want to be 100% sure.
Here are some points to consider before you decide to buy or postpone your property buying decision:
1. Intent behind buying a home: Considering the current market conditions, it seems to be a good time to buy a piece of property if your intent is end use. With very few buyers in the market and restriction on cash transactions, serious property seekers are likely to find good deals both in the primary and secondary property markets. Recently the holding period for property to avoid long-term capital gains tax was reduced from 3 years to 2 years. This would bring in more property for sale in the market, which would again favour end users.
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But if you want to buy a piece of property for investment, then you should be prepared for a long-term investment as property prices are unlikely to appreciate at the same pace as before.
2. Property type you plan to buy: It is a good time for buyers looking for luxury property as both in primary and secondary market this property segment is witnessing maximum discounts. Post demonetisation and governments ban on cash transactions above Rs 3 lakh, the market for high-end homes has dropped drastically. However, mid-segment homes have not witnessed much impact due to currency ban and prices continue to be stable for such homes.
3. Stage of construction: Before investing, property seekers should keep in mind whether they are buying a house in an under construction or a ready-to-move-in project. The Real Estate (Regulation and Development) Act, 2016 (RERA) is scheduled to operationalize by May 1, 2017 in India. Once implemented, the Act is expected to reduce developer-specific risks a property buyer faces while investing in an under-construction project.
If you are planning to buy a ready-to-move-in house, then RERA shouldn’t impact your buying decision. But in case you are considering an under construction property, then it is recommended to make the purchase once RERA is implemented and the project is registered under the new law. This would apply to both investors and end users as RERA would make the developer accountable if the project gets delayed. Investing soon after its implementation is the best time to buy a property as with reduced risk, demand for such homes would increase and property prices might see an increase.
4. Tax Savings: Investors should do a cost benefit analysis before investing as after the Union Budget 2017, the tax incentives for let-out property bought using home loans have reduced significantly which would lower their effective rental yield. Since the property prices are much higher than the rent they yield, this reduction in tax incentives might make the investment not feasible.
For a self-occupied property funded by a home loan, the buyer can claim a maximum of Rs 1.5-lakh deduction under Section 80C of the Income Tax Act. He can also claim a deduction on the interest component of his home loan EMI, for a maximum of Rs 2 lakh. So, these savings should also be considered when an end-user is thinking of delaying his or her property buying decision.
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5. Interest Rates: The home loan interest rates are currently at their all-time low with some banks offering as low as 8.5% and the rate is expected to fall further this year. So the overall cost of property for buyers has gone down as most of us fund our homes through home loans. Middle income group people, who earn between Rs 12 and Rs 18 lakh per annum, are now included in the Pradhan Mantri Awas Yojana. If you are one of them, then you will get an additional loan subsidy, which will make your home more cost effective.
(The author is CEO, Indiaproperty.com)