Before finalising your home-buying plans in the shadow of the Covid-19 crisis, you should take a moment to first understand how the pandemic is impacting the real estate sector.
Buying a home for the first time is an extremely challenging financial task for most of us. On top of it, the prevailing global economic crisis arising out of the Covid-19 pandemic has made home-buying even more difficult. If you had plans to buy a house this year, the sudden stream of unprecedented developments might have left you wondering how you should go about executing them now. And the answer to this confusion isn’t clear yet owing to the many factors at play here. But before finalising your home-buying plans in the shadow of the Covid-19 crisis, you should take a moment to first understand how the pandemic is impacting the real estate sector.
Realty sector and the pandemic crisis
The realty sector has been grappling with a slowing economy, credit crunch and mounting inventories for a while now, and the recent Coronavirus pandemic has started to deteriorate things further. The resultant nationwide lockdown has halted a majority of construction activities and many labourers have gone or are planning to go back to their respective villages. This might lead to a labour shortage in the times to come which can further complicate the sector’s recovery process. Also, many developers who are sitting on large land banks may not be able to unlock their value in the near future due to which they could face a liquidity crisis.
That said, the government’s recent move to advise state governments and Union territories to suo-moto extend the registration and completion dates of all registered projects expiring on or after March 25, 2020 by six months without individual applications will relieve the stress of certain developers to some extent.
The Reserve Bank of India’s decision to cut the repo rate by 40 basis points to 4% will also allow some breathing space to the developers, but how and when the realty sector will bounce back is unclear as of now.
The pandemic crisis from the homebuyer’s perspective
In sharp contrast, if you are an existing homebuyer whose income channels haven’t been hit by the ongoing crisis and have already taken possession of your property, this might be a good time for you as your home loan interest rate is likely to plummet to record lows following the RBI’s latest repo rate cut announcement. If you’re servicing a repo rate-linked loan, you can expect your EMIs to reduce quickly. And those servicing an MCLR-based loan might have to wait a bit longer until such loan rates are reset by lenders.
Moreover, the central bank has also asked lenders to extend the loan moratorium facility to their borrowers by 3 more months which could help the borrowers to better manage their finances during these unprecedented circumstances. However, do note this EMI holiday is only a deferment of repayments and not a waiver. Plus, interest charges will continue to get accrued during these 3 months which could add tens of EMIs to your loan burden especially if you’ve just started repaying your home loan. Best is to opt for the facility only if you’re facing an acute cash crunch, and even if you do decide to go for it, ensure you have a plan in place to prepay the accrued interest during the moratorium soon after the EMI holiday ends.
In addition, the government’s move to extend the Credit Linked Interest Subsidy Scheme deadline to March 31, 2021, under the Pradhan Mantri Awas Yojana, could encourage middle-class families in realising their home-buying dreams despite the prevailing economic challenges. Under this scheme, eligible families with annual household income between Rs. 6 lakh to Rs. 18 lakh per annum will now get another year to benefit from an upfront interest subsidy of up to Rs. 2.35 lakh on their approved home loan.
However, if you haven’t yet received possession of your property, you might have to wait longer due to construction delays. If you are planning to buy a home, you’ll be well-advised to prefer a ready-to-move-in property over an under-construction one at this point. Also, you might get better offers as the recent developments can lower the property rates in the near future, as indicated in the opinions of various experts.
If you are ready to take some risks like late completion or other markets-related risks, you can consider investing in an under-construction property. But check things like the builder’s credentials, track record, financial capability, RERA registration of the property and bank tie-ups before signing on the dotted line.
So, what should you do?
The Covid-19 crisis may also delay property registrations and clearances from various departments. More importantly, the pandemic situation has already lead to a loss of income for many, and repaying the EMIs might get challenging for countless aspiring homebuyers.
At the same time, the post-Covid world is likely to lead to a drop in property prices amid record-low loan interest rates. As such, existing and prospective homebuyers need to carefully consider these critical, and conflicting, factors in order to make pragmatic decisions.
Lastly, if you’ve recently purchased a property or are planning to do so right after the lockdown, you’ll be well-advised not to delay the purchase of a term insurance policy or a home loan insurance policy of adequate cover size for complete safety. Always consult your financial and real estate advisor if you need expert help to chalk out your strategies.
(The author is CEO, BankBazaar.com)