Prospective homebuyers perhaps seldom had it so good. From a significant fall in property prices to the lowest home loan rates (in a decade) combined with the power of RERA, almost everything seems to be in favour of those who want to buy or invest in a piece of residential property currently. Therefore, a question playing on the mind of many buyers and investors today is – is this a good time to buy a house?
Experts say that the prevailing market conditions seem to be the most favourable for homebuyers and property investors that have been seen for a long time.
“It is very rare to see such a confluence of amenable and conducive market conditions for end-users and investors in Indian residential real estate. Prices are at their lowest now and unlikely to fall any further. There has also been a significant reduction in home loan interest rates, and many developers are offering interesting financing schemes as well as various other incentives and offers, including hard discounts,” says Anuj Puri, Chairman, JLL Residential.
Simultaneously, RERA is in place to protect buyers’ interests and give them the assurance that their property purchases are finally protected by law. This has brought about the most favourable market conditions for homebuyers and property investors that we have seen in decades.
“The macroeconomic conditions certainly favour buying a home today. The interest rates on home loans are at a low, which means you can borrow larger amounts or pay lower EMIs compared to the recent past. RERA has come into force from May 1 to protect the rights of homebuyers. The government has also announced additional tax benefits and interest rate reduction for first-time home buyers,” says Adhil Shetty, CEO, Bankbazaar.com.
It must be noted, however, that as a form of investment, real estate is also subject to the push and pulls of the market forces that define the returns from most other forms of investment. Therefore, from an investment point of view, you must evaluate your risks and assess returns. “These vary from one real estate project to another, from one locality to another. You must also evaluate tax benefits which have been a big draw, as far as real estate investment is concerned. As per new income tax rules, you may be able to claim only Rs 2 lakh towards interest payments on a let-out property,” says Shetty.
Some industry experts, however, say that if you neither bother about your social status, nor get too sentimental about your home, then renting a home usually makes more sense than buying it.
It is a well-known fact that residential real estate market is in a slump as builders are currently sitting on excess inventory of approximately 46 months across India. Assuming that the demand for housing will remain constant, it will take almost 4 years for all residential units to be completely sold out. “The harsh reality about investing in an apartment is that the supply of units is controlled by builders. So, in the long-run, if the number of units are going to increase in proportion to the demand, there will be no resale value for existing apartments. In fact, they are likely to depreciate due to the supply factors. Unless there are restrictions placed on the number of apartments that can be built, buying a house cannot be a lucrative investment,” says Tejas Khoday, Co-Founder of FYERS, a thematic investing platform for young investors.
The cost of owning a house, in fact, is 3.5 times more than renting it. For example, if you were to take a 30-year loan for a house worth Rs 1 crore at 10% per annum, you would end up paying an EMI of approximately Rs 88,000. “The other way to look at this is that since residential rental yields are approximately 3% per annum, the rental value of an apartment worth Rs 1 crore would be around of Rs 25,000 per month, which makes more sense,” informs Khoday.
There are also other benefits of renting an apartment rather than buying it because it gives you the flexibility to shift locations without any commitments. You can upgrade your living standards on a regular basis by moving to better houses and still be hassle-free. Even maintenance costs are low. Renting a home is also better when someone has career and income insecurity.
Buying a home, however, has its own plus points and has got more sentimental value in a country like India. Some financial planners also say that you may initially have to pay more compared to renting a house, but you as well as your family will reap the benefits of having your own home in the long run. Therefore, you should take your decision to buy or rent a house after weighing in all the pros and cons of it.
From an investment standpoint, currently there are good opportunities available in the commercial real estate space. However, investors will need to have a higher corpus since banks don’t finance such purchases like they do in the housing sector.