Experts feel that it is the best time to purchase a house in the Indian market. Affordability of residential real estate is at the highest levels, taking home loan interest rates, incomes of households and realty prices into account. Home loans across leading banks are at rock-bottom levels. Kotak Mahindra Bank is offering the lowest rate of interest at 6.65% while State Bank of India and ICICI Bank are offering 6.70% as their rate of interest. HDFC Ltd is offering 6.75% as the rate of interest.
Experts feel that income growth has exceeded real estate prices over the last decade or so. From 2013 onwards, realty prices have witnessed 1-2% of compounded annual growth which is considerably lower than inflation. They are also behind income growth in the same period. Prices of property have remained completely stagnant ever since FY2013 with volumes coming down considerably. In the same duration, average income growth has touched 8-10% annually as per CO-Founder and CFO at India’s foremost real estate platform Square Yards, Piyush Bothra. When there is a fall in home loans by 100 basis points, this is almost similar to a cut in prices by 5%.
For FY2000, prices of property stood at 5.9 times of the annual income of an average buyer. In FY2020, they are 3.3 times of the income of the average buyer. Experts state that homes are steadily becoming more affordable in India’s top 7 metros, namely Kolkata, Mumbai, Delhi-NCR, Chennai, Bangalore, Hyderabad and Pune. The most affordable market is Kolkata followed by Hyderabad. Mumbai has the least affordability amongst the metro cities. With affordability going up, you can purchase a larger property with your present income. Home loan interest rates have also fallen by 1.2-1.3 percentage points in comparison to just last year.
If you take an average buyer earning Rs. 1 lakh in net salary every month, he/she will be normally eligible for a loan up to almost Rs. 60 lakh for 20 years at 8% rates of interest. At the current threshold or lowest rate of 6.7%, he/she will get an extra Rs. 6 lakh by way of the loan amount. If the loan amount stays the same, the monthly payment reduces sizably in case the interest rate drops. Attractive offers and deals from real estate developers are the key factor behind a spurt in housing demand as per studies, followed by availability of more affordable home loans.
Many people have already started purchasing properties, particularly first-time buyers. There are many people who are looking at purchasing larger homes with separate working space and more room for other necessities as per experts. You should not however rush to purchase your home only because of attractive prices and loan offers. Plan for the purchase and remember that you will have to fork out 20% as your down payment.
Experts state that this is the best time to invest in properties for end-use and not for investments. Prices will not increase considerably anytime in the future throughout the Indian residential realty market. Those investors with financial strength may consider venturing into REITs or real estate investment trusts which are providing good returns. REITs may generate stable income, particularly since they are supported by healthy demand and occupancies in the Grade A office segment. This is also supported by lease commitments made by top corporates in the country.
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Published Date: March 09, 2021
