Time To Buy

Why it makes sense to take the plunge and buy a house.

Buying a home is not an ordinary aspiration for most as it involves committing lifelong savings to what would probably be their biggest purchase ever. Also, since most home purchases are financed through a loan, committing EMI payments for a long period is not easy. Because the stakes are so high, many prefer to make a beginning in the festival season. "Historically, festivals and auspicious occasions have been preferred for buying real estate," says Prashant Mirkar, Vice President, Marketing & Sales, House of Hiranandani.

Starting October, the festive season lasts till December, and it is a period during which developers and banks come out with discounts. And with prices stable in most big cities, and a new real estate law in place to back home buyers if the builder breaks his promises, there cannot be a better time to buy a house than now, say real estate experts.

Big Reforms/Regulations

Last five years can be said to be forgettable for the real estate sector in India. It was a period during which there were sharp price corrections in many cities and stagnation in others. There were few pockets of growth. The industry had become notorious for delays, sharp price rises fuelled by speculation, high cash component in transactions, use of investors' money by fly-by-night developers to cross-subsidise projects and changing of project plans at will, leaving customers in the lurch. All this kept many potential buyers away from the sector as they did not want to risk their life savings on something they were not sure about.

The outcry from people made the government pass the Real Estate (Regulation and Development) Act, 2016, to protect the rights of buyers and curb malpractices prevalent in the sector. "RERA will benefit buyers by protecting their money through every stage of property development with 70 per cent capital being saved in a reserved escrow account. RERA has also made it mandatory for developers to deliver as promised by fully revealing their plans and being transparent about the carpet area of the house," says Sanjay Dutt, MD & CEO, Tata Realty.

Under RERA, the developer is bound to complete the project on time and as per the plan. Otherwise, there are strict penalties. Buyers can also approach the regulatory authority in case of a complaint. "RERA has paved the way for a more systematic approach in the real estate business and safeguarded the interests of buyers by bringing in transparency and ensuring accountability and timely completion of projects," says Mirkar.

RERA has also triggered consolidation in the industry. Small developers which were unable to complete their projects have approached the bigger developers for takeover of the projects. Flight-by-night developers will find it difficult to survive in such a market. "RERA has consolidated the industry and developers are now accountable for delays. Smaller developers which lack funds and expertise to complete projects can now partner with bigger, reputed builders to finish their projects on time," says Ashish Shah, COO, Radius Developers. Consolidation will benefit customers as only credible customer-centric developers will be able to do business. Although RERA has seen a few dilutions in some states, and implementation in the true spirit is a problem, experts believe it is a good start and things will keep getting better as buyers become better informed over time.

Demonetisation and goods and services tax (GST) have also indirectly made things more systematic, accountable and transparent. The sector, which has been in doldrums for quite a few years now, is going through the much-needed transformational phase.

Best Price

Prices in major markets have either seen a minor uptrend or remained almost at the same level over the past five years. As per a Liases Foras report for quarter ended September 2018, the weighted average price in Tier-1 cities remained stagnant at around Rs6,770 per square foot compared to a year ago. The cities included are Ahmedabad, NCR, MMR, Pune, Bengaluru, Pune, Hyderabad, Chennai and Kolkata.

"Price appreciation has been minimal and whatever is visible is at the micro market level rather than the city level. The resale market is yet to recover the momentum lost after demonetisation," says Anuj Puri, Chairman, Anarock Property Consultants. "We are seeing appreciation in some high-demand/low-supply pockets but there are no real green shoots to speak of as yet," he says.

Prices have more or less stabilised across markets. "Prices have been largely stable with no major increments or cuts being heard of. The policy reforms in the industry have helped here as the industry has become more stable now," says Anshuman Magazine, Chairman, India & Southeast Asia, CBRE.

With rise in purchasing power of people and prices remaining more or less at the same level, affordability has improved. So, people can now buy a bigger house or afford a house that was earlier out of their budget. Although in the near term, the price appreciation may be minimal or occur in a few areas depending on demand and supply conditions, we may see an uptrend as things stabilise over the long term. "As the sector recovers, prices will see an increasing trend over time," says Arvind Hali, MD and CEO, ART Affordable Housing Finance.

Increased Sales

Sales had crashed in the October-December quarter of 2016 due to demonetisation in November that year. But things have improved since then and buyers are back in the market. As per a Liases Foras report, quarterly sales have been consistently rising since the October-December 2016 quarter (barring Q2 of 2017/18) and have risen 40 per cent since then. Sales grew 9 per cent in quarter ended September 2018 compared to last year. Sentiments have improved post major reforms.

"RERA and GST have brought in transparency in the property market as far as home-buying is concerned and given confidence to end users & investors," says Deepak Goradia, Vice Chairman and Managing Director, Dosti Realty.

Even online portals are seeing increased enquires. "We are seeing healthy growth in search queries across our portals even without too many new launches. A part of this growth is contributed by increased consumer interest in home buying. Though there is more than one factor behind traffic growth, we can safely say that traffic has increased by 15-25 per cent over last year due to increased consumer interest," says Ankur Dhawan, Chief Investment Officer,

The good part is that the demand is mostly end user-driven. Investors (those buying second or third house) are yet to come back.

The demand is mostly coming from end users. "The demand for second and third homes is tepid at best with all the benefits and incentives rolled out by the government focusing on first-home buyers and that too largely in the affordable segment. There has been some uptick in sales of luxury homes, typically used by the well-to-do as weekend getaways, but such sales are happening at a significant discount over the quoted rates," says Puri of Anarock Property Consultants.

Affordable Demand

As per a Liases Foras report, close to 55 per cent sales in quarter ended June 2018 were in the sub-Rs50 lakh segment (affordable). Sales in the Rs50 lakh to Rs1 crore segment rose 7 per cent year-on-year over the period. "Affordable housing has led to rise in residential sales. The trend is expected to continue. Tier-I cities have not only seen a rising demand for affordable housing, this interest has also converted into sales, adding to the overall economy of the market," says Anshuman Magazine of CBRE.

In order to tap the demand, developers have come out with new launches mostly in the affordable segment. New launches rose 121 per cent on a year-on-year basis in the quarter ended September 2018. Close to 84 per cent of the new launches were in the sub Rs1 crore bracket.

Spoilt For Choice

Despite the pick-up in sales, inventories are still high, which is a good thing as this means that the buyers will have a lot to choose from. As per the data provided by Liases Foras, there are 9.49 lakh unsold units across the seven markets. To clear the inventory, developers are giving lucrative offers. Buyers can avail of this opportunity to get an attractive deal. "The real estate industry is going through a rough patch and there are many builders with large inventory," says Rakesh Singh, Director, Aditya Birla Housing Finance Ltd.

In order to tap demand during the festive season, developers are coming out with attractive offers.

"Apart from no pre-EMI on under construction properties and discount on the basic sale price, this time, developers are offering no pre-EMI even for ready apartments. Some are offering customers who are buying under-construction properties free rental accommodation in one of their ready projects," says Ankur Dhawan from PropTiger.

"Developers are offering discounts on all-inclusive price, GST reduction, free registration, free car parking, club house membership and interest free subvention plans. Some other incentive include gifts such as gold coins, cars, etc," says Samir Jasuja, Founder and MD, Propequity.

However, buyers should not take a decision on the basis of just freebies. "Many times the buyer is lured by attractive claims and propositions but chances of facetious offers are higher in the peak-season. While the actual payout must be clearly understood before making any financial commitment, it is worthwhile to analyse the actual state of the property and its neighbourhood," says Arvind Nandan, Executive Director, Research, Knight Frank India.

As buying a house is a big decision, one must do proper due diligence before making any payment. "The buyer needs to do his/her homework to identify his requirements and shortlist the right property. This not only includes things like the location but also factors like time to handover, status of construction, etc," says Arvind Hali of Affordable Housing Finance.

Low Interest Rate

The Reserve Bank of India, or, RBI, has increased the repo rate two times since June this year by 25 basis points each time. Interest rates are unlikely to come down in the near future. The rates might, in fact, go up if crude oil prices shoot up again. But many lenders are still offering home loans at highly competitive rates. Despite the recent rate hikes by the RBI, home loan rates are still at a lower level compared to 2011/12.

Therefore, it makes sense to take the loan now as you pay lower EMI. "As the home loan tenure is generally for 20 years, a minor increase in the interest rate wouldn't make a huge difference as it will get balanced out in the course of time. Also, when interest rates rise, home sales fall, which can force the builder sell at a lower price. Hence, this is perhaps one of the most advantageous times for an end user to buy a house," says Rakesh Singh of Aditya Birla.

Also, under the marginal cost of funds-based lending rates regime, if you lock your home loan now at a lower rate, you would enjoy this benefit for at least one year (the minimum period for rate re-set). During the initial years, the larger part of EMI goes towards interest payment. If the rate is higher in the first year, you would not only end up paying higher EMIs but also more of this EMI will go towards interest payment.

Apart from the lower interest rates, the government has also extended its interest subsidy scheme till March for first-time buyers from various lower and middle income groups. Recently, the government increased the carpet area of houses which can be bought under the schemes so that more and more people can avail of the interest rate discount on offer. "The extension of the Credit Linked Subsidy Scheme (CLSS) to March 2019 is enabling financial freedom for consumers to own their affordable dream home," says Santosh Nair, President and Chief Business Officer, DHFL.

"This is the right time to buy a house as all measures taken by the government are in favour of home buyers. One of the lucrative benefit for people opting for home loans is the subsidy available under the PMAY - CLSS scheme," says R. Sridhar, Executive Vice-Chairman and CEO at IndoStar Capital Finance Ltd.

Festivities are also the time when lenders come up with deals on home loans where you can enjoy discount or waiver of processing, documentation, legal and other charges, apart from a competitive interest rate. However it is better not to get swayed by these freebies alone.

The most significant cost that you pay is the interest amount. For instance, on a home loan of Rs50 lakh for 20 years at 8.75 per cent, you would end up paying Rs1.92 lakh more if your interest rate is higher by just 0.25 per cent. So, a festive offer of benefits worth Rs50,000 may not be as good as a home loan with a 0.25 per cent lower rate. However, if you are getting same rate from multiple lenders, you can go with the one offering more discounts.

Many lenders nowadays offer EMI holiday which may look attractive. However, you should make it point to find the overall cost of your loan and compare that with the numbers from the other lenders to get the right picture.

You can also get rewarded for your good repayment track. If you have been disciplined in repayment of your earlier loans, your credit score will be high. Lending institutions prefer to give loans to such customers. If you have a high credit score, you may bargain with your lender for best rate and discount on other fees. Bank of Baroda, for instance, is offering its best rate to borrowers whose credit score is above 760.

Go for a ready property

Despite the implementation of RERA, which is expected to prevent delays in project completion, it is better to opt for ready-to-move properties or those that are near completion. This will not only help you save on rent that you need to pay while the property is under construction, you can be sure about what you are buying.

"It is usually a good call to buy a ready property, as this takes most uncertainties out of the equation. Since property is not a standardised product, and construction varies from site to site, a finished product means lesser risks. The reason for investments in under-construction projects is only financial. While it makes good financial sense to invest in under-construction projects for gaining upside in values, for a lay buyer with limited or no-risk appetite, investing in ready-to-move-in is a better choice," says Arvind Nandan of Knight Frank India.

Also, ready-to move-in projects are attractively priced right now due to the difficult time developers are facing in clearing the inventory. "Ready-to-move properties which pass muster in terms of legal sanctity, rational pricing and additional incentives can definitely be considered, and are in fact preferable over under-construction options as of now.

The price difference between ready-to-move and under construction properties has narrowed significantly and there are ample options to choose from. This makes ready-to-move properties a lot more attractive in the current market scenario," says Anuj Puri.