Sanjay Banerjee (name changed on request) a 32 year old individual with stable income planned to buy a property in Kharghar in 2012. On the suggestion of his friends he decided to wait for sometime as he expected the rates to fall. It is 2014, and he is still in his rented apartment, lamenting over his decision, as today the same property is way beyond his reach. Currently in India there are many fence sitting buyers like Sanjay who are waiting for two things to happen – for property prices to come tumbling down, and for home loan interest rates to be brought so low as to become irresistible. It is certain that such people would end up looking back on life, full of regret, thinking “I should have bought the house earlier”. It is time that they learn that they need to stop thinking and start acting.
It is integral for prospective home buyers to understand that they need to look beyond the cost of the property while taking a decision. There are a number of peripheral costs that one needs to consider prior to purchasing property. These factors include the rent on the current property (which increases approx. by 10% each year), their loan eligibility reduces as time goes by(because of tenure reduction as per age), other small costs increase like the cost of furniture, furnishing, transporting material and hence most importantly their purchasing power actually go down. Apart from the actual rate of property, these costs invariably increase which makes the wait futile. For such home buyers it is important to recognize the dynamics of the real estate market before taking a call. They need to match their requirements and expectations to their budgets before taking a decision. Following are facets that home buyers need to make a note of while they take a plunge.
Price Corrections: As against common notion, there is never a drastic correction in price. Even if there is a change, it does not happen uniformly across all cities or for that matter, all locations even in the same city. It generally happens in locations where there is too much stock and no sales. Even if the sales in these areas are at a slow pace, the prices would not drop.
Festival Discounts: There are many buyers who tend to invest in properties during festivals in lieu of the festive discounts offered by developers. It is important to understand this is just a bait; developers tend to do so especially at the initial stages of construction as they need a cash flow for inventory. Moreover there are instances where the margin of discounts offered is low and in the long run are not really beneficial for the buyer as the EMI or the Pre EMI that one pays is much higher. If the project gets delayed, which is a case most often, the acquisition cost keep increasing.
Interest Rates are a product of the economy: Interest rates are primarily determined by the base rate, which is the minimum rate of interest below which the banks cannot lend. Base Rate in turn is controlled by factors such as repo rate, CRR, MSF etc. These factors are determined by the Reserve Bank of India based on the economic condition of the country. It is therefore essential for home buyers to know that banks cannot arbitrarily bring down interest rates even if it is for the benefit of their own business. Lending norms generally improve with the economy and so do the interest rates. Hence it is better to take a loan now at the current interest rate as the likelihood of it coming down is low. Moreover the EMI on an existing home loan will automatically come down when the interest rates decrease (provided that the loan is on a floating and not fixed rate of interest).
Stay true to the purpose: It is imperative for an individual to know that it is property purchase for personal use and the same purchased for investment are two separate concepts. While the first case it is a source of stability in the second it is a tradable commodity. Just like the purpose the approach also should vary. If one is looking at earning a sizable profit then it is advisable to invest in a commercial property as there is a guarantee return of 0.3-0.5%. Moreover, unlike a residential property, there is no hassle of renewal on a yearly basis. If the intention of purchasing the house is to make ones lives more secure and comfortable then a ready property always is a more viable option. Lack of clarity of purpose can lead to a conflict of interest and can become a barrier in decision making.
The decision to purchase homes has to be a planned as well as an instinctive one. The fact that you like the property should be a reason enough for you to purchase it. Waiting for external situations to stabilize can be a self defeating course and in all likelihood put your dream home further out of reach. Hence it’s best not to wait to buy the property, but buy the property and wait.
Sukanya Kumar, Founder and Director, Retail lending.com