It is a common aspiration to own a home. Living in such unprecedented times, we understand that owning a home is more than just being a commodity. The pandemic has changed perspective towards evaluating the value of a home. Along with terming it as a good asset to have, the pandemic has made one understand the importance and security your own home can provide. Home ownership has become an integral part; and brings with it a high sense of comfort and endurance.
A recent study by Anarock states that residential real estate is the best investment option during this crisis largely due to lower risks attached. Over 48% of respondents of the survey picked up real estate as their best option of investment amongst other competing asset classes. The survey also highlights that 28% of responding would opt for that home loans helped by the fact that interest rates are at an almost 15 year low. I also came across a public poll that was conducted by a finance and digital expert on Twitter that revealed 76% of the respondents choosing the safety of a home over other asset classes. The poll result is definitely a testament to the growing interest of owning a home in the country
The RBI recently slashed the repo rate by 40 basis points (100bps=1 per cent), bringing down the repo rate to an all-time low of 4 per cent. Repo rate is the rate at which the RBI lends funds to commercial banks. The RBI took this decision by advancing the monetary policy meeting from the first week of June to May 22, 2020. The RBI has slashed the repo rate by 115 bps ever since the lockdown has begun. This move by the RBI is good news for home loan borrowers who want to purchase their dream house since interest rates are now headed downwards reducing EMIs and making home ownership increasingly affordable.
So, if you are amongst the ones who have been waiting to take the plunge, this is the right time to make the purchase. Buying a home is in effect building a stable asset for yourself and your family. Home loans at the prevalent interest rates allow considerable savings. Additionally, a borrower can use the saving resulted from reduced EMI to avail of a top-up loan, which is also available at a lower interest rate. This can allow the buyer to furnish his dream house and make his purchase complete. Not stopping at that, many reputed developers are burnishing the available benefits with additional offers and value additions, making the purchase a good deal for consumers.
The current home loan scenario also comes with another benefit. Borrowers can now look at the possibility of going for a fixed rate over a floating one. The latter tends to get volatile and can go north based on monetary policy decisions by the RBI. Hence, opting for fixed rates home loans is the perfect option at this time when rates are at their nadir. There is more for buyers looking at property for investment purpose. One can now earn rental income, which is currently pegged at 2.5% of capital value in a metro city such as Mumbai. With home loans in the region of 7.5%, the net effect, if a home is purchased for letting out comes to 5%. This is another win-win situation, which ensures that you are ahead of inflation because of the neat combination of various factors working in your favor while looking at buying a home for investment purpose at this time.
Given these factors, the affordable and mid-segment will emerge as the most preferred category in these times. The survey by Anarock also suggests that 36% of home buyers would prefer the affordable segment while 37% would opt for the mid-segment.
For the same reason, many players in the Real Estate market will soon increase their focus on these category attracting more buyers and witness more traction for this segment. Currently, prospective buyers have umpteen Ready To Move In (RTMI) options available today in the price range of Rs 45 lakh to Rs 90 lakh.
For many, buying a house is a once in a lifetime experience and one of the biggest financial commitments. With the current loan market scenario, this is the best time to make the investment and fulfill the dream of owning that house.
(Poornima Katpadi, Is Founder & Investment Specialist, Simple Solutions 4U. Views expressed here are her own.)