COVID-19 has paved the way for a home buyer’s dream market
Property prices are at a 40 year low and credit pricing has never been this attractive. If you have been waiting for the right moment to purchase a home, the time is now and you’ve got coronavirus to thank for it.
The pandemic has locked us at home indefinitely and has inconvenienced the general population in countless ways. However, in some areas, it has indeed succeeded to usher in some sort of positive change, even if that change might be temporary. In fact, if any change is temporary, all the more reason to enjoy it while it lasts.
One of the areas in which the ongoing pandemic has been real estate. In fact, real estate is being seen as the silver lining of the pandemic era. How can this be when the prices are at rock bottom? Well very simply, it makes it a good time to buy. Or in other words, a buyers market has been set in motion.
What is a buyer’s market in real estate?
When there is a higher supply of homes on the market as compared to the number of people interested in buying a home, a buyers market occurs. As you may already know, when supply exceeds demand, prices drop as the competition among sellers becomes stiffer.
Since, in most cases, projects are already underway, or close to completion, there is not much a seller can do in terms of product differentiation. As a result, the only way to be more competitive is to reduce prices.
This means that buyers have a higher negotiating power, because if not seller A, seller B or seller C might just be desperate enough to give in to the buyer’s terms and budget.
Why is this exciting?
Especially in India’s metros and particularly in cities like Mumbai and Delhi (though Mumbai is hands-down the most notorious in this regard) real estate pricing has gone through the roof in the last few decades. This rationalisation of prices is a great opportunity for :
- Young salaried folk and entrepreneurs were saving up to buy a home
- Experienced salaried folk who were simply waiting for better credit pricing
- Homeowners who have been mulling a second home or a holiday home or a home for
when their children grow up and have their own families
- Growing joint families that want to expand their home to accommodate new members (life goes on after all. COVID or not, marriages will happen and babies will be born)
- Investors who want to add real estate to their portfolio
- The RBI had been doing its best not to keep the real estate sector afloat by ensuring sufficient liquidity in the market. For example, RBI kept repo rates unchanged – the repo rate is the rate at which commercial banks borrow money from the RBI. If the banks get low-cost credit they can pass on low-cost credit to developers and to buyers
- Stamp duty exemption or rebate or reduction have been made in several states including Maharashtra, Karnataka and Bengal. In states where stamp duty discounts and exemptions are being provided, this could definitely serve to revive the market because most buyers feel like this is what is stopping them from purchasing a home – or at least that’s what a recent survey indicates. The said Magicbdicks survey found that over 80% of potential home buyers would be more open to buying a home if such a move were made in their state.
- There have been several other sporadic concessions. For example, in India’s most expensive estate market, Mumbai – real estate could be dramatically more affordable because the Maharashtra government has reduced all premiums related to the sector by 50%. This is applicable until the end of the calendar year. Lower premiums reduce the cost burden on the developers and obviously the developer passes the same on to buyers by way of lower pricing. The Delhi government reduced a 20% reduction in circle rates, which is applicable until the end of September this year.
- Piyush Goyal, Union Minister for Commerce and Industry directed the industry to rationalize home prices last month when he said that builders must sell housing at lowered prices. He also hinted at the “letting go” of high-priced unsold stock.
The lending scenario
Home loan rates stand between 6.60% to 6.80%. In 2019 before the pandemic struck, home loan rates were between 8.7% to 9.3%. When you look at the actuals on those percentages especially in the context of home loans which correspond to large sums borrowed, the interest paid to the Bank saved today is tremendous.
However, that’s not to say that lenders are being careless, haphazard or that they are open to offering desperate discounts in terms of whether or not credit should be extended for a given application. Here are some lender preferences that you should be aware of:
- Ready for possession or nearly complete projects are definitely preferred over projects that are still in development. If the residential project you are interested in already has homes ready for immediate purchase and occupation, you are most likely going to have an easier time obtaining a loan. This is probably because uncertainty means that lenders have concerns about whether the real estate project will continue as per projected timelines given the general cash crunch in the sector.
- Lenders are also evaluating loan applications based on the developer in question. There is an increasing trend of categorising developers as poor and strong. If the developer of your chosen residential project is categorised as strong, you might have a higher chance of obtaining a home loan.
Why many people want to buy homes now:
- Land prices are down 10% to 30% in some geographies
- Property prices are down 10% to 20% depending on where you are buying no
- Marked shift to virtual property tours that allow buyers to view multiple projects in a short amount of time
- Online loan applications and verification, vetting of documents
- Cheaper credit
Should you consider a home loan to buy now?
If you want to make the most of the buyer’s market, you should consider doing so before the market has the chance to bounce back. Not a lot of home buyers already have such a large chunk of capital sitting in their bank accounts. Moreover, despite paying interest on a loan, it is likely that the price benefit received by buying now overtakes the amount paid as interest. As lockdowns are eased and vaccine administration to the country’s population advances, normalcy is expected to return to all sectors and that includes real estate. Moreover, with so many people rushing to avail of reduced home prices and reduced cost of credit. The demand-supply gap is likely, to soon be bridged. As a result, buyers should consider making their move quickly, but of course with due deliberation. After all, this is a huge investment.
Checklist of key considerations before zeroing in on a project and a lender:
When opting for a home loan, you must consider
- Is the housing project one that is close to completion?
- Is the project developer (the builder) a reputed name, one that will inspire confidence in a lender?
- Have I checked rates with at least 3 to 5 developers in the same geography?
- Can I apply for my home loan online?
- Do I get access to a variety of lenders offering a variety of credit rates?
- Can I get access to lenders who will know about developers in my geography?
- What are the interest rates that various lenders will offer me?
- How soon can I get my home loan approved and disbursed – how soon will the capital reach my bank account?
- What are the various loan tenures being offered to me?
- Can I afford the EMI at my current income?
- What are the various foreclosure charges being offered to me by various lenders?
How to get a home loan with ease
- Log on to the OneNDF website and create a login within a few minutes
- View the various lenders and the lending rates being extended to you – compare the interest rates, loan tenures, foreclosure charges and monthly EMI
- Tip – tally the total EMI payout. Sometimes lower EMIs result in a longer payment term which increases your total payout
- Choose a lender and undergo a fully virtual application and verification process that is convenient, hassle-free and quick
- Enjoy quick approval turnaround time and get ready to be a proud homeowner very soon.