Raghav was tidying up his place before his parents arrived for a visit. Although Raghav was brilliantly placed in his career and stayed in a well-furnished 2BHK, his parents would still frown at his living arrangements. The reason? Raghav does not own the house and is already nearing 30, the ideal marriageable age for career-oriented guys.
Raghav’s parents cannot be faulted for this generation had grown up with fixed milestones etched during the course of their life. And, among all those milestones, buying a home was paramount. It was a symbol of security, financial status and necessity. On the other hand, Raghav’s generation has completely different goals. Millennials today are more concerned about,
- Flexible mobility options to change jobs, cities or even countries.
- Comparative importance of funding the next car, trip or other merchandise.
- Preference for workplace proximity where renting is cheaper than buying.
- And most importantly, financial freedom rather than being tied down by EMI based long-term financial obligations.
Time to Change
All these excuses can be countered now and a big reason behind this is the current low home loan EMI. In the last ten years, the home loan rate is at its lowest presently at 7.90%. This attractive low-interest-rate can be availed with a loan value amounting to Rs 30 lac. In this scenario, a lot of calculations change that are often presented in favour of renting houses rather than buying an apartment.
The low home loan rate means that buying a home should not be seen as a financial burden anymore. The difference between rent and EMI is not much in this case and with almost the same deduction from salary, EMI can in fact help in building an asset. Therefore, this is the perfect time to take advantage of the low home loan EMI.
Low Home Loan EMI: Lower Rent to EMI Ratio
One of Raghav’s pertinent points to his father was those suburban areas closer to business districts are not affordable and connectivity, security and less commuting time were important considerations. While it is true that suburban areas with good quality and standard of living are quite unaffordable making renting the only viable option, recent changes in home loan rates and government schemes supporting affordable housing are turning the tide.
The general EMI: Rent ratio usually varies between 2.5 and 4.5 in a suburban locality. But, in the present situation, this ratio has come down to 2 or below. For instance, Joka, an affordable suburban locality in South Kolkata would ask Rs 12,000-Rs 15,000 as monthly rent for a 2 BHK property. Now, the same property would cost around Rs 35 lakh. Assuming a down payment of Rs 5 lakh (a little more than 15%), one has to take a loan of Rs 30 lakh. If we consider a loan tenure of 30 years and an average annual rate of interest at 7.90 percent per annum, the EMI comes out to be Rs 21,810. Thus, if you are a potential homebuyer, you must take advantage of the low home loan EMI now.
The Credit Linked Subsidy Scheme (CLSS), under the Pradhan Mantri Awas Yojana – Urban or PMAY-U offers substantial loan subsidy so that those in the 30+ age group can think about affording homes. The scheme offers a 4% interest subsidy on home loans amounting to Rs 9 lakh for a period of 20 years, to MIG 1 home buyers who have an annual income between Rs.6,00,001 up to Rs.12, 00,000. For MIG 2 beneficiaries, who have an annual income between Rs.12,00,001 up to Rs.18,00,000, an interest subsidy of 3% applies for the same loan component and tenure. The subsidy benefit to the homebuyer can go up to Rs 2.35 lakh.
Plus, various tax deduction eligibilities can be claimed under section 80C, 80EE and 24(b) of the Income Tax Act.
Under Section 80C of the Income Tax Act, the amount to be repaid for the principal on a home loan is eligible for a deduction of Rs 1.5 lakh. This section also includes a maximum deduction of Rs 1.5 lakh on other expenses such as registration charges, stamp duty, and expenses for property transfer, etc.
Section 24B allows a deduction of up to Rs 2 lakh on home loan interest payment, while Section 80EE is particularly for the first-time home buyers and allows them to enjoy a maximum tax deduction of Rs.50, 000 on their home loan interest.
Home Buying Advantages
The 30+ brigade might be taking over the population share but as a society, owning a home is still an important asset and a mark of financial prudence. Besides, new and first time home buyers can also avail additional subsidies to the tune of Rs 2.35 lac under the PMAY scheme launched by the government. As further savings, the GST rate for the affordable home segment has been lowered to 1% compared to 5% GST attached to high-value projects.
Of all the reasons that people provide towards avoiding the buying of a home, high EMI as a burden on financials is the biggest one. When contrasted with paying rent, the difference is at its lowest now, hence, by paying a little more you can own your own real estate.
Affordability as the negative sentiment around home buying can be safely countered thus. On the other hand, developers are coming up with attractive offers for all potential homebuyers in the age group of 30 and above, where other priorities can still be envisioned along with buying a house.
With the current low home loan EMI, this is the best time to consider home buying as an investment for the future. If your job and career opportunities take you to a different city or even another country, real estate as an asset will be still offering returns on your investment. Subletting and rental provisions also become a profitable venture for the future with a minimum financial commitment now.
While the last generation insisted on buying a home based on emotional impulses, the millennials are a logical, practical breed and based on the low home loan EMI now, it is indeed advantageous to buy a home now. However, the low-interest regime may not last an eternity. Consult a financial adviser or a property consultant to calculate affordable rates and options in real estate.
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