It is probably the best time to buy a house and the reasons are not difficult to decipher. Rock-bottom interest rates on home loans, festive discounts, offers, and the availability of ready-to-move-in properties mean that buyers can swoop in on good deals. The home loan interest rate is now at 15 year low, but will it go down further?
Property prices are reasonably stable or somewhat up in some localities for some time. There is no runaway inflation in property prices. The moot point is whether the homebuyers should consider buying their chosen homes now, or should they wait for any reduction in property prices.
Property Demand is Reviving Very Strongly
After the lockdown was lifted, pent-up property demand surged across the cities in India. Even after a few months into the unlock phase, property demand is not abating. It is slowly growing, and a plethora of favourable circumstances and policy initiatives are helping to stabilize it.
When the demand is robust, it is unlikely that the prices will go down. In fact, they may inch up gradually.
The Indian economy is shrugging off the sluggishness due to Covid-19 and coming back very strongly. Almost all economic indicators are pointing towards a robust economic recovery. Most sectors including the real estate sector have already revived to pre-Covid levels or are within a kissing distance from it.
Moreover, the prices of raw materials for the construction sector such as steel and cement have risen recently and are still rising. The developers have hardly any scope to reduce property prices any further.
The improvement in the economy will eventually lead to property prices recovering to pre-COVID levels at the minimum. So, in terms of prices, this is probably the best time to buy a property.
Inflation is Raising its Ugly Head Again
Inflation has been quite benign in India recently because of impaired demand and the crash in crude oil prices. As inflation is largely dependent on the fuel prices in India, depressed fuel prices help to contain inflation which allowed RBI to bring down the repo rate to a 15 year low of 4%.
However, crude oil prices as well as other commodity prices are rising again on the back of global economic recovery. Even food inflation may rise after the winter season when food prices are traditionally low. If inflation rises, the interest rate will follow suit.
Fuel prices in India are already at a high. Diesel price is already above the pre-Covid level and as diesel largely influences prices of goods in India, it is only a matter of time before inflation inches up again. In fact, the Wholesale Price Index (WPI) is already at nine months high in November.
Rising retail inflation will willy-nilly impair the ability of the Reserve Bank to further cut the benchmark interest rate, given the mandate to keep the Consumer Price Index (CPI) based inflation at nearly 4 per cent.
In its latest policy statement, RBI signalled a pause and kept the repo rate unchanged, and said it would keenly watch the supply side before announcing any repo rate change.
Buy a Property Now and Keep Home Loan EMI Affordable
The Indian economy is witnessing very strong demand coming back. One lead indicator, GST collection, is on an all-time high.
Under the circumstances, while the construction section raw material prices, overall inflation, and property demand are rising strongly, it is likely that property prices will inch up in the near future.
The home loan interest rate has also hit the nadir and is not expected to go down from here. There is no better time for homebuyers to buy a property than it is now, and keep the EMI low and affordable.
If you take a home loan of Rs 30 lakh for a tenure of 15 years, at an interest rate of, say, 9 percent, your EMI would be about Rs 30,500. If other things remain the same, your EMI would be about Rs 26,500 at an interest rate of 6.75 percent a year. A lower interest rate also gives you an additional option of taking a lower loan paying period.
Additionally, first-time homebuyers should take advantage of PMAY (CLSS) benefits and lower stamp duty benefits wherever applicable.
The confluence of favourable factors for the homebuyers will not last forever, as the interest rate cycle (and inflation) will surely turn upwards from here.