High interest rates and loan-to-value have rendered property buying difficult.
Amar Pandit, director, MyFinancial Advisor, is advising clients to look for good deals amid properties currently under redevelopment schemes in Mumbai. “Given a host of adverse factors such as high property prices, interest rates and loan-to-value, we are asking clients to be selective about buying property.”
Over the last few months, buying a home has become a tad more difficult. Since October, home loan rates have been rising consistently, increasing the burden on existing as well as potential buyers.
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For instance, till about eight months back, State Bank of India (SBI) was offering its special home loan scheme at eight per cent (fixed for the first year) for a 20-year loan. Now, its floating rate for loans up to Rs 30 lakh and a similar tenure stands at 10.25 per cent – a sharp spike of 2.25 per cent, or, 225 basis points. HDFC, too, has increased rates by 175 basis points – from 8.5 per cent to 10.25 per cent.
Things are unlikely to settle down soon. The Reserve Bank of India (RBI) has taken a hawkish stance to tackle the rising inflation. As a result, it has increased the repo and reverse repo rates several times. The apex bank may continue in the same vein if things do not improve.
Bankers say though the special home scheme regime is over, buyers stand to benefit from floating rates. Since home loans are typically repaid over 15-20 years, there will be periods when interest rates are on the decline, thereby reducing the equated monthly instalments (EMIs).
K C Janu, executive director, IDBI Bank, says, “For someone looking to buy a home for the purpose of residing, the initial rates shouldn’t matter much over the long term. However if the aim is to invest in property, where it is important to buy low and sell high, it makes sense to wait till the rates come down.”
However, a bit of number crunching can leave a potential buyer quite depressed. For a Rs 30-lakh loan for 20 years at eight per cent, the EMI was Rs 25,093. The same loan, if availed today, would come at an EMI of Rs 29,449. The difference comes to Rs 4,356 a month. And, the annual hit stands at Rs 52,272. For loans over Rs 30 lakh, say Rs 75 lakh, the monthly and annual burden will shoot up by Rs 10,890 and Rs 130,680, respectively.
But, it is important to remember that most banks and housing finance companies were offering fixed rates for the first few years. SBI, for instance, was offering eight per cent in the first year and nine per cent in second and third years. HDFC was offering lower rates for the first two years. For the home buyer, the impact will only be felt in the third or fourth year, depending on the financial institution.
Another important development in the same period has been the rise in the loan-to-value. RBI has stipulated that banks can lend only up to 80 per cent of the property’s value, a move the National Housing Bank, the apex institution for housing finance companies, has followed.
The initial outgo, therefore, has also risen. For a house of Rs 30 lakh, the buyer needs to shell out Rs 6 lakh from his own pocket. For a property of Rs 75 lakh, the initial outgo would be as high as Rs 15 lakh, plus registration and other costs.
While admitting there has been a slowdown in buying, some bankers blame it on the consistently escalating realty prices. Shyamal Saxena, general manager (retail banking), Standard Chartered Bank, says, “ Over the last few years, prices have risen in some parts of the country. The demand for home loans has gone down more in these places, as opposed to those where real estate prices have been stable “.
Financial advisors are being cautious. Unless the builder is really reputed, Pandit feels the buyers should not go for an under-construction property. And, if there is a second-hand sale, the clear advice is, wait for some more time.
