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Buy Your Home Now

Buying a house is now more attractive, affordable and can provide you a tax break to top it off

Buy Your Home Now
Punit Paranjpe
Buy Your Home Now
The prospect of owning a roof over your head and the ground beneath your feet couldn’t be any more real than it is today. No longer do you have to put aside every other penny over a lifetime to be able to consider such a big-ticket purchase. A combination of realistic and affordable property prices, an abundance of properties to choose from, low-cost financing options and attractive income-tax concessions have brought this dream closer to the doorstep of the average middle-class household.

Prices of residential properties have dropped 30-40 per cent from their all-time highs of 1994-95, and are at basement levels. Says Anshuman Magazine, director, CB Richard Ellis, real estate consultants, "The 1994-95 period saw property prices soar. When the market crashed in late-1995, it was the first time the real estate sector had dipped."

Secure in the knowledge that the dominant purchase group in the residential real estate market is end-users, a category that rarely withdraws the money committed by it to a project, developers are going ahead full steam with new projects. Says Charu Thapar, director (residential agency), Cushman & Wakefield, another real estate consultant, "The cost of land acquisition is very low for most developers, and the current market prices offer them an attractive profit margin." With a steady stream of new properties coming into the market, prices are unlikely to shoot up in the near term, especially in areas that will harbour the increased supply. For instance, property prices in Central Mumbai dropped by a minimum of 4 per cent in 2003, as many projects were completed in Bandra (West).

In addition to strong demand, builders also have financial incentives to step up activity. Budget 2003 has extended till March 31, 2005, the income-tax exemption to builders on income earned from approved housing projects of prescribed specification. This should spur developers to build more residential properties, which will increase the stockpile in the market—and keep prices in check.

But prices are not expected to plummet in address localities—sought-after residential areas where there’s little scope, if any, for new housing projects. Prime examples of such addresses are Sunder Nagar, Aurangzeb Road, Prithviraj Road and Malcha Marg in New Delhi, and South Mumbai localities such as Colaba, Cuffe Parade and Napean Sea Road. Going forward, though, market indications are that prices in such areas are likely to increase. But don’t use price trends in these areas to benchmark the real estate market, as the demand-supply equation here is skewed. In areas where activity is pronounced, the broad trend is stable or falling prices.

Borrow and build
Property prices might be down, but you still have to shell out a packet for that dream house. If you have the inclination but not the money, don’t fret. Help is at hand in the form of housing finance companies and banks, offering low-cost loans. Says Rajiv Sabharwal, chief operating officer, ICICI Home Finance, "Interest rates on housing loans are at an all-time low. The current post-tax cost of a housing loan works out to around 7 per cent." In order to woo the home buyer, more and more lenders are offering value-added services. ICICI Home, for instance, offers a free home search, which gives an individual housing options to match his specification and budget.

Individuals are happy to play along with lenders. Says 35-year-old Pratin Vete, a manager with Novartis Enterprises, who took a loan of Rs 15 lakh in May 2002 from ICICI Home Finance to buy a house worth Rs 26 lakh in Thane’s Hiranandani Estate: "Tax considerations and falling interest rates played an important role in my decision. For a salaried person like me, housing was the only way left to save tax."

With more and more individuals thinking like Vete, lenders in the home loans segment are doing brisk business. Presently a Rs 34,000 crore business, the home loans segment is expected to grow at 35 per cent a year over the next two years, making it one of the fastest-growing sectors around. Take ICICI Home Finance. The company is currently approving 25,000 loan applications a month. In 2000-01, the company disbursed home loans worth Rs 677 crore, a figure it tripled (Rs 2,037 crore) in 2001-02. In the first nine months of the current fiscal, ICICI has disbursed home loans to the tune of Rs 6,000 crore, around 85 per cent of which has gone to finance first-time house purchases, with an average loan duration of 14 years.

To buy or not to buy
Low prices and low interest rates have characterised the residential market over the past 18 months. So, does it make a difference if you buy a house now than, say, 18 months down the line? Is there a case for not postponing that purchase if you know what you want and can arrange the resources to buy it? Says Sabharwal, "For a first-time buyer who has ascertained his requirement for a self-owned house, this could mean building up an asset at a price comparable to his current rental." Soumendu Sen Sharma, zonal finance manager, Henkel Spic, recently opted to buy a house instead of continuing to pay rent. "In the four years I lived in a rented house, I shelled out Rs 4 lakh as rent—without creating an asset," he says.

Whatever your reasons, it’s important you understand your housing requirements and factor them in while scouting around for a good fit. For Vete, continuity in his son’s education under the ICSE format was a prime housing consideration. Following his transfer from Lucknow to Mumbai, Vete took up rented accommodation in a society in Thane, before buying the house in Hiranandani Estate. Says Vete, "I knew the Hiranandani Foundation School was a good ICSE school. But it was necessary for me to buy a house in Hiranandani Estate to secure my son’s admission." Which he did.

Development of residential properties is closely linked to patterns of growth in business districts, both existing and emerging. Most metros have seen decentralisation from erstwhile central business districts. Delhi has seen an emergence of business areas like Gurgaon (in Haryana) and Noida (in UP), while the focus in Mumbai is shifting away from southern parts of the city to Bandra-Kurla and Andheri. Given the government’s thrust on infrastructure that will conspicuously improve connectivity, property prices in upcoming residential areas is likely to rise.

To invest or not to invest
Home buying for living is all very well, but a pertinent question that simultaneously crops up is whether this is a good time to ‘invest’ in the residential real estate market? Sanjay Verma, executive director, Cushman & Wakefield (India), answers: "Investing in a house only on the basis of an expected capital appreciation is unlikely to deliver returns. Unlike the phase of the great rush (1994-95), the real estate sector has begun to function like a market and responds to demand-supply dynamics. "

Verma cites the example of Delhi’s Greater Kailash-I area, where blocks that suffer from a lack of basic infrastructure such as inadequate parking space are priced lower compared to other blocks in the same locality.He further adds that investment decisions in property must be made on the basis of the potential cash flows associated with it—and residential property usually does not offer substantial yields. But quite clearly, as most experts agree, the areas to focus on, especially in metros like Delhi and Mumbai, are the emerging suburbs that have sprouted around the emerging business districts. As far as the residential buyer is concerned, the next one-year period is likely to be an extended opportunity to buy. Should the government’s plans to table a new Stamp Act in Parliament to impose a uniform rate of stamp duty across all states reach fruition, buyers could hope for additional relief. At present, the stamp duty is as high as 13 per cent in metros like Delhi—a distortion that is not only artificially hiking up costs but also helping generate black money.

On the whole, the end-user segment is likely to dominate the housing sector in the short-term and interest rates are likely to remain range-bound, keeping borrowing costs affordable. Thapar points out that the quality of residential properties in the market today is far better than what was on offer in the heady days of 1994-95. The one damper could be the withdrawal of tax breaks on housing loans in the years to come. Although there might be better times somewhere on the horizon, now is as good a time as any to buy that much-coveted asset.

Budget Impact
Income from approved housing projects exempt from I-T till Mar 31, 2005

Tax exemption on interest component (up to Rs 1.5 lakh) of housing loans to stay

FM examining more incentives to be given to greenfield housing projects

Himalee Bahl with Charubala Annuncio in Mumbai

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