With housing in metros being unaffordable and professionals moving to their home towns due to the pandemic, smaller cities have witnessed increased demand
In last couple of months, the government, developers and banks have gone full steam to spur demand in the real estate segment. In an interaction with Hiral Thanawala of Moneycontrol, Deo Shankar Tripathi, Managing Director and CEO at Aadhar Housing Finance discusses the key factors that first time homebuyers need to consider before parting with their hard-earned money. He shares information on how new borrowers are evaluated during the COVID-19 pandemic and current trends in the home loan segment.
Aadhar Housing Finance was incorporated in 2010. As of Oct 2019, the company has disbursed Rs 1,851 crore in loans. The company is creating its niche in financing the affordable housing segment.
Is this the best time to take a home loan and buy a house?
Yes, this is the best time to buy a property, as several state governments have reduced stamp duty rates on residential properties and home interest rates offered by financial institutions are at 15-year lows. Developers too are extending discounts and lucrative payment plans to buyers this festive season.
In a move that is aimed at making home loans easily available, the Reserve Bank of India (RBI) also rationalised risk weightages attached to some categories in the segment. This move is likely to make more credit available to borrowers at a better rate for all new housing loans sanctioned up to March 31, 2022.
What are the key factors that first-time homebuyers need to be aware of?
First decide if there is a need for buying a property. Don’t take a home loan just because it’s available at the low interest rate. You should analyse whether your present financial situation permits you to apply for the loan.
Go for a ready-to-move in house so that there is no risks or delays in handover. Book a property from a Real Estate Regulatory Authority (RERA) registered builder. Do some due diligence of the builder.
Are under-construction properties worth buying?
There are subvention schemes offered by some developers in under construction properties. In such schemes, buyers have to pay the full amount to the developer (self-contribution and loan from the bank) and the developer will bear the interest cost until construction of the property is completed. I do not recommend such subvention schemes offered by developers. There are buyers from the years 2000 to 2015 that are suffering due to such subvention schemes. In under-construction properties, you should always pay as per the stage wise completion of the project.
Some of the developers are also floating schemes asking buyers to pay 10-20 per cent now and nothing more until the property is ready for occupation. In such offers, the risk is negligible and very attractive. However, you should inquire whether part payment on stage wise completion of the project is feasible and what the total cost in that case will be. Mostly, the cost will be lower and you should do the calculations while booking the flat. Always, getting a cash discount today is preferable than getting the benefit tomorrow.
Did the Government do the right thing by waiving the ‘interest on interest’ of loans? Since non-moratorium seekers also get the waiver, do you think it could set a bad precedent?
Such waiver of interest on loan generally does not set the right precedent in the financial sector. But, considering the present pandemic situation in the world and the country at large, it’s a right signal from the government to the public at large that we are not only helping the lower middle class families but also taking care of middle income and upper middle income families.
I feel the decision by the Government for waiving compounding interest on retail loans such as home, education, auto, personal and credit card debt of up to Rs 2 crore is timely and admirable. It doesn’t discriminate among borrowers who paid regularly and people who took the loan moratorium. In the past, all loan waiver schemes were only in favour of loan defaulters. This is the first time that the benefit has been extended to everybody, because this is a peculiar situation we are all in.
How has the demand for home loans been?
In the first quarter, the demand for home loans was negligible across the industry because of the uncertainty of the pandemic. Buyers were saving for contingency requirements. Now, with the festive season and unlock phases in states, the trend of inquiring as well as applying for home loans is picking up. Developers are also launching projects as per buyers’ demands, targeting lower, middle and upper middle income segments.
There is a demand for houses priced between Rs 50 lakh and Rs 1 crore in tier I and tier II cities. In some cities, we are seeing demand for premium projects. In January-February 2021, we are expecting the property market to be at a level similar to what it was one-and-a-half years back. By January 2022, we are expecting rise in demand for home loans as interest rates offered by the banks are at 15-year lows and similar rates will continue next year.
Are you scrutinizing loan applications more stringently these days?
A few lenders have become more stringent. But most lenders have increased their due diligence though. Lenders have been asking for the most recent income statements to check if salaries or cashflows have been impacted or not. Some of the lenders have decided to disburse loans only after income levels improve back to pre-lockdown levels. So, the waiting period has increased for some of the loan applicants.
Is there an increasing demand for bigger houses with work from home being the new normal?Yes, the COVID-19 pandemic has brought a culture of bigger homes. The people working from homes are now looking at one extra room to have an office-like set-up and work peacefully. The demand for bigger houses is coming from tier II, tier III and tier IV cities as many working people have shifted to their home towns from metros. Also, in metros such as Mumbai, Delhi and other cities, purchasing a bigger house is not affordable at current prices. This demand is coming from middle income and upper middle income segments.