Gone are the days when only the elderly could or would buy homes on the back of their life savings.
Ashwinder Raj Singh
While the cosmetics market and its customers wrestle with new age-defying and age-reversing concepts and products, there is one market segment that has actually discovered the fountain of youth. Over the three decades, the grey has been gradually leaching out of the Indian home buyer's profile, leaving full heads of natural black hair and unwrinkled faces in its wake.
Gone are the days when only the elderly could or would buy homes on the back of their life savings. Thirty years ago, the typical Indian home buyer was invariably aged above 50 and cashed in his or her provident fund to finally make the dream of home ownership come true. Today, home buyers in India are younger than ever, with the age group of 34-38 populating a majority of sales deeds. Furthermore, these young buyers are maximizing the advantages of youth with the power of team leverage.
With dual-income nuclear families having become the new norm, young married couples are the preferred customer 'configuration' for banks and home loan companies. Their combined creditworthiness is boosted by the very healthy risk profile which banks see in people who have two decades or more of active professional life ahead of them. The result? The ability to buy a sizeable home in a good location today, locking in its value and capital appreciation potential. The Great Indian Dream is alive and kicking in its vibrant and highly aspirational youth.
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Know your fundamentals
That said, youthful home buying enthusiasm should ideally be tempered with sound investment advice. While the internet has certainly opened up the domain of real estate knowledge, it has unfortunately also added several levels of contamination from innumerable marketing channels. So much for finding the 'perfect location' for your 'dream home' online - according to Google AdWords, literally everything is perfect and ideal. You still need to be able to separate the wheat from the chaff on the basis of your own knowledge of the market.
Likewise, the decision to buy a home should not be influenced by other people's thoughts and opinions. At the end of the day, this is a very personal decision which does not lend itself too well to 'one-size-fits-all' investment philosophies. While one young couple with a certain degree of financial agility may see a lot of sense in buying a home as soon as possible, another of comparable fiscal ability could be content to live out their lives in rental homes and invest their surplus money elsewhere. There is also no shortage of fence-sitting real estate agnostics who are perpetually waiting for changing market dynamics, rather than their own innate desires, to convince them of home purchase.
For now, let us consider the first set - young married couples who have firmly decided to buy a home.
The ‘Starter Home’
Definitely, young aspiring homebuyers should keep in mind their current and future finances and balance these with their current needs. The concept of 'starter homes' is a very valid one in India - the kind of homes that a majority of young couples prefer or able to buy in the initial stages of their careers and/or married life. Such homes are generally only as big as they need to be but are in well-connected locations which allow for easy transit to and from work.
The idea of buying a starter home is to secure a property within one's existing means, and then upgrade to a larger home as the family as well as financial capability grows. Ensuring that the starter home, though compact, is in a good project with good amenities, and in a well-connected location, will enable the couple to sell it off more quickly and at a better price when the time to upgrade to a larger flat finally comes.
This is by no means the default choice for all young couples - many prefer to invest in larger homes, which their combined credit-worthiness can certainly permit. Herein lies a primary fact of the market - a budget for home purchase is not always only a function of financial ability, but often also of personal choice.
Deciding the budget
When it comes to deciding on how much to spend on buying a home, much depends on whether the newly-baked family comprises of a single income earner or whether it is a dual-income scenario. If it is a single-income household, a starter home in a good project by a reputed developer is the way to go. In the case of a dual-income situation, a couple can set its sights a little higher - but it is important not to overreach.
The main focus at this point in one's family life should be to secure home while simultaneously retaining the ability to enjoy the first years of married life in reasonable style. Travel and entertainment will and should be on the cards. Later, they also need to factor in the financial pressures of parenthood, and these eventualities should be prepared for in advance. The objective for a newly-married couple - unless they come from wealthy families - should not be to immediately buy the biggest, flashiest home on the block.
Buy vs. rent - the jury is always out
For a considerable segment of young married couples in India today, the purchase of a home is definitely still a priority because:• It frees the family of empty rental expenses which reap no returns and instead secures a performing asset which will appreciate in value
• With the predictable expense of monthly EMIs on a home loan factored in, one gets a clear view of what other investment options and life flexibility is still available
• A self-owned home in India has a singular power to provide not only accommodation but also a sense of security and comfort
For others, it makes more sense to stay in rental homes and invest into other instruments like mutual funds or even more adventurous speculation on the stock market. While it is obviously a challenge to judge how many young couples in India lean towards one philosophy or the other, what can be said is that home purchase has become a far more attractive option in India than ever before.
The current market scenario
Over the past couple of years, we have seen significant property price rationalization in many cities. As a result, many more properties have now become affordable for a much larger cross-section of aspiring buyers. Also, thanks to more ready inventory, the legendary mental torture of 'waiting for possession' is now an option, not a necessity.
We will not see any further lowering of prices, especially now that RERA is cleaning up the market of fly-by-night operators and causing supply to slow down. However, as of now, residential property in India has become more affordable than it has been in several years. Simultaneously, home loan interest rates have declined to further boost the logic of home ownership in the country.
As the economy gathers further impetus and the real estate market recovers faster, bringing with it inevitable price escalations, locking into the currently prevailing low rates is the best possible investment choice for young couples who have decided on home purchase. Even the extended suburbs of our larger cities will become densely populated over the coming years, adding better social infrastructure while simultaneously bringing forth a dearth of supply due to depleting land. As our cities widen, today's extended suburbs will become more central locations. Buying a property in such locations now will lock in their future potential.
Investment rationale, emotional value – or both?
While the internet, as well as advisory columns in financial dailies, continue to offer conflicting advice, one immutable fact of the property market remains - property always appreciates in the long run. All over the world, real estate as an asset class provides excellent risk-adjusted returns in the long term. This is not to say that investment in other instruments does not reap comparable or even better returns; what it largely boils down to is one's own outlook.
The intrinsic value that a self-owned home holds for an end-user differs a lot from that which it conveys to a pure investor. The pride and security of home ownership in a country like India is a rather unique phenomenon which cannot be replicated by other asset classes. Real estate is a performing asset in the truest sense since it can either generate rental income or provide freedom from rental outgo even as it gains in value.Finally, we do know that RERA will significantly crimp the supply pipeline going forward, and reduced supply has a direct implication on prices. Losing out on the best opportunities today in the hope of further price corrections can imply a significant loss to those who defer their decision too long. The best strategy for young couples who are firmly decided on buying a home today is to negotiate the best possible price and go in for purchase.(The writer is CEO of Anarock Property Consultants)