If you have been still waiting on the sideline to buy a new home, then now is as good a time as any. The Kotak Mahindra Bank and State Bank of India (SBI) have reduced home loan rates, effective March 1. Both the banks have reduced the interest rates by a further 10 basis points (100 bps = 1 percentage point).
Kotak Mahindra Bank reduced the home loan interest rates to 6.65 percent per annum - the lowest in the market. Government-owned behemoth State Bank of India is lending for home loans at an interest rate of 6.70 per cent for loans up to Rs 75 lakh and 6.75 percent for loans above Rs 75 lakh to Rs 5 crore. The customers applying for home loan through SBI’s net banking YONO app get additional interest concession of 5 bps. The bank also waives processing fees on all home loan applications.
Now, home loan rates are 15-year-low, as banks compete in a market with low credit demand.
This reduced interest rate on home loan is offered till March 31, 2021 by both the banks. Experts are of the opinion the banks are grabbing home loan customers before the fiscal year ends.
The two important factors which any property buyer must take into account are interest rates on home loans and property prices.
Why interest rates may not fall much further
For prospective home buyers, the interest rate on home loans is the most critical consideration. And interest rates have been declining, and have reached a historical low, thanks to the accommodative monetary policies being pursued by the Reserve Bank for boosting economic growth.
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 Consumer Price Index (CPI) based inflation at nearly 4 per cent. “The interest rate is nearly at an all-time low and with inflation remaining higher than RBI-targeted levels, it is unlikely that interest rate will fall much from the current level. As property prices are also at a low, the time is apt to book a dream house now,” says Mani Rangarajan, Group COO, Housing.com, Makaan.com & PropTiger.com.
As inflation is ruling high because of several factors, including disruption in supplies, the RBI is unlikely to cut interest rates in the near future, till the spiraling inflation is decisively tamed. It is probably the right time to buy a property and keep the EMIs low and affordable.
If you take a home loan of Rs 30 lakh for 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.
Property prices stagnant
The property market has been going through a dull phase because of the lack of demand and probably excess supply. According to a report released by Anarock Property Consultant earlier this year, property prices have risen by just 38 percent during the last decade. Further, because of the pandemic, the housing sector witnessed prices decline by 5-10 percent or more across segments. The reasons that adversely impacted the sector were loss of jobs and salary cuts.
“Taking into consideration cash discounts, schemes and offers from developers and government incentives to home buyers, the effective price benefit is between 5 percent and 15 percent compared to pre-COVID levels,” says Samantak Das, chief economist and head of research at JLL India.
Will prices dip further? The answer could be a no.
“There can be exception of 1-2 percent price correction in some pockets, but most developers don’t have further scope to reduce prices,” says Das.
The improvement in the economy may eventually lead to property prices recovering to pre-COVID levels at least. So, in terms of prices of, this is probably the best time to buy property.
Incentives and festive discounts
The interest subsidy under the Credit Linked Subsidy Scheme (CLSS) is a great benefit for first-time home buyers. Under this scheme, a buyer who takes a housing loan from a bank, housing finance company or other financial institution, is eligible for an interest subsidy of up to Rs 2.67 lakh.
In a few states the government has reduced the stamp duty rates. Also there is no GST on ready-to-move homes.
And icing on the cake is the host of festive offers and schemes being offered by different developers at present. However, evaluate the festive offers and schemes in monetary terms and ask for a cash discount. A ready-to-move house is always better as there is no worries about handover delays then.
Disclaimer: The original story published in November 2020 has been updated to reflect the latest fall in home loan interest rates.(The writer is a freelancer)