Month: May 2018

The landscape created by the Government in the first quarter of the year 2017 can be regarded as a dynamic podium for a large number of aspirant home buyers in India today. Some major reasons for the same which are as follows:

Budget Boost

On February 1, 2017, the Union Finance Minister, Arun Jaitley, announced a number of measures to boost the Indian Real Estate Sector. A true product of razor sharp foresightedness was in granting infrastructure status to affordable housing. In fact, decisions of this sort can be regarded as the Government’s aggressiveness to accomplish the most common dream of the Indian Middle Class. Several private developers have already forayed into the market drawing up their plans in the affordable housing segment across top 8 Indian cities and even in the Tier-II, Tier-III cities and beyond. The industry will witness a wide array of affordable housing projects in the coming months across the nation. These projects will be under the umbrella of the new Real Estate laws. As a result, these projects will get completed in a time-bound fashion. Considerable reduction in home loan rates and lucrative schemes rolled out under the PMAY (Pradhan Mantri Awas Yojana) are just the best options for a first time home buyer. Calculation of carpet area instead of built-up area for affordable housing has also thrusted the end-users’ sentiments. From the investment point of view, speculative elements have been neutralized and asides end-users, the investors will find significant premium in short term as well as long term real estate investments.

Tax Sops

Reforms in taxation associated with housing sector have been also given the developers extra premium to come up with more and more development. The Finance Minister has announced up to 100 % deduction of profits from tax of an affordable undertaking of carpet area of 30 square metres in four metro cities and up to 60 square metres in other cities for the developers. Then the benefit of greater tax deduction for interest paid on housing loans will also come into effect post April 1, 2017 (start of the new financial year). The move to tax unoccupied houses a year after getting completion certificate would discourage speculative investment in housing and would encourage long term investments, thereby reducing susceptibility to price volatility.

Single Window Clearance

From May 1, 2017, the Real Estate (Regulation and Development) Act, 2016 (RERA) will be operational. As a result, a number of State governments are working towards adopting a single-window clearance for the developers. A full measure of the impact of RERA will be felt in the following three to six months as per experts. Developers, as a result, are actively looking at lowering the ticket size of apartments, by lowering launch prices and apartment sizes. The home loan rates are at their lowest (from some of the banks) now in the last decade for ready-to-move in properties. The holding period of Long Term Capital Gains Tax (LTCG) for land and immovable assets has been relaxed to 2 years; which may lead to greater secondary sales of residential units. The recent restrictions on dealing in cash transactions only upto Rs. 3 lakhs would also help curb the artificial hike in home prices, particularly in the sale of units in the secondary market.

Quicker Approvals

Once the provisions of RERA kick in, efforts will be given to put in place online approval systems for residential projects. As for instance, in cities like Delhi and Mumbai, work is on to give online approval to developers within 60 days of filing the applications.

Apart from that, there are several other linked factors that entice people to purchase their dream home now.

_Image Courtesy: makaan.com_

Pradhan Mantri Awas Yojana (PMAY): An upfront blessing for all Indians and a game changer in itself. Gone are the days when a Middle Class Indian Man had to think ten times before purchasing his first home. The Government of India has made the environment undeniably conducive for all, so as to not worry at all about the third parameter, ‘Makaan’, of the age old basic three ‘Roti, Kapda Aur Makaan’! All thanks to Pradhan Mantri Awas Yojana (PMAY).

Lowest EMIs ever

Who will stay in a rented apartment and dole out unrealistic rental amounts, when one can purchase their own home with several benefits? Well, the answer is No one. Monthly EMIs for home loan of a new property will be coming down by around Rs. 2000 under the PMAY scheme if an annual household income is in the range of Rs. 12 to 18 lakhs. There is an interest subsidy of 4% on housing loans of up to Rs 9 lakh of those with annual income of Rs 12 lakhs and of 3% on housing loans of up to Rs. 12 lakhs of those earning Rs 18 lakhs per year. The scheme is functional now and the subsidies are applicable for loans availed January 2017 onwards.

Detailed explanation

At present, the government is already giving a subsidy of 6.5% on loans of up to Rs 6 lakhs, to those whose household incomes are less that Rs 6 lakhs per annum. This does not mean that the loan amounts are capped. If a person with a household income of Rs. 10 lakhs, borrows Rs. 35 lakhs to buy a house, he or she will still get the mandated 4% interest subsidy on Rs 9 lakhs. Supposing this person borrows the amount at 8.5%, he will then pay an EMI at 4.5% on Rs. 9 lakh plus an EMI at 8.5% on the rest of the amount, Rs 26 lakhs in this case. Owing to the subsidies from the government, his effective EMI will be reduced by Rs 2,117, if the repayment period is 20 years. This subsidy will not be given every month to the lender. Instead, the government will pay around Rs 2,43,894 to the lender upfront, so that the EMI at the contracted rate is reduced due to this amount.

Substantial Tax savings

Even after availing the subsidy benefit under PMAY, one can avail income tax benefits on the home loan too, which can go up to Rs 61,800 if a person’s income is within the 30% of the tax bracket and up to Rs 41,200 if the income is in 20% of the tax bracket, as the person is allowed to deduct the interest payment of up to Rs. 2 lakhs from his or her taxable income. But if a person is buying his or her first house at a capital value of less than Rs. 50 lakhs by taking a loan of Rs. 35 lakh or less, the benefit will increase substantially. In this case, a person having household income in the 30% marginal tax bracket will be able to get a maximum annual tax benefit of Rs 77,250, while those whose income is in 20% tax bracket will be able to save up to Rs 51,500 annually. In this case, too, a deduction of Rs 2.50 lakhs is allowed.

If you are still unclear and want further clarifications, do not worry! Contact us and we will be more than happy to help with our tailor-made offers and solutions to suit your real estate requirements. Please do also share your valuable feedback, if any.

Our Prime Minister is dropping bombs one after another on the critics and clearing the deck for absolute sustainability and winning the hearts of the \’Aam Aadmi\’. Post demonetisation and Union Budget 2017, the banks have readily reduced their interest rates on home loans giving headroom to everyone for opting in and materializing their dreams of owning their own homes. In the yester year, home loan rates were hovering in the bracket of 10 to 11% but now one can avail at interest rates as low as 8.5%. We say that this drop is significant and we are even more exited to reiterate that even a 1% drop creates a real market hullabaloo and a huge relief to your financial planning when it comes to buying your own home.

Price Corrections: A \”Myth\”

With interest rates falling, one may think that home prices should also fall. In fact, there was also communication on the market grapevine about the same. No harm in thinking the same, but sorry, this not gonna happen! It\’s a \’myth\’ both literally and metaphorically. You will only find the prices at current levels or an increase. So, better make a simple move and take your decision. You will relish the \’decision of buying\’ and consequently change your quality of life in the long run.

We are not saying for the sake of saying or just making an arbitrary statement. Industry leaders of the industry have already given written commitments that they are ready to compensate if prices fall by doling out \’Price Protect\’ schemes. Our MD, Mr. Jitendra Khaitan, hse stated in a leading daily recently, that \”the price protect scheme is attractive for speculative buyers and there is close to 50% hike in queries along with 10-15% in actual sales now\”. The underlying logic follows the basic law of demand. With demand increasing, prices will rise. Now, if supply rises proportionately with demand, price rise will be adjusted and will not fall. Hence, the notion that price correction is a myth is a science. Hence, with falling interest rates of home loans the demand will only rise.

Let’s cut to the chase

To be precise, a 1% drop in the interest rates of home loans, amplifies your eligibility by 10 times. With the new Credit Link Subsidy Scheme (CLLS) under PMAY (Pradhan Mantri Awas Yojana), the EMIs have come down by an average of Rs. 2000 per month. We have seen fence sitters getting enthused and making purchase decisions.

The RBI (Reserve Bank of India) has introduced the MCLR (marginal cost based lending rate) method, effective from April 2016, to enable a faster transmission of rate cuts to bank customers, replacing the base rate method that was being used by banks to set their lending rates-earlier the base rate had replaced the less transparent prime lending rate (PLR). Now, borrowers who took loans 4-5 years back and did not ask their bank to switch to the newer regime, are still linked to the PLR. Those who borrowed when the base rate became the benchmark are stuck with the base rate. Now, while banks are giving new loans at cheaper rates, based on MCLR, old customers are still paying higher rate.

Since banks offer different rates, it is better to visit some common aggregator and understand the lowest rates available in the market. This will help one to bargain better with their bank. To reduce the interest outgo, one needs to shift their loan from base rate or PLR to MCLR. Shifting to MCLR now is a good move.

The importance of reset charges comes into the purview. There are two types of loans: fixed and on floating rate. Floating rate loans are supposed to mirror the rise and fall in interest rates set by the RBI. The introduction of new benchmarks has also turned out to the banks\’ advantage. They charge customers for shifting from one benchmark to another from PLR regime to base rate regime to MCLR regime now. The charges are levied to meet the expenses involved in drafting and registering new agreements-stamp duty, registration charges, etc. Though these expenses vary across states, ordinarily they won\’t be more than 0.2% of the outstanding amount. However, some banks try to profit from this also by charging around 0.5%.

Should you go for a reset even if it involves a small charge? Yes. The amount you save will be significantly higher over the years.

To illustrate, consider the case of a home loan borrower with Rs.50 lakhs loan amount and a 15-year tenure. A 1% fall in interest-from 9.5% to 8.5%-will bring his EMI from down from Rs. 52,200 to Rs. 49,250, a reduction of Rs. 2,950 per month. There will be aggregate savings of Rs. 5.31 lakhs, which is significantly higher than the reset fee of Rs.25,000, even at the maximum rate of 0.5%. You may be able to get this reset cost down by negotiating with your bank. One of the ways is that of threat of shifting to another bank. This often works.

The mercury is rising – Feel the heat and book your dream home by taking that home loan now!