Aspiring for a home is common with most Indians. In fact, once an individual starts earning, one of the first things she plans is buying a house. This was also reflected in the Aspiration Index survey, which revealed that owning a home is priority for Indian millennials – both men and women. And why not? Easy availability of home loans, affordable housing projects, PMAY benefits, and transparency provided by RERA has made owning a home a vaunted goal.
Through the interim Budget this year, the government has already given people enough reasons to invest in real estate, and the latest rate cut of 25 basis points will give this a further push. Take a look at the recent changes that may help you decide if this is the right time to buy a house.
Repo rate cut by 25 bps
The rate cut of 25 basis point is great news for prospective home buyers who are looking to invest in real estate through a home loan. The rate cut, the first announced by the RBI in since August 2018, will boost investor sentiment. For existing home loan borrowers, a rate cut would only become reality when lenders will also slash their rates. Usually, a loan date is reset after every six months and your EMI calculated after considering the current interest rate.
So, your interest payable will be lowered if the bank also reduces the interest rate in line with the RBI rate cut. A new borrower can get a home loan at the new interest rate and bag a good deal after comparing offerings from various lenders.
Loans to be linked to external benchmark
As a new borrower, you can either take a home loan at prevailing interest rates or you can delay your home loan till April, from when new floating rate loans will be linked to external benchmarks. This means that banks will no longer be able to internally set an interest rate benchmark such as the MCLR. The Reserve Bank of India in its December 2018 monetary policy review has said that all new floating rates-loan will be linked with the below listed external benchmarks from April 1, 2019:
1. Reserve Bank of India policy repo rate, or
2. Government of India 91 days Treasury Bill yield produced by the Financial Benchmarks India Private Ltd (FBIL), or
3. Government of India 182 days Treasury Bill yield produced by the FBIL, or
4. Any other benchmark market interest rate produced by the FBIL.
The central bank had also made it clear that in the external benchmark regime, the spread (the difference between the benchmark and the final loan rate) would be fixed at the start of the loan and not changed unless the borrower’s credit history warrants it. This new rule is expected to positively impact home buyers, whose EMIs would be in line with market realities.
This year’s interim Budget also paints a rosy picture for the real estate sector. From scrapping tax on notional rent on a second self-occupied property and by enabling capital gains to be reinvested in two houses instead of one, the budget proposals are bound to give a leg-up to the real estate sector. The government also said a committee has been formed to assess if GST can be reduced from 12 per cent to 5 per cent for under-construction homes.
To bring transparency and streamline the process, the budget had also proposed to collect stamp duties at one place like stock exchanges, based on the homeowner’s domicile or location of permanent residence. To boost affordable housing, the government has proposed to increase the benefits under Section 80(i)BA of the Income Tax Act for all housing projects that are approved up to 31 March, 2020. This would enable more people to avail interest rate subsidies under the Pradhan Mantri Awas Yojna which reduces the costs of taking a home loan.
Besides, the above moves, laws like RERA are already trying to bring transparency in the real estate sector, encouraging more and more people to invest.