Is Buying Flat a Good Investment in India During Covid- 19 Pandemic

buying flat is good investment

People usually want to buy their own homes thanks to various reasons, one being the pride of home ownership. However, they might not be aware of when is the correct time to get a home. Currently, coronavirus has disrupted almost every industry, including realty. Keeping that in sight, is it the correct time to shop for a home or invest in a piece of property? Industry experts believe a volatile securities market and underperforming mutual funds have raised the requirement for a stable asset class that may give better returns.

And what a better option than buying or investing money in a home? Moreover, residential property is at its best now, with lower interest rates and a buyer’s market. No wonder, several surveys conducted by property consultants recently have revealed that housing enquiries have rebounded to 50% of pre-COVID-19 levels in the top cities and a majority of homebuyers are willing to come back to the market within the coming 3 to 6 months. As per the recent report, ready-to-move-in homes are currently dominating buyer preference, and houses priced between Rs 40 lakh and Rs 1.25 crore are in the highest demand. Also, almost 80% of housing deals during the pandemic are struck by end-users. Here we take a glance at 7 reasons why this might be a good time to buy one’s home:

1. Supply Side Factors Positively Influencing the Market

Compared to past events when the globe has faced a crisis of such magnitude, like the dotcom crash, or the oil crisis, or the worldwide financial crisis (GFC) of 2008, the economic health and financial position of the residential realty market is comparatively better currently. The reason we suggest this is because, during the GFC, the residential market valuations were overheated, which is more realistic now.

Unlike 2008, the nature of the market has also changed. While in the past it was a seller’s market, now it's a buyer’s market. We've also seen a significant reduction in equity credit line rates, which are much lower than the rates in 2008-09. At the same time, our banks are in a better position to lend now compared to the past. We also are in a very benevolent tax regime with tax benefits for both developers and end-users. The speculative fear is way less compared to the market scenario during 2008 and 2009.

There's also a case for positive portfolio rejig. While in 2008-2009, developers had spread themselves thin across varied portfolios, like senior living, vacation homes, etc., currently, the project portfolio consists of relevant projects targeting budget-friendly end-users mainly within the affordable and mid-segment housing.

2. Consumer Credit Interest Rates at Record Low

The Reserve Bank of India (RBI) has reduced the repo rate on multiple occasions in the recent past, leading to consumer credit interest rates plummeting to sub-7% levels. Now, from that perspective, aspiring homebuyers mustn't try and jettison off these record-low rates if they need the required margin money.

In fact, a year ago when home loans were in the range of 8-9%, a Rs 50 lakh loan for 20 years at 8.5% p.a. would have meant an EMI of Rs 43,391. But now, you might get the identical loan at 7%, which might mean your EMIs could go down by Rs 4626 to Rs 38,765, leading to savings of over Rs 11 lakh in total interest payable.

However, aspiring homebuyers must understand that the repo-linked equity credit lines include a customer risk spread, and the lowest home loan rates are offered only to those applicants with credit scores over 750-800. So, they need to check their credit scores before applying for the loan, and if they find it to be not up to 750, they ought to take steps to enhance it to not just to induce the simplest loan offers but also to enjoy low EMIs throughout the loan tenure.

3. Better Government Support:

Faster recovery in cities. The government has been prompt in announcing fiscal and other stimulus packages, unlike in the past. People are aware that the dependency on global funds for the residential sector is restricted. Residential assets demand is especially local in nature. IT/ITES has not been affected significantly, and this is quite evident in the recovery that’s being witnessed currently. Bengaluru, followed by Pune, Hyderabad, and Chennai, is really doing better compared to other cities. As noted above, we are in the midst of a very benevolent rate regime with the repo rate being very cheap compared to the 2008 levels. So are the other benchmark rates.

4. Demand Side Enablers

During the previous crisis, the property market was ON FIRE, resulting from higher valuations, decreasing Loan to Value ratio (LTV), and unfavorable interest rates. However, the situation is currently more suitable for buyers with higher LTVs, lower valuation, and affordable credit availability. “The need and urge to possess property are at an all-time high post the spread of Covid-19. The impact of price benefit and lower loan rates is truly enabling customers to buy property. Also, the house hunt, especially with end-users, is initiated 6-8 months before the actual buy date, and the current softening of costs and housing loan rates is truly pushing the pent-up demand within the system.”

5. Property a Stable Asset

The volatility and unpredictability of the securities market have not just eroded wealth but also the confidence of investors. This has also helped real estate gain a positive traction as a stable asset class. The posh market is also hit initially as luxury homebuyers typically have a higher stake in the securities market. Rental yields are expected to enhance with rationalization in prices if aspects like job security and gradual economic revival are assumed to remain favorable. It will have a positive impact on improving client sentiment. Thus, many industry experts believe that the above factors must help in improving buyer sentiment, thereby translating into gradual upward improvement in sales.

6. Property Available at Reasonable Prices

Another good reason to buy one’s dream property at current times is the availability of housing units at reasonable prices. “In fact, it's probably the best of times for end-users to buy property because prices are as low as they go, and some developers are willing to negotiate further. End-users have a decent selection of options to choose from in the majority of locations and budget bandwidths and can buy ready-to-move properties at attractive prices.

7. Better Deals

The types of offers and realty deals that homebuyers are getting now are usually seen only during the brief festive period. It's true that in this scenario, due to distress across the majority of sectors in the economy and the impending uncertainty of ‘what lies ahead’, buying decisions for all non-essentials, especially for salaried people, are being deferred. This surely has an effect on demand for residential assets, especially in the affordable & mid segments, where affordability is seriously on the lines. However, “better deals always are available in such scenarios. Good projects may not offer direct lucrative discounts. However, buyers might get some appealing deals in terms of complementary car parking or discount of charges. This can often be an ideal buyers’ market, wherein lucrative deals are also available and negotiated within the first market. Additionally, lower interest rates online boost the attractiveness of the “opportunity to buy now” because the interest rates are at a level from where it's only going to head northwards.”

Conclusion: Thus, because of the above-mentioned reasons, it surely seems to be an ideal time to buy a piece of property. However, it's not an optimal time to buy property for investment if the view is on capital appreciation, unless one has an extremely generous investment horizon. “An investment property can nevertheless generate steady income, but this aspect needs to be thoroughly researched before making an acquisition.”

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