Is Now a Good Time to Buy a Home?

How have house prices evolved over the years?

Housing, which was a hot market at the start of the last decade, has gradually run out of steam since then. The RBI’s Home Price Index (HPI) shows the sector’s growth slowed from 22-23% in FY11 and 12 to 3.4% in FY19 and to 2.8 % in FY 20. Data for FY 21 (the year of the pandemic) is only available through the third quarter, but it shows that there has been near zero growth. Buying a home as an investment has always been a high-risk proposition, but it has paid off less and less in recent years. Rental yield in India (rent as a percentage of house price) also tends to be low – around 2-3% in large cities.

How have taxes and other costs changed?

States like Maharashtra reduced stamp duties in FY21 to boost the housing market. The stamp duty reduction expired on March 31, 2021. However, Maharashtra kept its circular rates, called loan calculation rates, unchanged for FY 22. This is both an acknowledgment of the stagnation of the housing and an indirect attempt to stimulate the market. Transactions that take place below the circular rate are subject to both stamp duty and income tax according to the circular rate. Keeping circular rates low acts as a positive force on transaction volumes. Thus, transaction costs have been lowered to some extent

What Happened With Home Loan Rates?

Over the past year, the RBI has cut interest rates, which are now at historically low levels. This has brought mortgage rates down to 6-7% at some banks. However, bond yields in the United States have tightened and inflation remains a serious threat in India. SBI has increased its minimum mortgage rate. Deposit rates have also started to rise.

Is housing a good investment?

Suppose the housing has a rental yield of 2% and a house price growth of 6% each year. Let’s say the associated fees, like maintenance and property tax, are 0.5% of the price each year. Your net return is thus 7.5%. If this goes beyond an equally risky alternative (equity or gold markets), housing becomes the investment of choice. However, housing also comes with risks such as title disputes and tenant eviction issues. For retail investors, experts suggest buying a house to live in, but not to invest.

What are the alternatives ?

You can invest in real estate through real estate investment trusts (REITs), although REITs can invest in commercial and non-residential properties. They are required to distribute 90% of their cash flow to investors. REIT units can be bought and sold on the stock exchange. Shares of companies related to the housing market can give you indirect exposure to housing. A home is a large lump sum investment, less diversified than the units of a REIT or a portfolio of stocks, a point you should consider.