In the last 40 years that HDFC has been in business, has never seen a better time for the housing sector in India than it is witnessing today. The real estate sector is in a sweet spot as the thrust given to housing has been extremely beneficial not only for developers but also homebuyers and even lenders.
Though there has been a minor increase in interest rates recently, they are still quite low compared to 2011-12. The prevailing rate of interest at HDFC is 8.55% (8.50% for women) for home loans up to Rs 30 lakh. A borrower is eligible for tax deduction of Rs 2 lakh on the interest paid on home loans under Section 24B and Rs 1.5 lakh on principal paid under Section 80C.
Additionally, if one has availed the loan under the Pradhan Mantri Awas Yojana (PMAY) scheme, then one is eligible for subsidy between Rs 2.30 lakh and Rs 2.67 lakh, which is adjusted against the principal outstanding amount. This could reduce the effective interest rate on the loan to less than 4%, which is phenomenal.
The schemes for EWS and LIG are available up to 31 March 2022 and for MIG up to 31 March 2019. Also, the latest decision to relax the eligibility criteria by increasing the carpet area to 160 sq mt for MIG-I and 200 sq mt for MIG-II reflects the government’s intent to encourage home buyers, especially in smaller towns. With property prices steady, low interest rates, higher income levels, huge subsidies for first-time buyers, fiscal benefits, expected economic growth, etc, this is perhaps the best time for an end user to buy a house.
Investment not an option
As far as the investor is concerned, it may not be very rewarding to invest in real estate now as home buyers may not be eligible for the government benefits if they already own a property. Moreover, real estate is a highly illiquid asset with huge upfront transaction costs, including stamp duty. Given the scenario, it is unrealistic to expect high net returns.
Real estate prices have not really risen in the last two or three years. If we look at the outskirts of big cities, tier II and tier III towns, there is a lot of growth happening. Historically, property prices are a function of demand. India being a large country, there will always be some pockets where prices may remain steady for longer periods and in some pockets, prices may move up depending on the demand-supply situation.