Home Sweet Home: Is 2021 the Right Time to Buy a House in India?

In India, as in much of the world, COVID-19 brought an unexpected and sharp hit to economic activity. GDP fell by 7.4% in FY2021, the worst in living memory. Other than a handful of sectors such as agriculture and online retail, there was hardly any part of the economy that escaped unscathed from the pandemic. And residential real estate was no exception with the sector hit hardest in the second quarter of 2020 when the nation nearly shut down to prevent the spread of the virus. 

Even before the pandemic hit, real estate was under pressure, weighed down on the supply side by high debt burden and delayed projects that were putting off potential customers and garnering the wrong headlines. Demand too had been easing. In FY2020, for example, investment in dwellings and similar structures by households fell for the first time in four years by 1.1%. And consumers were not only facing a slowing economy, but also slowing income growth.

The unseen benefit

Not all is gloom and doom for the sector. In fact, residential real estate has been reviving from the third quarter of 2020 as the economy opened. In the first quarter of 2021, total units sold in the top eight Indian cities went up by 44% to 71,963 compared to a year back. This surge in demand has also spurred launches by developers—total launches for these eight cities went up by 38% during this period, although launches declined in Bengaluru and Chennai.

There are a few reasons behind reviving demand for housing over the last three quarters. First, home prices have either eased or haven’t grown by as much as before. According to the Reserve Bank of India’s (RBI’s) home price index, home prices, on average, fell by 1% in the third quarter of 2020 compared to the previous one; growth in the subsequent quarter was a mere 1.2%.

Second, home buyers have benefitted from a drop in interest rates with the RBI cutting its key policy rate—the repo rate—by 115 basis points (bps) last year to support the economy. This is in addition to about 135 bps worth of rate cuts in 2019.

Third, incentives for homebuyers have added to demand. Some developers have offered discounts and schemes like “No equated monthly installments (EMIs) until possessions”. In Maharashtra, a temporary cut in stamp duty in two phases between September 1, 2020 and March 31, 2021 is also likely to have spurred interest among buyers during that time.  

Finally, as remote work took over during 2020, it likely added to the worth that people attach to having their own home or a bigger one if their current home is small.

Overall, residential real estate is likely to remain buoyant this year due to renewed interest among home buyers, especially as economic growth is expected to revive after a sharp contraction in 2020. COVID-19, however, is the biggest risk for the sector, especially if new variants add to severity of infection and spread, thereby leading to localised lockdowns as witnessed in the second wave in April and May.

Advantages of buying a house in 2021

If you are a first-time homebuyer or are planning to upgrade your lifestyle, this may be an ideal time to take the big step. From a purely financial standpoint there are two key factors in favour of home buyers—subdued home prices and lower cost of credit to purchase a home.

To begin with, home prices are likely to remain under pressure in 2021. According to a poll by Reuters of 12 analysts between May 11 and May 19, average house prices this year are expected to remain unchanged from 2020, a downgrade from a previous poll in January that had estimated a 1.3% rise. Data from a report by real estate consultancy Knight Frank shows that average home prices fell in six out of eight major cities in the first quarter of this year compared to a year before—even before the second wave of COVID-19 hit the country.

There’s also the advantage of low interest rates for those planning to tap banks and financial institutions for home loans. RBI’s repo rate is now at 4%, much lower than what it was in early 2019 (6.5%). And rates are likely to remain low as the RBI pursues an easy monetary policy given growth challenges to the economy amid the pandemic. Lower policy rates have, in turn, translated to a decline in lending rates by banks and financial institutions—including home loan rates.

In a nutshell, it means that buying a house now may just be a tad easier on your wallet than you may have thought. And if you are a woman, there are a few more benefits in store for you. In Maharashtra, women homebuyers pay a percentage point less in stamp duty starting this fiscal year. The state joins others like Uttar Pradesh, Bihar, Punjab, Haryana, and Delhi where stamp duty was already lower for women, compared to men.

Apart from more money in the wallet, homebuyers will continue to draw indirect benefits of processes that banks have adopted over the last few years while lending to developers. For example, steps to differentiate between strong and poor developers while lending ensures that developers will likely strive to remain well capitalised, improve their leverage ratios, and strengthen their balance sheets. The net positive for the homebuyer is that investing in a home under construction is fraught with much less risk of the developer going bust before delivery compared to a few years back

Home loan rates at an all-time low

Yes, you heard it right. The interest rates on home loans have dipped to their lowest in nearly four decades. In fact, the rates are as low as 6.65% today, something that is offered by leading banks like Kotak Mahindra Bank

Lower rates translate to lower EMIs for borrowers and over the tenure of the loan may lead to large savings on interest payments. For example, at 6.65%, the EMI for a 15-year loan of Rs. 50 lakh is about Rs. 43,970, nearly Rs. 6,744 less than what a borrower would pay if the interest rate was 9%--as was the case in early 2019. This means more than Rs. 12 lakh of savings over the tenure of the loan, if we assume that interest rates remain unchanged.

There’s also a host of services—both financial and nonfinancial—that leading banks provide these days for homebuyers. Kotak Mahindra Bank, for example, offers a bouquet of benefits to make the process more seamless for homebuyers, including zero processing fee, doorstep service, and home loan insurance.

Looking into the future

However, it is only advised to buy a house, if you have a steady income. With more and more companies opening up to work from home on a permanent or a flexible routine, you could also have the choice to move away from big cities, where property prices are much higher than smaller ones. This is a trend already showing up in some countries such as the United States where changes to work patterns are pushing up housing demand, especially in suburbs and in cities where home prices are more affordable.

Besides apartments, buying a plot is also a good idea if you want to build a spacious house.

Now that we’ve established that investing in a house is a good idea, here are some points to keep in mind before taking the leap.

Things to consider before buying a house

1. Do check the credentials of a developer before buying the house
2. In case it is a secondary purchase, make sure you go through all the documents properly for at least a period of 30 years. If these documents are unavailable, documents from at least the last 12 years must be checked.
3. If it is a new project, the layout plan should be approved by concerned authorities.
4. Buying a ready-to-move-in property is more advisable than an under-construction one, since you do not have to pay both the rent as well as the EMI.
5. The project must be registered under the Real Estate Regulatory Authority (RERA). There could be times when a developer might have a huge debt burden. Avoid them.
6. Choose three to four property options, explore, and then make the final choice.
7. Pick the right area that’s accessible to all the prime locations in the city, and has all the infrastructure that’s essential for you

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