Rising rates have proved a bane for those planning to buy a house as well as those who are already into a home loan. According to a nationwide survey conducted by Mint Money along with property portal 99acres.com, about 40% of those planning to buy a house have postponed their decision. On the other hand, higher equated monthly instalment (EMI) owing to higher interest rates rates have affected the repayment capacity of about 80% respondents.
The Mint Money-99acres.com survey was conducted in 10 cities (Delhi, Mumbai, Chennai, Kolkata, Bangalore, Pune, Hyderabad, Ahmedabad, Lucknow and Jaipur) and incorporated responses from 4,400 participants. The survey spans in the age group of 18 to 54 years; maximum respondents were between 25 and 45 years of age.
The Reserve Bank of India (RBI) has increased policy rates nine times since March 2010. With inflation crossing 9% in May due to surging food item and fuel prices, the apex bank is expected to increase rates further. “Since inflation is not coming down, RBI should increase rates again,” says Ranjan Dhawan, chief general manager, Punjab National Bank.
Also see | Key Findings (PDF)
Increase in policy rates raises the borrowing cost for developers. “Developers who operate in oversupplied markets or work on low profit margins often use this as an excuse to inflate property prices in under-construction projects,” says Pradeep Mishra, an independent New-Delhi based real estate consultant.
Coupled with rising rates are high property prices, on the back of huge demand, that are posing a serious concern for prospective homebuyers.
According to a separate finding by 99acres.com, Mumbai and Delhi-NCR regions have witnessed significant increase in the property prices. Property prices in the two regions have gone up by 25% and 17%, respectively, in the first three months of this year compared with the same period last year.
Despite the odds, almost 94% respondents are still planning to buy property—but they have either postponed their decision by a few months or are thinking of looking at more affordable locations. While 39.6% respondents said they will postpone the decision, 35.8% are considering cheaper locations; only 24.6% remain unaffected, according to the survey.
Says Vineet Singh, business head, 99acres.com, “There are fence-sitters in the market who have postponed their buying decision. This is evident from the fact that transactions have gone down.”
Ashok Yadav, an IT professional working with a multinational firm in Gurgaon, is a case in point. Yadav had planned to deposit the booking amount for a two-bedroom apartment in the city, but was told at the last moment that the company had revised rates because of inflationary pressures and hike in interest rates. He now plans to look for a suburb near Gurgaon. He says, “I am now considering buying in Dharuhera or Bhiwadi, where rates are still affordable.” The two cities are within 30km from Gurgaon.
Says Goenka, “Prospective buyers are preferring to get into recently completed projects in distant areas and suburbs, where rates are affordable.”
Existing home loan borrowers
Existing home loan borrowers, who have bought a property in the past five years, have also been affected, says the survey.
About 80% of the respondents said their repaying capacity has been affected. The repercussion: the long-term saving plans of around 31.7% respondents have been affected; 30.6% have been forced to rethink on their big expenses and 24% say their standard of living has been affected.
Around 48.3% respondents to the survey have chosen to get their EMI hiked. The rest have either gone for a tenor increase or are yet to take a decision on EMI hike.
What it means for you
“There has been a small correction of 5-10% in the recent past in overheated markets of Delhi and Mumbai. But it is unlikely that there will be a further correction in the near future,” says Amit Goenka, national director-capital transactions, Knight Frank India Pvt. Ltd, a property consultancy firm. Affordable properties can only be found in suburbs.
If you are a prospective buyer, enter the market as soon as you see some softening of rates. What may work for you at this time is that monsoon has set in. Usually transactions are slow during monsoon and this gives you a bargaining opportunity in under-construction projects.
Existing borrowers should go for an EMI hike and not loan tenor. “EMI hike makes sense. If you increase the tenor, you will end up paying more,” says Singh.
Your budget may have taken a beating but try and not derail your long-term savings.