To help readers keep pace with what’s happening in the real estate sector,Mint’s Q&A will appear every other Monday.
Do we see a rate hike in home loans following the rise in cash reserve ratio (CRR) by the Reserve Bank of India (RBI)?
The monetary policy has clearly tried to address the surplus liquidity in the system that could be inflationary. The authorities have been concerned about inflation, and rightly so. The hike in CRR (the amount of money that banks have to keep with RBI) has certainly led to postponing any reduction in lending rates that lenders may have been planning. Having said that, I do not foresee a rise in interest rates for the moment. Interest rates seemed to have peaked and the rapid rise in rates that we’ve seen in the last one year seems to be behind us for now.
I reside in Delhi and am looking for a house in Agra. What should I keep in mind while selecting a builder? How do I evaluate his credibility and track record?
Since property purchase involves large investments, it is important that you meet the builders in person and visit the actual site of construction before finalizing anything. Some of the checkpoints you should include are: Location, access to the project, new developments in that area, stage of construction, the builder’s track record, that is, how many years he has been in the business, number of projects undertaken and the time taken to complete those projects, etc. Also, you need to check if the developer has obtained all clearances from the requisite authorities, including the property title.
In case you are applying for a home loan, you could consider choosing from the projects that are approved by your loan provider. This is because home loan companies deal with developers on a regular basis and are aware of their track record. They also have a team of experts who conduct legal and technical checks and verify the requisite documents before approving a project for financing. Since you are based in a different city, this will save you a lot of time and effort taken to conduct a detailed due diligence, though you may still have to look at the project personally, may be once or twice. Moreover, it will also save a lot of money as the processing and administrative charges usually cover these expenses.
Is it the right time to buy a flat as interest rates have increased substantially over the last one year?
The rapid rise in interest rates, per se, should not deter you from buying a property for your own use. Though the floating rate loans are currently around 11-12%, the effective cost for a loan of Rs15 lakh at this rate works out to just around 6-6.5%. This is after factoring in the tax benefits of Rs1 lakh on the principal amount repaid and up to Rs1.5 lakh per annum on the interest payable (assuming you avail of all the tax benefits). Interest rates are cyclical in nature, and considering that housing loans are long-term commitments, there will be some periods during the tenure of the loan when interest rates move up, and some periods when they will move down. It is the property prices that should influence your buying decision, rather than the rise in interest rates.
Renu Sud Karnad is executive director with HDFC.
Readers may write in with their queries and comments to firstname.lastname@example.org