To buy or not to buy a home

Roti, kapda aur makaan is the rousing war cry of many a politician. It is such a basic need that politicians have been happily wringing this slogan dry, for decades. It is another thing that the roti, kapda and makaan they talk about are actually for them.

Roti and kapda are easier to achieve — many have crossed the threshold of worrying about these basics. However, makaan poses a serious and often insurmountable challenge to even the decently endowed.

Real estate prices have gone through the roof, especially in the last five years. In Mumbai, the prices are virtually in stratosphere — in crores. In fact, in many places  one would not get anything below half a crore.

So, is renting of homes the way out? Yes, it is, if one is able to convince the lady of the house.

But for that, renting is a feasible idea. In the Diamond Garden Area in Chembur, for instance, the prices of 2BHK apartments range from Rs 80 lakh to Rs 1 crore and beyond. The rentals paid as a percentage of the property value are just over 4%.

To an owner, that may well translate to 3% or less, as society charges, repairs and maintenance, property tax and brokerage are costs to be borne by him. No wonder, you find a lot of landlords grumbling about the pittance they get by way of rents.

Why do people buy property and hold on to it? There is this primordial satisfaction of owning stuff — properties are definitely top of the heap. Also, properties do not depreciate in value — in any case, not like equity and hence score with investors. They have good residual value, like gold and also appreciate over time.

What’s more, properties are easy to understand — you pay money and get land or a home (unlike an entry in a demat account). Many prefer staying in their own homes, for the satisfaction of being the master of one’s  own castle is priceless.

But the 300-500% appreciation of the past five years is not going to be replicated for a long time in the future. Going forward, the growth in value is going to be in single digits for a long time to come. Still, many would prefer the security of an asset, which is a solid store of wealth.

Then, is it a good time to buy? Is the time right, now? Before answering these questions, let us consider a few facts. Inflation, after touching a level of 13%, is down to 5%. There is a talk of nil inflation by June/July, this year. Liquidity crisis has abated. Interest rates have started climbing down.

Lower interest rates would mean better affordability for home buyers. They get a higher loan for the same equated monthly instalments. Also, the home rates have come down between 10-40%, across locations. That has again raised the expectation in the buyer’s mind of finding a property, he can afford.

The demand for homes, continues to be high. The main problem is to find the right home at the right price. With demand intact, the buying interest should get kindled again, given the confluence of various benign factors enumerated earlier. In a city like Mumbai, the supply of land is a big constraint across the city, which means prices will not exactly crash.

The prices may continue to be where they are, for a few months, maybe till June. By that time, elections would be over, the yearly results of corporates would be out and there would be a collective sigh of relief. The situation in the economy would have become better by then.

Inflation will be near datum level; interest rates are expected to settle between 7% and 8% by then. From June, home prices may slowly start to rise along with the economy.

There are a couple of potential problems though:
1. If there are further job losses till then and beyond, it could be a dampener
2.  Any national or global fiasco would again depress the market
Barring these, it would be a good time to consider buying a house. Indeed, there are a few months left to buy your dream home and get the thumbs up from your lady!

The writer is certified financial advisor who runs Ladder 7 Financial Advisories and can be reached at ladder7@gmail.com.