GST

The Introduction of GST and The Impact Of GST On Real Estate

The Goods and service tax (GST) which came into effect on 1st July 2017, is a consolidated tax structure to replace the indirect taxes spilled all over. It is an indirect tax levied on the supply of goods and services and was introduced at a rate of 12% for Real Estate. It was later reduced to 5% in 2019.

What Did The GST State?

The tax regime before the introduction of GST stated that buyers had to pay VAT, Service tax, Registration charges & Stamp duty mostly on the purchase of properties that are currently under construction. VAT, Registration charges & Stamp duty all came under taxes that were state levied and eventually, prices of real estate that differed from state to state. It wasn’t only the buyer that these taxes impacted in the process. Developers also had to compensate for duties like sales tax (CST), customs duty, OCTROI, etc. Credit was however not available in these circumstances.

With the introduction of GST, a tax rate of 12% was then applicable on properties which were under construction and also on properties that were completed or ready to sell properties which were applicable under previous law. So the buyer definitely benefited from the introduction of GST on real estate.

What Was the Previous Tax Regime like?

Tax under the previous regime stated that developers would bear excise duty, VAT, Customs duty as well as entry taxes and others on raw materials and inputs including service taxes on different input services like approval charges, architect professional fees, labor charges, legal charges, etc. ITC was however available for different duties. These included taxes like CST, Customs duty, Entry Tax, etc. These were however added to the price and indirectly affecting pricing.

  • Availability of input tax credit along with GST on real estate reduced developers’ construction costs significantly. Multiple taxes were included in input tax credit. The added benefit to this was a reduction in the cost of logistics
  • Developers, however, were forced to inculcate a number of calculations to help with ITC. They then passed it onto the home buyers. However, ITC can only be transferred to the buyers during the end of their payment transaction
  • ITC had a major lack of transparency which would affect the developers since buyers had the choice to ‘wait and watch’ especially with new projects
  • Allied services such as labor, material suppliers, service suppliers, etc. ended up being calculated on whether there was an increase or decrease in tax that was eventually levied on construction goods and services. The whole GST on real estate tale definitely had an impact on the real estate industry in India

Change In Taxation Rates Increased The Impact Of GST On Real Estate

With the difference between demand and supply rising daily, the GST Council, a few months ago, further reduced tax rates especially for those properties that were under-construction to a five percent & further reduced GST on affordable housing to 1per cent.

When GST was first implemented in the real estate industry a few years ago in 2017, RERA (Real Estate Regulation Act, 2016) and Demonetization were changing the face of the real estate industry. The industry was sinking slowly. The dawn of 2018 witnessed an increase in demand and supply for real estate. This was the outcome of the availability and growth of affordable and mid-income housing. Housing prices, at the same time, seemed to be either stagnant or it witnessed a slight rise in price pan India. Larger urban cities like Delhi NCR even saw a decline in the price structure by 2% according to various reports. Most of the price declines were due to an oversupply rather than the impact of GST on home loans. ITC benefits were not passed onto buyers and even where they were, it amounted to a small change in price.

The resale market also took a hit during this time. We cannot accurately gather the impact of GST on real estate as of yet. With time it may emerge to be a lot clearer.

As per leading industry analysts and players, 2019 looks to be a far better year for the ever-changing Indian real estate industry. With an expected rise in demand for commercial and residential real estate, home sales are said to go up by 16% i.e 245,500 units in 2019 than the 2018 levels. With commercial real estate on the rise, demand for office space will also rise by 19%. With very few new projects emerging at this time period, it will not exceed 32 million sq. ft. especially in India’s top 7 cities.

How Can GST On Real Estate Eventually Impact Property Prices?

The rate reduction in GST on real estate which was proposed by the GST council in February and implemented from 1st April 2019 is expected to provide a number of benefits. Here are a few you need to know.

  • A simple tax structure leading to higher compliance especially from developers.
  • For the buyer a fair price of the property mainly due to the rate of GST on real estate falling to 1% on affordable residential properties.
  • The issue of ITC benefits not being given to property buyers is eliminated. This protects the rights of the buyer.
  • A better price structure of residential properties. With the problem of unused ITC being eliminated from project cost.

With GST benefits on the rise, you should look into acquiring your down payment for your first house.

6 tips to manage home down payment in India

Your down payment is the first step towards your new home. On average, a home down payment is anywhere between 5% to 20% of the value of the property to be purchased with the rest of the money based on housing loans. It is important to plan ahead to make your down payment.

We look at 6 ways to manage your down payments and live life at the same time. Don’t let life come to stand still for the sake of property investment.

Set A Budget & Time Period

This is where research comes into play. Look at the locality you want to buy your house in and determine the property rate. Then map out how much you’ll need for your home down payment. Divide that number by the time you’ll need to save up. You will be able to create a realistic budget to help you graduate from a person who rents a home to a homeowner.

Get a Separate Savings Account

Keeping the money aside will prevent you from tapping into it. It is now possible to put a transfer monthly directly from your checking account without missing any month. Forgetting to keep aside money will not be a problem and saving will be a breeze for you. When it comes to Non- Banking Financial Corporations, SIPs and mutual funds are also great options to invest in, in order to save up for your future down payment.

Manage Monthly Expenses Through Further Research

You may have phone bills, health insurance, car loans or EMIs on your list of payments every month. These will continue to dig deep into your pocket. Looking around for better deals, reduced rates and prices will help manage your down payment. As borrowing rates decrease there will be a difference in EMI rates across banking institutions will also fall. Keep a keen eye on the changing nature of banking institutions.

Keep A Tab On Your Spending

Online transactions have made spending so much easier. With wallets, UPI and online banking driving the present towards a cashless society, it is also difficult to keep a check on spending. Use these tools to keep a check on your expenses. Keep checking your account to highlight those areas where most of your money is spent. Set a budget aside. Limit nice meals to a minimum number of times in a month or take fewer vacations. It may seem a task at first, but this mindfulness will turn into a habit and you will be able to continue such habits for the future with your housing loan as well. This is practice before the EMIs roll in.

Home Buying Schemes In India

Different states have different schemes for houses and homes for first-time homebuyers and investors. For example, the affordable housing scheme is a recent proposal that makes buying and investing in property easier for people in lower-income brackets and mid-income brackets. Their goal is to make homes more affordable for the masses and bridge the demand-supply gap in the real estate world in India.

When You Save An Amount Of Money, Reward Yourself

  • Let’s say your down payment is about Rs 1 Lakh. Every time you save an amount of Rs 25,000, treat yourself to a small lunch or dinner to make saving a milestone to accomplish. So every time you save an amount that gets you closer to your down payment, take a small break. Soon saving will not be as bad as it sounds. It will also make you work hard towards promotions and better opportunities in your career.
  • Look at arranging for your down payment as a financial goal. This will be a great milestone towards starting a life based on savings and working toward your new home. Present generations find it hard to buy homes especially in the recent markets and prefer to rent out rooms and adjust in co-living spaces.
  • The high price, however, is not the sole reason for the ignorance in housing. Credit cards and wallets allow present generations to swipe first and then pay later. With the bills mounting up, home buying is not a reality to many of them. Home buying includes the ability to provide a sum of money before all the home loans come into play. This will make the whole home buying process a little less stressful.

With all that being said, buying a home is now more convenient than it was five years. HomeCapital can assist you with an interest-free down payment scheme to make your home buying process a pleasant one!

How to use the RERA to your advantage

New home buyers in India find it hard to keep up with the developers, real estate agents and all the rules and regulations involved in the process. One policy that has tried to make this process less tedious is the Real Estate Regulatory Authority, 2016 (RERA). This came into force from May 2017 onwards and has brought merit to the sector. The Real estate sector before 2017 was considered an unregulated one especially in the metro cities around India, and with a constant flow of black money.

On the 19th of August 2019, at the National real estate development council convention. The housing and urban affairs secretary Durga Shanker stated that the government may soon consider amendments in the real estate law under RERA. Mishra stated, “Based on the inputs (received at the conference), we have felt that there is a need to bring about many changes in the RERA Act.” He added, “We will soon make relevant amendments in the law, to make it more effective.”

Here is a checklist to understand if RERA is applicable to the property you have purchased?

  • The area of the plot under construction is 500 sq mts or more.
  • The number of apartments under construction are more than 8.
  • The Act does not apply to projects that are under repairs, renovation or redevelopment.
  • The Act is only valid on development of property and not rentals.
  • The Act covers all commercial projects like shops, offices, work spaces and buildings as well as residential properties.

Let’s take a look at the benefits the Act offers to buyers, the developers and the real estate sector.

Right To Information About The Property Through The Online Portal

As an online portal, RERA is a great way to work around every issue regarding your under-construction home. You can request for full layouts, plans, the date of completion and even the competition in your area. The Maharashtra Real Estate Regulatory Authority- MahaRERA website is one of the best RERA state platforms. It exhibits the most number of residential projects registered under it across the country. As per the norms in the Act, all real estate registered projects both commercial and residential must submit all of the registered project details on the RERA website.

Standardized Definition Of Carpet Area

Prices correspond with the carpet area of the property that is being purchased. The RERA act has defined a standardized definition of carpet area. This helps to eliminate any form of manipulation or inflation of property values through wrongful measuring of carpet area. These measurements were devised by each individual builder and acted against the interest of real estate investors. The RERA act thus protects the innocent buyers from any form of misguidance by the developer.

The Implications On Builders And Developers

As per the RERA guidelines, under-construction projects is funded firstly by money obtained from downpayments from home buyers and lenders i.e. banks and NBFCs. The RERA Act has given home buyers the ability to question the developers. If any builder is unable to provide satisfactory information regarding the under-construction project, he can get penalized under the act.

Section 7 states that projects, free from litigation, may form their own society and with the approval of 51 per cent or more of its members, can divest the developer from the project.

Section 8 further states that if the builder is pulled out of the project, the first opportunity of completing the project will be accorded to the society formed by the flat purchasers.

These sections of the RERA Act, help ensure that projects are not delayed and that the builders do not misuse funds, as they can be held responsible for any defect or fault in the construction of the project, in turn protecting the interest of the home buyer.

Keep a track of RERA Approved Real estate Agents

RERA-approved Real estate agents do make the sacred passage of home buying easier and more peaceful. They are aware of the projects that have been approved by the Real estate regulatory authority. They already have an understanding of the shortcomings of the developers and provide a clear picture of issues that the buyer could face and ways to tackle the issues.

All these factors make the Act a clear benefit for any new home buyer. It provides information to any home buyer and also makes it easier to settle on down payments, home loans and future home expenses.

All these factors have been giving homebuyers an assurance about their housing investments. Homebuyers are now heading towards a safer position in the property arena, where their investments now have accountability, which in turn makes it a favourable time to invest.

An additional resource that has come into play to help you own your dream house is down payment assistance.

Let HomeCapital help you commence your home-buying journey.

question

Should you buy property with the current market scenario?

Is it a good idea to buy property with the current market situation? The Price of a house is declining, but is it a good investment? We’ve compared the advantages, the disadvantages and the risks for you, to make a smarter decision.

The advantages

Valuing real estate is easy compared to other assets

At first, looking at others such as the stock market, mutual funds, those that generate cash flow, are good investments compared to real estate. To buy property is generally a great investment option and is easier to manage compared to other assets. It can be a good long-term investment. Though that depends on the growth of its value over time.

Attractive and stable income

If you are planning to buy property as an investment and rent it out to tenants, it will generate cash flow over time. Rents go up with inflation and your EMIs for the home loans remain the same. Eventually, you pay off your loan and the cash flow will increase significantly.

The Repo rate

Recent cuts in the repo rate by the Reserve Bank of India by 35 points to 5.45 percent from 5.75 percent will have a great impact on the interest charged by private banks on home loans. With private banks such as the State bank of India already reducing their interest rates on home loans, buying real estate will be more economical.

The disadvantages

Lack of liquidity

To buy property as an investment means a lack of liquidity. Though it may generate cash flow through tenants, it isn’t a liquid asset and won’t be a strong investment if you are in need of capital. We suggest you invest half your fortune into a property and the rest into movable investments.

An unpredictable asset

It is also an unpredictable asset. With home rates falling in the country, one needs to be smart and take into consideration the idea and need for purchasing real estate. Value of the asset depends on location, the type of property, the age of the building, the state of the home, etc. Thus, when you buy property, you are investing in an unpredictable asset whose value may decrease or increase in the near future.

The risks

The present property scene in India

In urban cities, real estate investments are now cheaper compared to a few years ago. The slight dip in the price of homes and offices is the result of a lack of demand, huge inventories, and regulations. These were mapped out by the latest reports by Knight Frank, the real estate research firm.

Chennai faced a decrease in property prices due to the water shortage. There were few new launches while sales in the past one year suffered. This also led to a fall in inventory.

Kolkata looked at low property prices in the past 6-12 months, but it saw no increase in sales or launches.

While cities like Delhi NCR, Bengaluru, Hyderabad and Mumbai have been able to have some balance in price, launches and sales.

Builders are playing it safe because of the RERA act

The RERA Act has definitely changed the property scene in India. The act as a way of protecting buyers from financial and inversely mental trauma, have placed in the hands of the consumer a platform to question the developers regarding issues like date of completion and possession in the past would be left out by the builder.

The Real Estate (Regulation and Development) Act, 2016, passed by the Indian Parliament, seeks to protect the interests of those who buy property. It also looks to boost investments in the real estate sector.

With RERA and the government’s model code, it aims to create a more fair platform between the seller and the buyer, mostly in a primary real estate market. But this has led builders to reduce risks taken on projects and properties.

Before you buy property, you need to answer a few questions

  1. What is your reason for the purchase?
    1. Do I want to live here?
    2. Will I rent this out?
  2. Can I see this as an asset or a liability?
    1. Does this investment put money in my pocket?
    2. Is it worth the risk?
    3. Will I be able to manage maintenance and taxes?

It is crucial that an individual understands all aspects of an investment before. Take time to map out financial requirements like your down payment, housing loans and personal finances. Keep in mind that you are looking for an asset and not a liability.

Your next steps towards buying a property would involve checking your eligibility and arranging for the required funds, for which we have solutions!

We’d be happy to help you with the down payment for your property investment.

5 tips for Home loans

5 Easy Ways To Manage Your Home Loan

If you’ve taken a Home Loan or plan to take one, here are a couple of tricks up your sleeve to manage it better. Stay ahead of your home loan EMI with these 5 simple tips.

Make repayment a priority

Paying EMIs on time boosts your creditworthiness. It may be difficult at first, but you must remember that a good credit history is an essential part of your financial journey. Future lenders judge your credibility based on your Credit Score. Failure to pay your Home Loan EMIs on time take a major blow on your Credit Score. As a result, the chances of your loan and Credit Card applications getting rejected in future increase significantly.

Bonus EMI Tip to make sure you maintain your creditworthiness: Schedule the EMI close to your salary date. This ensures sufficient funds in your account and minimize chances of default due to lack of funds.

Try not to skip any home loan EMI, maintain your credit score to avoid any penalties from your lender.

Use lump sums to prepay

Paying off your Home Loan as soon as you can is the one thing every homeowner dreams of. So, opting for a high monthly payment can help you reduce the loan tenure. As a result, the total interest that you’re supposed to pay to the lender also goes down. By opting to pay more every month, you reduce your own financial burden. This helps an individual invest in other projects of life like retirement planning, a car loan or even a second home.

Pay an extra EMI every year

Paying an extra EMI every year can be tough initially. But it helps put to rest your home loan. There is usually no prepayment charge for floating rate term loans. By paying an extra EMI every year, you can reduce your overall outstanding principal amount. Lenders are unlikely to complain if you repay a little extra every year. Over a 10-12 year period you find your loan paid off soon, erasing the stress of the loan.

Switch to a lower interest rate

Be aware of market fluctuations and updated with reduced loan interest rates available by different banks. Switching to a lower interest rate than your existing one will shave a few years off your loan.

P.S. – But be careful. Don’t jump too many times at low-interest rate differences. If you’re getting a good dip in the rate of interest, you should definitely consider switching. But in case the difference isn’t much, it might be a bad idea to opt for that switch.

Get the math right

There are tools available online by banks and NBFCs that help you determine your financials when you repay a Home loan. For example: The Home Loan EMI calculator gives a clear understanding of monthly EMIs when you enter the details of your loan amount, tenure, interest rate, and processing fee calculation.

Loan amount: You have decided on a property and are aware of its price. After you have acquired your down payment, you will have a better idea of what loan amount you need to apply for. You then have an idea of the amount of your EMI’s.

Tenure Of Home Loan: Decided the loan amount, choose the tenure you would like to opt for, starting from 6 months to 30 years. Keep in mind, the longer the tenure of your loan, the higher the total amount to be paid back will be.

Interest Rate And Processing Fee: The next thing you need to enter is the interest rate offered by your preferred bank. Generally, banks have a 2% processing fee on Home Loans which needs to be accounted for as well when calculating your monthly EMI.

Prepayment Option: Some people prefer to prepay a certain amount of their loan. The Home Loan EMI calculator gives you an option to specify whether you wish to prepay your loan amount. Your monthly Home Loan EMI amount is calculated based on whether you choose a Yes or No on the prepayment option.

The Home Loan EMI calculator is a simple, fast and reliable source of information to calculate your Home Loan EMI’s.

Do A Quick Rain Check Before You Apply For A Loan For A Quicker Procedure

Step 1: You can also use our loan calculators to check your eligibility and you’ll get an assurance of your current capacity.

Step 2: Let HomeCapital take care of your down payment requirements

Buying a home set to get easier as RBI cuts Repo rate by 35 points

Buying a home? Worried about the interest on your home loan EMI’s? Recent developments in the monetary policy review by the Reserve Bank of India will help you save on these home loans.

Good news home buyers

The six-member monetary policy committee (MPC), headed by RBI Governor Shaktikanta Das, decided to reduce key repo rate by 35 basis points to 5.45 per cent from 5.75 per cent, on Wednesday with immediate effect.This cut in the repo rate stands as the lowest in the past nine years, encouraging the common man towards his goal of buying a home.

Buying a home is becoming a seamless process. With the fourth cut in row, the RBI trimmed the GDP growth forecast for the current fiscal to 6.9 per cent from 7 per cent predicted previously. In January 2014, the repo rate stood at 8 per cent. Since then, it has been revised to 5.40 per cent, a reduction of 2.6 per cent. The RBI governor said in the press conference that a 25 basis points rate cut would have been inadequate while a 50 basis points rate cut would have been excessive.This cut insures that EMIs on home loans and other loans will come down significantly.

Our interactions with various stakeholders, including both public sector and private sector banks, indicate that steps are being taken by them on an ongoing basis to progressively lower their interest rates so that the benefits of the policy rate reductions are passed on to the economy,” RBI Governor Shaktikanta Das said. “We expect higher transmission of monetary policy actions and stance by the banks in the weeks and months ahead.”

But what does all this mean for the common man and his plans of buying a home? Let us take a look at the outcome of this change.

What does the monetary policy review mean to the country in general?

Any economy measures its economic activity by the gross domestic product or GDP. This could be done taking into account four avenues of cash flow.

  • Private individuals and households that spend money on consumption. This is the common man, his daily expenses and buying capacity.
  • The government and its agendas that strive to promote a stable and growing economy.
  • Private sector businesses that are investing in their productivity. These create jobs, pay the taxes that finance services and investment.
  • Net export in the country. This is the difference between the cost of imports and what they earn from exports.

All these processes in the end determine the cost of money in the country and its GDP decline or growth.

A Monetary policy helps the central bank regulate the cost of money. The central bank is mandated to decide the cost of money, commonly known as the “interest rate” in the economy.

However, dictating exact interest rates is difficult for a central bank due to various factors affecting it. The rate set by the RBI is used as a marker for the rest of the country’s economy. In other words, the EMI for buying your car or a home is determined by the RBI’s decision of the repo rate.

What is a Repo rate?

Repo rate is the interest rate at which the RBI lends money to commercial banks.

100 bps make a full percentage point. The RBI’s repo rate has now fallen 110 basis points since February.

How does a Repo rate affect the common man?

Repo and Reverse repo are short for repurchase agreements between the RBI and the commercial banks in the economy. The repo rate is the interest rate the RBI charges a commercial bank when it borrows money from the RBI. If the repo falls, all interest rates in the economy should fall, further impacting the process of buying a home.

Outcomes of the Repo rate

Immediately after, the RBI announced a drop in its Repo rate, SBI or State Bank of India which is the country’s largest lender by assets because its best interest rates on personal and home loans, introduced a reduction in its benchmark lending rates across all tenors. The bank said its MCLR or marginal cost of funds-based lending rates will be reduced by 15 basis points (0.15 per cent point), and the new rates will take effect on August 10.

Many professionals also commented on the steps taken by the RBI to try and boost the declining economy of the country. Anuj Puri, chairman, Anarock Property Consultants Pvt. Ltd, spoke about the potential of these rate cuts. He said they could stimulate borrowing in the affordable housing segment.

“While we won’t see a significant reduction in unsold inventory, affordable housing is another matter. The segment already has various incentives and being very cost-conscious, it may see a perceptible uptick. But, it all depends on how efficiently banks transmit this rate cut to actual consumers,” he said. Improving transmission remains key to the success of the latest RBI rate cut.

Are you planning to take your first step towards buying a home? Look no further than HomeCapital, to help you with your down payment!

Understanding RERA

How Has RERA Helped Home Buyers and Property Investors In 2018?

RERA as an Act has been beneficial to buyers but this meant complete transparency from the developer’s end which brought out all the hidden rodents to the surface for clear transactions. RERA is the RTI (Right to information) in the Real Estate world, but our question here is, was it necessary? If yes, then did home buyers benefit from the Act?

Many home buyers believed that the real estate transactions were heavily skewed in favor of brokers, developers, and other middlemen. The Act was set in place to protect home buyers from fraudulent activities like money laundering and to mainly establish a more streamlined process for the Realty sector. The whole purpose of the act is to basically make every real estate transaction safer by inculcating more transparency and accountability.

Ashutosh Limaye, head of research at consultancy JLL India, says while so-called ‘fly-by-night’ developers have been exiting since RERA was implemented, it would be unfair to think that all small players are unscrupulous. “It has nothing to do with the size or scale at which developers operate, it is about their intent. Several small players have made themselves RERA-compliant, because they want to be in this space for the long term,” Limaye says.

RERA’s Benefits to home buyers

Carpet Area Standardisation

The Act introduced a carpet area formula for an even calculation. The carpet area is therefore defined as ‘The net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment’.

This standardization has kept the builders away from inflating the carpet area price which works perfectly in favour of the buyer.

Rate of Interest for Defaulters

The Act has brought both the buyer and seller parties on a common platform by maintaining an equal rate of interest for defaulters. Before the act, the interest paid by the builder to the home buyer was less but if the buyer defaulted, the interest was higher, and this was an unfair deal that discouraged home buyers.

No More False Promises

The buyer has every right according to the act to withdraw from the project with a full refund if the builder fails to deliver any commitments. This increased the faith of home buyers back in the whole Real Estate system and we shall give you the proof to it further.

Advance Payments

The builder can’t take more than 10% of the cost of the apartment, villa, etc. or any other application fee before entering into an agreement of sale. This works in the buyer’s favour yet again!

In case of defects

Any infrastructural defect in quality, workmanship, provision or service if discovered within the first 5 years is entitled to rectification by the builder at no extra cost within 30 days and buyers can also claim compensation for the same.

Delay in Possession

The buyer has all the rights to withdraw from the project with a full refund, along with interest payable from the due date of completion until the amount is refunded. If the buyer decides to continue with the project, till the completion, he will be entitled to compensation along with interest payable from the due date of completion of the project until the project gets completed. This ensures proactive commitments and a fair process that is beneficial for both the buyer and the builder.

A Title Compensation

A defect in the title of the property can also result in compensation which is not barred by any limitation and this means there isn’t any time limit within which you need to discover the defect.

Right To All Information

The buyer is entitled to all the information related to the project in terms of the plan, layout, execution, completion status, facilities, etc. What more could a buyer ask for?

Grievance Redressal

In case the builder fails to comply with the terms of this act, the buyer can take it to the state authority set up under the act, which has the power to redress the grievances.

A MahaRERA official said, “If a homebuyer or a developer is not satisfied with the RERA order, he/she can make an appeal to the appellate board instead of approaching the high court.” 

Did Housing Purchases Increase Post RERA?

Housing sales in the top seven cities grew by 12% in the first quarter of 2018 which indicated that the act restored the faith of serious home buyers, attracted by the new environment of transparency, accountability and financial discipline back in the Real Estate sector – Anarock Property Consultants.

Around 49, 000 units were sold in the quarter, with NCR, MMR, Bengaluru, and Pune alone accounting for 80% of the sales, while the only state that experienced a 12% drop was Chennai.

Homebuyers are now encouraged to make their first home purchase because of the security provided by the state. There couldn’t be a riper season than now, to take advantage of the schemes implemented by the government and an array of firms that are trying to close the massive gaps between the desire of owning a house to turning those dreams into reality.

If you are a new home buyer, we’re happy to let you know that you can now own your dream house without even worrying about the total down payment, because HomeCapital takes care of that!

5 Financial Investment Decisions You Should Take in Your 20s

A financial investment sounds like an adult step in your life, now that you’ve reached a certain stage of stable income. Millennials all over the world find it hard to save, while in India, we find it hard to spend. You’re probably familiar with the words ‘Saving at an early age is good for your finances beta’, because the habit of saving and investments have been deeply ingrained into our culture.

The question however, that arises here is, ‘Where do I invest these savings?’ While you begin thinking about your financial investment decisions, make sure you don’t invest all your eggs in one basket. They need to be spread out across baskets made of iron, cane, gold and even cement for optimal return on investments.

Charting a financial investment plan is easy but sticking to it is where the game changes. This is where you account for every penny that you spend, so that its on the right track towards giving you a prosperous future.

Equity / Stocks

Stocks aren’t for the risk takers we agree, but what if we asked you to skip spending on a T-shirt that costs Rs 300 (with no returns) and invest in a stock worth that amount? When you watch that stock double in a few months, you’ll thank us! You can take baby steps with SIPs and Mutual funds for starters and then take the big risky moves once you’re confident enough.

Before you make your financial investment in the stock market, you must know that you won’t see your money double instantly. The path to long-term wealth creation is building a diversified portfolio of stocks, bonds and a variety of other assets.

Bonds

Bonds or fixed income investments are basically loans from an investor to a company or government. Bond investors receive periodic payments based on the interest rate at which the bond is sold. A bond is usually tied to a coupon or interest rate that is known at the time of buying and this is where you identify your profit in the long run.

All bonds offered to the public have to be listed on a stock exchange and you can sell them on the stock markets if you need funds before maturity. You make a long-term capital gain (LTCG) if you hold the bonds for at least one year before sale and you also score the benefits of indexation while calculating the LTCG tax!

Fixed Deposits & Recurring Deposits

One of the safest financial investment strategies would include multiple fixed deposits od FDs with different tenures. Fixed deposits are a form of investment where you invest a fixed amount of money for a period at a predetermined interest rate. Your money here is safe and returns are guaranteed with high interest rates, but the only drawback is the inability to withdraw this money before its maturity as compared to other investment instruments.

Recurring deposits on the other hand serve your short-term investment goals where you invest a certain amount of money for a fixed tenure. Interest rates for this kind of a deposit are predetermined and based on the amount and tenure, but the catch here is that you cannot change the monthly deposit amount, nor can you withdraw any part of the investment until the tenure is over.

Gold

Gold is one of the best financial investment tools that will always come in handy. As Indians we cherish the idea of stocking gold because we already know its financial value in times of emergencies. You can buy physical gold in the form of jewellery, coins, gold bars and also own paper gold by using gold exchange traded funds and sovereign gold bonds. There are also gold mutual fund options today that gives you added flexibility towards owning the asset. So the next time you receive gold as a present, preserve it in your locker.

Real Estate / A House

Real Estate is the only commodity in the world that will never depreciate in terms of its value. Investing in a house will give you returns in the from of appreciation (Increase in the housing value) and rent.

In 2017, the rental real estate market was pegged at one crore units and was valued at $22 billion (Rs 1.53 lakh crore). By 2023 its volume is expected to reach 1.8 crore with a valuation of $41 billion (Rs 2.85 lakh crore). Make sure you invest in a locality that is upcoming or in high demand to reap maximum benefits.

While you think about this decision, you’ll have one aching question ‘But What About Down Payment?’ Let our home down payment program take care of that!

An example

With that being said, we’ve come up with a hypothetical situation to give you an idea about your financial investment roadmap:

Name: Rahul Kapoor
Age: 26
Salary: Rs 40,000 PM
Savings: Rs 1,20,000
Wishes to buy a home in 5-6 years

Rahul should begin by investing 50 percent of his income in Mutual Funds. He must ideally invest Rs 12,500 in ELSS funds and Rs 7,500 in non-ELSS funds for five years via SIP, so that he gets a good base amount to purchase his new property. He can invest his savings in Corporate Fixed Deposit with yearly cumulative interest.

SIP investment – Rs 20,000/month
Expected rate of interest – 14 percent
Investment duration – 5 years

Post 5 years, the invested Rs 12 lakhs along with SIP investment’s future value will give him a total of Rs 17.24 lakhs. He now has close to Rs 18.5 lakhs as down payment which can be utilised if the home, he is buying is under Rs 80 lakhs.

Using his own savings, a bit of a contribution from HomeCapital and a home loan on his current salary, Rahul can now own a home in 5 years.

home-loan-eligibility

Home Loans – How To Check Your Eligibility

Home loans and the whole process associated with them may seem like an unending task, but let us remind you that we live in 2019. The internet and a plethora of startups have just made our lives and the home loan process extremely simple. We’d like you to sit back and relax as we spread out the basics for starters.

Here are a few questions you need to ask yourself about home loans.

Home Loans and Their Eligibility Criteria

Home loan eligibility is dependent on an individual’s income and their repayment capacity. There are various universal factors that determine this. Age is an important aspect. The present age and the working years that an applicant has recorded plays a major role. This is also connected to their present and future financial position of the individual. However maximum loan tenure is generally capped at 30 years.

Your Credit or CIBIL Score

Keep a track of your credit score. This score makes it easier to get approved for a housing loan. Your score could vary from 300- 900 points, depending on the individual’s past loan or credit repayment record. A good credit score is equivalent to 750+ points and above. Lenders also take into account other Financial Obligations such as an existing car loan, credit card debt, etc.

A Co-applicant: Is it necessary?

Firstly in order to proceed with this point, we need to distinguish between a co-owner and a co-applicant. A co-owner is a joint owner of the property whereas a co-applicant need not be a part-owner of the property.

All co-owners of the property will have to be co-applicants of the home loan. However, all co-applicants need not necessarily be co-owners and this is the difference a buyer has to keep in mind. It is their income which is considered for credit.

Adding a co-applicant to a home loan helps to increase your loan eligibility. You can also buy a bigger home in your preferred location and there could be many tax benefits.

What is the maximum borrowing amount for home loans?

Before you plan on purchasing a home by obtaining a loan, you must keep in mind the ‘own contribution’ factor. This is the down payment that most lenders require. It comprises of at least 10-20% of the price of the home in question. The rest, which is 80-90% of the property value, is then financed by the lender. The total amount should also include registration, transfer, and stamp duty charges.

Even though the lender calculates a higher eligible amount, it is not necessary to borrow that amount or you could forget the hassle associated with down payments and check out HomeCapital Services – Where the down payment is taken care off!

What documents does an applicant need?

The basic documents that you require for a home loan are listed below.

  1. Application form
  2. Photo
  3. Identity proof
  4. Address proof
  5. Salary slip/ Form 16(Income Tax return)
  6. Bank account statement (the last 6 months bank statements)

Keep these documents handy always!

Check your rate of interest

It is crucial to check interest rates by various banks and NBFCs. This will help you make a choice better suited to your financial needs. Keep in mind the different types of interest rates that are currently provided; Fixed Interest rates and floating interest rates.

In a fixed interest home loan, the rate does not change throughout the loan tenor, irrespective of market fluctuations. The benefits include the ability to plan long-term. This makes it easy to budget other expenses. Customers also do not expect any future risks.

However in floating interest rates, the interest charges on your home loan changes to the tune of current most lending rates of the bank. The rate is linked to the latest published rate of the bank. This depends on multiple factors. After 2016, MCLR i.e. Marginal Cost of Funds-Based Lending Rate is also applicable only for floating rate-based loans.

Learning about your EMIs

When it’s time for your repayment installments, keep a tab on the tenure that you are picking to pay back your loan. Though smaller installments seem like the wiser choice, the longer duration and higher interest rates may not be the best option for many. Pick a repayment that is better suited for you.

Delayed start of EMI payments

In this type of loan, the payment of equated monthly installments (EMIs) begins at a later date. This is only available to salaried and working professionals aged between 21 years and 45 years and requires a highly secure job along with decent annual increments.

An Increasing EMI

In such loans, you can avail a higher loan amount and pay lower EMIs in the initial years. It then increases with the assumed increase in your income. The repayment schedule is linked to the expected growth in one’s income. If the salary increase falters in the years ahead, the repayment may become difficult.

A Decreasing EMI

The EMI is higher during the initial years and subsequently decreases in the later years. A higher EMI can also mean higher interest in the initial years. However, this will help pay off the loan at a faster rate.

Home loans with longer repayment tenures

Many banks also offer repayment products that are more than 30 years of duration. These, however, depend on the age and salary of the individual and the interest rates vary according to the financial status of the person. He could be middle-aged or even a freelancer.

An important note to remember is to make sure your EMI doesn’t exceed 40% of your total income.

Banks Vs Non-banking financial companies (NBFCs)

After you have taken into consideration the different types of loans that are available, you should also consider the advantages and disadvantages of both banks as lenders and Housing financial companies as lenders.

For instance, the best interest rates are always offered by a bank. But, if you have a low credit score, an NBFC could be better suited for you. It all depends on the type of services that you need. If you use banking services along with the home loan, the choice is a bank,

If it is only a housing loan, then you can evaluate your options by comparing associated charges and facilities provided the bank and HFC players.

Also, do your research before you apply for any of the two and always read the document carefully before signing. It is better to be safe and to have a clear understanding of your housing loan.

buying your first home

Simplify your approach to buying your first home

Buying your first home may seem like a tough task. But with a few simple guidelines and a little help, you can breeze through the process without much stress.

Here are a few tips to consider before or during the journey of buying your first house.

Map out your reasons for the home

As much as the excitement of buying a new home can thrill a person, you need to sit down and wrap your head around the basic questions of buying the home.

Are you looking to stay in the home? / is it just an investment?

This makes it easier to figure out your requirements of the home. This can range from ‘the number of rooms in the house’ to amenities provided. It helps you focus on a property that could be a long term investment. This also helps you pick between a second sale house and one that is under construction.

Check your finances

There are three financial points that influence the house you plan on buying.

First, save up for your down payment. This is the minimum amount needed to be paid at the time of purchase of a home. It ranges from at least 5 percent to 20 percent of the price of the property you are looking at. The more you set aside for down payment, the lower the amount needed to be borrowed through loans and mortgages.

Keep a track of your credit score. This score makes it easier to get approved for a housing loan.

Finally, estimate the total cost of the property purchased. This includes parking charges, stamp duty, registration charges, new furniture / furnishings for the future.

It isn’t just about what you can afford now but also about the future.

Ask the experts

Use skilled professionals to help make the journey easier. You may need to spend slightly more but is useful to understand the different parts that come into buying a new home. There could be unpaid property taxes, understanding the usable area in a home; all these factors can be avoided with the help of professionals.

Real estate agents help understand the different prices in a locality and which locality is best suited for your needs. Invest time in meeting with your local banking agents to help pick out loans that are better suited to your needs. Make sure to run the legal paperwork by a lawyer. This will help protect your interests in the process. But don’t forget to do your homework first.

Explore the neighbourhood

It is crucial to survey the neighbourhood. For working professionals, it is important to understand the commute to work. How close is the nearby train station? Can one walk to work? For a family, the need for a good school in the neighbourhood, a nearby hospital, a supermarket and a cinema are top priority when it comes to the location of the house.

It is also important to find out about the future development of the neighbourhood.

If you are planning on investing in a rental property, look for localities with high-rent or highly populated areas. Choose wisely and your home may be your best investment.

Keep your checklist ready and secure your loan

Once you have checked everything off your list, it is now time to secure the best loan for you. Think about the fact that a short term loan often has a lowered interest rate than a long term one, but a larger EMI. It is ultimately your decision. You have to decide how much time you need to repay your debt, within a given span of time.

The best way to start the process for finding a home loan in India, best suited to your needs, is to check for the lowest home loan interest rate. Look at the additional fees and charges such as the processing fees and prepayment charges. Make sure you pass the eligibility criteria. Check the other offers provided by the lender. These include prepayment facility, customized insurance scheme, online account access, etc and different loan repayment options.

Remember that banks, housing finance companies and other lending institutions calculate home loan eligibility on the basis of various factors like age, income, credit score, property value and work experience.

The next step is applying for the right house insurance. This will protect your property and ultimately makes the process of buying easy.

Keep looking for the best

Always remember to keep looking until you find a home better suited to your needs. At times you may get carried away with fancy furnishing and grand views and landscapes. Remember that these may increase the maintenance of the home. It is important to think minimal, not extravagant.

Keep in mind that the first house you like may not always be the answer to your prayers.

For homes that are under construction, visit ready buildings by the builder for a clear understanding of what you can expect.

Resale sale Value is an important aspect to consider before you plan on investing in a property. Most property buyers focus solely on prime locations or the budget of the property. If you choose the wrong estate or location, it is possible that your future sales price will always be less than the other homes around it.

After you have bought your dream home remember to fill rooms with basic furniture and build up from there. This helps protect finances and keeps you stable with your loans and mortgages.

Conclusion

These simple but important points can help make the process simple and as smooth as possible. Now the question that arises next would involve down payment and your current savings account.

You are probably waiting for the right time when your savings account is ripe with the exact down payment budget you had set for your dream house, but here’s the truth – You might take years until you reach that ‘right time’ and probably end up settling for less.

The good news is, you now have an option where your down payment is taken care of. Don’t believe us? Check out the HomeCapital Program.