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Why are the demand for plots and independent floors rising?

Posted on by HomeCapital Team

With hundreds of skyscrapers coming up in every metropolitan city, satellite city, and even smaller towns, during the pandemic and during the post-pandemic times, why is there greater demand for plots and independent floors?

Types of residences in India

There are primarily two types of houses these days:

1. Multi-storied buildings with one apartment or flat above the other. On an average a multi-storied building has 15-20 stories and each story has 4-6 flats or apartments. There may be multiple multi-storied buildings (called towers) within a complex or a boundary wall, making it into a tiny city of sorts.

Multi-storied buildings for residential purposes in most cities are a new phenomenon. It has been 20-30 years since people have shown a greater inclination towards buying apartments and multi-storied buildings for various reasons.

2. The other type of houses are the ones built on independent plots and floors. These houses are not built within a single skyscraper. They are built on a dedicated plot. A house built on an independent plot may have multiple floors but usually, all the floors belong to a single-family, although, there have been some instances of different floors being bought by different families. But in most cases, the entire unit belongs to a single-family.

Why is there an increased demand for plots and independent floors?

There are multiple reasons. Houses built on independent plots and floors are faster to build. There is greater independence in terms of architecture and design. There is also greater accountability among the developers and the owners.

Some developers too are preferring taking on projects involving plots and independent floors instead of apartments in multi-storied buildings because it helps them to better their cash flow. When they are building apartments in multi-storied buildings, only bigger builders with lots of cash can invest. House owners don’t pay in a lump sum for apartments in multi-storied buildings. But in the case of plots and independent floors, since they can be delivered faster, the builders to receive their money quickly.

The recent pandemic has also played its part in increasing demand for plots and independent floors. An increasing number of people are working from home. In apartment buildings, people have made offices on their balconies but such a work environment is not a long-term solution. It is easier to expand the house with an extra office or an extra room in the case of independent floors and plots compared to apartments.

Additionally, many believe that there is a greater chance of the infection spreading among people living in apartment buildings because they are congested, and they use common amenities like lifts and doorways. Compared to that, plots and independent floors are much more open, better ventilated, and give direct access to the road.

Since there is greater demand for residential plots, they are also enjoying a greater compound annual growth rate of 7% compared to 2% in the case of multi-storied building apartments. Hence, they are giving a higher ROI to householders as well as investors. Of course, this is because there is greater demand for plots and independent floors and if this preference shifts towards multi-storied buildings, then they too will enjoy a greater ROI.

Why do some people prefer apartment buildings?

In bigger cities like Delhi-NCR, Mumbai, Pune, Bengaluru, Hyderabad, Chennai, and Ahmedabad people still prefer apartments in multi-storied buildings for practical reasons. Multi-storied buildings provide common amenities like a swimming pool, health centers, maintenance, and power backup. The security is better. There is normally a big garden for children to play in. There is a common wall surrounding the complex which brings more security. There is usually a dedicated parking area.

For independent plots and floors, these facilities and amenities are usually lacking and the residents need to make their own arrangements, especially for power backup and security.

The cities experiencing an increase in demand for plots and independent floors

Although cities across India are seeing a trend of more people buying independent floors, it’s mostly cities like Hyderabad, Bengaluru, and Chennai that are experiencing double-digit growth in prices for residential plots between 2018 in 2021.

Hyderabad, for instance, saw some of its properties rising 21% in value between 2018 in 2021, indicating a sharp increase in the demand for such properties. Localities like Shankarpalli and Patancheru in the West of Hyderabad and Tukkugudu, Maheshwaram and Shadnagar in the South saw the highest rise in demand. Similar trends have been observed in Chennai and Bengaluru.

In the north, it is Gurugram leading the pack among the Delhi-NCR areas. Here, the prices of independent plots rose by 15% between 2018 in 2021. The city of Lucknow has also experienced a shift towards independent plots and floors.

Compared to independent houses and plots, the prices of multi-storied building apartments are rising pretty slowly, around 2-3%, showing that their demand is weak compared to the other option.

Types of Mortgage Loans: An Overview

Posted on by HomeCapital Team

Are you considering taking a mortgage loan to buy a new home or a residential property? What are your options? In this post, you will learn different types of mortgage loans available for you, based on your need.

A mortgage loan is a loan that you take to purchase a new home or a piece of land. You can also take a mortgage loan to purchase different types of real estate properties, or even to extend an existing property.

Once you have taken the loan, you can repay it to the lender in a series of monthly payments. These individual payments include a part of the principal amount and the interest. These are called EMIs. Different EMI options are available for different types of mortgage loans.

In India, there are multiple types of mortgage loans available. Here is an overview of each of them.

1. Mortgage loan against property

This is also called LAP (loan against property) and this is available both for commercial and residential properties. For this type of mortgage loan, you need to own a property that you can mortgage, or present it as a surety. You will need to submit your original property documents to the lender and the documents will remain with the lender till you have paid the complete amount including interest.

2. Fixed rate mortgage loan

This type of mortgage loan is offered at a fixed rate of interest. The advantage of this type of loan is that you always know your loan liability and you can do financial planning accordingly. For example, you know that even after 15 years how much amount you will be paying per month. This enables you to give a fixed monthly instalment no matter what the current market rates for taking a mortgage loan are.

3. Simple interest mortgage loan

In this type of loan, your interest is calculated on daily basis. This is different from your interest rate is calculated on monthly basis, which is the norm. In the simple interest mortgage loan category, your daily interest is calculated by dividing the interest rate by 365 days and then multiplying the result by the outstanding mortgage balance. Then to pay your monthly interest, you can multiply this number by the number of days in the month. Based on the calculation, you may end up paying more interest this way, than paying on a monthly interest type of mortgage loan.

4. English mortgage

Under the English mortgage loan agreement, the person who borrows the money agrees to transfer the property to the lending party if the loan is not repaid till a particular date. It doesn’t mean the property is permanently transferred to the lending party. If the borrower pays the amount in full, the property is again transferred back to the borrower.

Below are the basic characteristics of an English mortgage:

  • The borrower agrees to repay the loan on a specific date
  • The mortgaged property is absolutely transferred to the lender
  • The absolute transfer is made basis the condition that the lender will be re-transferring the mortgaged property to the borrower upon payment of the loan amount.
  • While the possession rights remain with the mortgagee, the mortgagor is allowed to either occupy the property himself or rent it out.

5. Usufructuary mortgage loan

Usufructuary mortgage loans are popular in rural India. Since usufructuary is an uncommon term, it requires a small explanation. Usufruct is a combination of two Greek words usus and fructus. Usus means the right to utilize property in its current form without modifying it or harming it, and fructus means the right to enjoy the fruits or the products of the property being used during the mortgage loan.

Unlike the usual mortgage loan against a property where merely the documents of the property are handed over to the lender, in the case of a usufructuary mortgage loan, the entire property is handed over to the lender so that the lender can utilize the property for financial gains. The property is given to the lender for a specific number of years and there is no liability on the borrower. Normally it is up to the lender to make good on the loan he or she has given to the mortgagor.

6. Variable or floating rate mortgage loan

Contrary to a fixed-rate mortgage loan in which your mortgage remains the same no matter for how many years you pay it, in the variable or floating rate mortgage loan, how much EMI you pay every month depends on the repo rate quoted by the Reserve Bank of India. Repo rate is generally the interest the RBI charges from banks in case the banks take a loan from the Central bank. The interest rate depends on the performance of the economy and the stock market of the country. It is also up to the discretion of the RBI to set the rate.

A good thing about a variable or floating rate mortgage loan is that if the rates come down, your EMI is reduced. On the flip side, if the rates go up, so will your EMI.

7. Adjustable-rate mortgage loan

In this type of mortgage loan initially, the rate of interest is fixed and then it begins to correspond according to the fluctuations in the economy. Depending on whether someone takes out a loan when the interest rates, in general, are low, or the initial low-interest-rate the lender opts for, in the case of adjustable-rate mortgage loans, it is often easier to get the loan and pay the installments. The person taking the mortgage loan may get a lower interest rate than prevalent in the market. The downside is that the interest rate and consequently, the EMI, may increase substantially over a period.

Conclusion

Aside from these types of mortgage loans, there is a sub-prime or some mortgage loan that is offered to borrowers with a poor credit history. Naturally, the interest charged on such a loan is higher.

Taking a mortgage is a long-term commitment: you will be paying EMIs for years to come, sometimes even 25-30 years. Based on your financial planning and financial situation, it is important that you carefully study all types of mortgage loans available to you, and then take a calculated decision particularly suited to your situation.

Union Budget 2022 – Real estate sector expectations

Posted on by HomeCapital Team

The Union Budget for FY 2022-23 is just days away and all eyes are on what the finance minister has in store for us. While there are many expectations, one of the most anticipated announcements is the ₹ 5 lakh income tax deduction on home loan interest. This would be a huge boon for homebuyers and could help to improve demand for residential real estate. Keep reading for more details on this budget expectation.

The real estate sector witnessed a strong comeback last year as housing sales in top cities jumped to 90% of the pre-pandemic levels while newly launched units reached 2019’s numbers. The third wave may have caused uncertainty, but with expectations high from the upcoming Budget update on these trends – there seems little chance that will dampen spirits any time soon!

The residential sector is looking forward to further support beyond the mainstay demands of industry status, easy availability of finance, and GST rates reduction.

The following decisions, if announced in this upcoming Budget will help spur up residential demand:

1. Home loan deduction limit to be increased to ₹ 5 lakh

The need for a hike in the tax rebate on housing loans has been emphasized by experts, who said that it would result in an instant increase in demand from both buyers and developers alike. There is a need to hike the ₹ 2 lakh tax rebate on housing loan interest rates under Section 24 of the Income Tax Act to at least ₹ 5 Lakh.

This might be the perfect time for a hike in property tax deductions, with indications that more and more people will soon find themselves eligible. Property stakeholders want an increase from ₹ 2 lakhs to around ₹ 5 lakhs – which should bring more salaried individuals into this category as well! This decision can help keep housing demand healthy while also helping developers recover after recent losses and increase their wafer-thin profit margins.

2. Deductions for home loan principal repayment, over and above the existing 80C

Personal income tax relief, either via a cut in tax rates or revised tax slabs, would be a welcome move – especially since the last increase in the deduction limit under Section 80C (to ₹ 1.5 lakh a year) took place in 2014.

Now is the time for a further upward revision in tax slabs/rates, but the government might not have much room for maneuvering such a move. Instead, it might focus on MSMEs and SMEs struggling post-pandemic, providing them more incentives through increased spending on infrastructure which could further get a boost due to another rescue package soon enough!

3. Redefine affordable housing criteria

The current definition of affordable housing is based on the size, price, and income level. For example, affordable housing is a unit with carpet area up to 90 sq. m. in non-metropolitan cities and towns, and 60 sq. m. in major cities and valued up to ₹ 45 lakh for both. The Central Bank’s definition, on the other hand, is based on the loans given by banks to people for building homes or buying apartments.

The government should seriously consider revising the city-wise pricing parameters to include a broader customer base under its benefits. While the size of units as per their definition (60 sqm carpet area) is relatively appropriate, prices for these types tend not to be viable across most cities and this limits their marketability in many regions where they could potentially boost economic growth significantly if priced lower. For instance, a less than ₹ 45 lakh budget is far too low for a city like Mumbai. It needs to be increased to at least ₹ 85 lakh.

As for other cities, the budget should be increased to at least ₹ 60-65 Lakh so that more homes are within the affordable price range, allowing buyers with lower budgets access many benefits like lower GST rates, government subsidies, and the tax deduction of a total ₹ 3.5 lakh on interest repayment of home loans.

4. Extend affordable housing benefits

As per reports, affordable housing in 2021 accounted for 26% of the overall supply across 7 major cities. The tax exemption will help stave off challenges related to a possible pandemic and its labor shortage consequences should there be any future disruptions.

According to domain experts with the recent Union Budget, affordable and rental housing will be booming in 2022. The government extended an opportunity for extra deductions of ₹ 1.5 Lakhs on loans up until March 31st of next year which he says helped fuel demand even more. A further extension of this benefit will ensure buoyant demand for affordable housing in 2022.

5. TDS relief to NRIs

The difference of more than 10% between the circle rates and agreement values of properties translates into tax penalties under Section 43CA of the Income Tax Act. The government must appreciate that this is much higher in certain areas, such as Delhi or other parts across India. Hence, the government should consider extending the relief to up to 20% of the difference.

The 28.49% tax deducted at source (TDS) on property transactions for NRIs is a major pain point that should be reduced since the refund process still takes a significantly longer time.

With the upcoming Budget, it is important for the government to focus on policies that will boost consumer spending and investment. The Budget should continue its focus on expansionary policy measures to boost consumer spending and investment. Measures like extending tax benefits for first-time home buyers, sops for developers engaged in affordable housing projects will have a positive domino effect that could help the real estate sector and the overall economy.

What are the tax implications of buying a property jointly with your spouse?

Posted on by HomeCapital Team

When Manoj was planning to purchase a house in Gurgaon his accountant friend Ravi suggested he buy jointly with his wife. Although the motive behind Ravi’s suggestion was the tax implications – there can be multiple tax benefits of purchasing a property jointly with your spouse – Manoj was thrilled at the idea because this was another way of showing his love to his wife. He regretted that he himself didn’t think of it.

He also knew that with his wife being the co-owner, a succession of the property later will be smoother because otherwise, it can become a lengthy process in the case of single ownership.

What does buying property jointly with your spouse mean?

This is also called co-ownership of property. Normally when you purchase a property like a house, there is a single owner. For example, if you are purchasing a house, you may purchase it in your own name. All the property papers will carry your name. All the tax-related implications will be dealt with by you and taxes will be calculated based on your financial disposition. You will be the sole owner and after you, your spouse (your husband or wife) will inherit the property and he or she may have to go through a convoluted succession process.

When you buy a property jointly with your spouse, you both have a claim over the property. The burden of the loan is shared by two people instead of one. If both spouses are earning, you can also get a higher loan because the income of both the prospective owners will be considered.

Tax implications: the tax benefits of jointly buying a property with your spouse

Most of the benefits accrue if one of the owners is a wife because many states give concessions and deductions on taxes when the property is being purchased by a woman.

Take for example stamp duty. This is a tax that you pay to the state government when you buy the property, and the property is transferred to your name. Have your wife’s name as the first owner. This way you can save a lot of money towards paying the stamp duty.

Different states offer different deductions on stamp duty for women property owners. If you buy a property in Delhi and if your wife is the first owner, the stamp duty that you pay is 4% instead of 6%. This can be a huge amount. For example, if your property value is ₹ 50 lakhs, you may end up paying ₹ 3 lakhs as stamp duty. Instead, if the first owner is your wife, the stamp duty will be ₹ 2 lakhs. Please keep in mind that in some states, the stamp duty may be as high as 9.5%. So, the reduction that you get with the wife being the primary owner, can be significant.

Tax implications when you are getting a home loan for a joint ownership

Getting a home loan for the property? There are some tax benefits you can enjoy provided the construction of the property is complete and you have availed the home loan jointly with your spouse.

For a self-occupied property, both you and your spouse (each co-owner, who is also a co-applicant in the loan) can claim a maximum deduction of ₹ 200,000 for interest on the home loan in your income tax returns. Please remember that the maximum tax deduction can be ₹ 200,000 share of your interest.

For example, if you jointly own the property with your wife or husband, and the interest you are paying is ₹ 500,000 (jointly), both you and your spouse can each claim a tax deduction of ₹ 200,000.

Also, under Section 80C, each co-owner can claim a deduction of a maximum of ₹ 1,50,000 towards repayment of principal. This is within the overall limit of ₹ 1,50,000 of Section 80C. The deduction amount will depend on how the ownership share between both the co-owners has been split. It is important to note that co-applicants who are not co-owners cannot avail any tax benefits on the home loan repayments which the primary borrower can avail.

Conclusion

As you can see, there are multiple beneficial tax implications if you buy your property jointly with your spouse. You pay lower stamp duty. You can also avail of deductions if you have taken a loan and you are paying interest along with your spouse. Buying a home jointly with your spouse also benefits in the long run because it makes succession easier.

Disbursement in an under-construction property: pre-EMI

Posted on by HomeCapital Team

Pre-EMI is applicable when the loan is disbursed for an under-construction property. Disbursement in under-construction property means when you apply for a loan for a property that is still being constructed by the developer, the bank pays the money to the builder according to the finished work, and not the whole principal amount.

What is the benefit of getting a loan for an under-construction property at pre-EMI?

Many homebuyers prefer to buy an under-construction property instead of buying a house or an apartment that is fully constructed.

Under-construction properties are priced at least 20% lower than ready-to-move-in properties. In fact, with pre-EMI lower than the conventional EMI, it is a much more economical way of buying a house.

Even if that is not the case, many homebuyers invest in under-construction properties through pre-EMI for capital growth. They buy the property at lower rates and when all the properties in the locality are fully constructed, they sell the house at a higher value.

Also, since the disbursement of the amount is dependent on the work done by the builder, it also acts as a motivation for the builder to complete the project on time – he won’t get the next payment unless a certain stage of the construction work is completed.

Difference between full EMI and pre-EMI

When you take a home loan, you pay the interest on the amount that is sanctioned to you. For example, if you take a loan of ₹ 50 lakhs with full EMI, you pay interest on the entire amount whether it is disbursed to you or not.

What is the difference between sanctioned amount and disbursed amount?

Sanctioned amount is the overall money that you are allowed to take from your loan – the upper limit. For example, if you have been sanctioned ₹ 50 lakhs, then this is the upper limit you can take from the bank. The disbursed amount is the actual amount that comes to your bank that you can use.

When you take a loan for an under-construction property the loan is often disbursed in phases and the amount is paid directly to the builder.

Full EMI means that you pay the interest and the part of the principal on the entire sanctioned amount. If the sanctioned amount is ₹ 50 lakhs, then you pay the EMI based on those ₹ 50 lakhs, no matter how much money has been paid to the builder by the bank or the creditor.

Sometimes the entire amount is disbursed (the entire ₹ 50 lakhs to the builder) and sometimes it is disbursed in phases. Irrespective of that, you pay the full EMI.

The full EMI option is available to you whether the disbursed amount is complete. This is in possession of the house. It mostly commences when the construction of the house or the apartment is completed. The benefit of paying full EMI is that the overall money that you need to pay gets reduced and the money that you owe to the bank or the creditor is repaid faster because you are paying both the principal and interest.

Pre-EMI is available only for under-construction properties, not for Ready to Move-In properties. That is, you pay pre-EMI till the house is being constructed. You pay interest only on the disbursed amount. There is no principal repayment. Once the entire amount that was sanctioned is disbursed, you begin to pay back the principal amount too, but until that happens, your pre-EMI consists of just the interest on the disbursed amount. You begin to pay the full EMI when the pre-EMI phase has ended.

One of the biggest benefits of opting for pre-EMI is that initially, you don’t need to pay a lot of money. The amount of monthly payment that you make to the bank consists of just the interest on the amount that the bank has disbursed. The pre-EMI period is not a part of the loan tenure.

Suppose you have taken a loan of ₹ 50 lakhs from a bank at a 6.7%per annum interest rate (hypothetical). Out of the 50 lakhs sanctioned, the bank disburses ₹ 6 lakh to your developer. Since under pre-EMI you are paying just the interest on the amount that has been disbursed, every month you will be paying

₹ [6,00,000 x 6.7/100] / 12 = ₹ 3,350

Conclusion

Should you go for pre-EMI? The burden, in the beginning, will be reduced because you will just be paying interest on the amount that has been disbursed, but your total tenure will increase because your actual EMIs begin when the construction is completed. The principal amount remains intact. It means when you start paying your EMIs, you will again be paying for the entire principal amount. Thus the decision should be solely based on your cash flow.

Why should you go for home insurance?

Posted on by HomeCapital Team

Home buying is an important event in one’s life. It is also a big investment to strengthen the financial position. Generally, a developed property comes with a limited warranty of 5 years restricting to structural and interior aspects. However, it doesn’t include home insurance.

We do a lot of research in buying home appliances and electronic gadgets like mobiles, laptops, stereo systems, etc. We check the warranty and after-sales service. Home buying is one of the most expensive purchases in your life. Hence, home insurance is an essential aspect. It gives you protection from damage to the property and your other important belongings. Home insurance will give you the much-required peace of mind. Let us check out more about home insurance, its categories, and benefits.

What is home insurance?

It is the coverage provided to you for home protection incurring a small payment called an insurance premium. This protection cover protects your home against damages caused by accidents, vandalism, earthquakes, fire, theft, etc.

Categories of home insurance 

Insurance companies will provide you with the most suitable insurance policy as per your needs from a wide range of policies.

1. Structural insurance

Only the home buyer is eligible for this insurance and not someone having a home on rent. The structural damages of the property are covered. You can also include the home extensions or additional owned space such as garages, outhouses, sheds, etc. 

2. Insurance of home belongings

This policy will cover your personal belongings and assets like jewelry, furniture, electronics, etc. In this case, even a tenant can buy this insurance. 

Benefits of home insurance

The insurance premium is a nominal payment done to the insurance company which covers a large amount of loss caused by an unprecedented event.

  • It provides monetary aid for repair and damage control due to unfortunate events
  • If a third party causes damage, you can claim insurance without getting involved in the legal discussions
  • Coverage is there not only for damages due to accidents or calamities but also due to theft, robbery, or burglary
  • The costs of loss of home’s belongings and content can also be covered up. These can include items such as appliances, furniture, gadgets, furnishings or jewellery
  • It is easier to get a home loan for repair or reconstruction you have property insurance

Home insurance constraints

Even the best of the best policies has certain constraints. Some events or aspects are excluded from the coverage. This differs from company to company. Below are some events or aspects listed:

1. If your home is unoccupied

2. Destruction at will

3. Wear and tear of the property.

4. Minor internal damages or damages by insects.  

5. Act of terrorism

6. Civil war or military attack

Categories of compensation and coverage

Home insurance covers the following aspects:

1. Natural calamity and man-made destruction

Property insurance covers the damages from natural calamities like earthquakes, cyclones, floods, and fire due to lightning. It also covers the man-made damages incurred through vandalism, fire, theft, etc. Compensation is provided in both cases.

2. Compensation covering temporary living expenses

When your home is in a damaged state and in the repair process then your expense of renting a home will be compensated.

3. Liability protection

If you cause someone accidental damage at your home then the liability is covered by your home insurance.  

4. Loss of assets

In addition to the protection of the home structure, it covers the loss of assets like electronic gadgets, jewelry, furniture, and other valuables.

5. Valuation of home insurance

When you call for the home insurance claim and the terms and conditions of the policy are fulfilled, you are compensated for the damage incurred based on the valuation. Nonetheless, it depends on the type of valuation you choose at the time of buying the policy. Types of valuation as mentioned below:

  • Valuation as per the value of reinstatement

    This valuation recovers only the construction cost inclusive of material and labour.
  • Indemnity based valuation

Ensuring your home at indemnity value, the sum as well the total premium paid can be claimed post deduction of depreciation value since the purchase of the property.

Home insurance is not mandatory when it comes to a mortgage loan. However, some banks or lenders do insist on having the property insured. Besides, it is always better to have your home insured not just limited to the insurance benefits but an advantage while opting for a mortgage loan. Last but not least, buying a home insurance policy gives you security and complete protection from unpleasant and unprecedented damaging events and helps you to restore your peace of mind.

How to reduce your home loan EMI burden

Posted on by HomeCapital Team

When you take a home loan you need to pay an EMI every month. The estimated monthly installment, or equated monthly installment, is based on the following factors:

  • The principal amount that you have taken (₹ 70 lakhs, for example).
  • The per annum interest rate you have agreed to pay.
  • The number of months (however many months are there in 25 years, for example) you are going to take to pay back the entire amount.

Every bank or financial institution has its EMI calculator based on various parameters and then these parameters are used to calculate your EMI.

Since paying EMIs is a long-term commitment – you may be paying the EMIs for the next 20-25 years in case you get a home loan – the longer you pay the EMI, the more money you may end up paying.

Consequently, you must lookout for ways to reduce your home loan EMI burden as much as possible. There are many provisions available, provided you look for them and choose the best EMI option available with the bank or the creditor.

What factors impact your EMI when you take a home loan? How can you reduce your EMI loan burden so that over the years you may save as much money as possible?

There are different interest rate regimes

There may be different interest rate regimes such as BPLR or MCLR (Benchmark Prime Lending Rate, and Marginal Cost of Funds Based Lending Rate, respectively) that your bank may be using to calculate your EMI. Even if these terms are complicated, for the time being, just remember that different home loan interest rates are associated with these regimes.

Another regime is called EBR which stands for External Benchmark Rate. As per Reserve Bank of India (RBI) instructions, banks and creditors use these regimes to disburse loans. Regulated by the RBI, these are to make sure that there is a semblance of uniformity across the board.

But they change. And accordingly, your minimum interest rate also changes. The problem is, if you don’t proactively find out which regime your bank is using to calculate your interest rate, you may go on paying your EMIs based on the original regime whereas, the bank is now charging other customers according to some different regimes.

For example, you may have started paying your EMIs based on MCLR according to which you are paying a 7.3% interest rate. But then, an option to pay a 6.80% interest rate became available through the Repo Linked Lending Rate, which is a difference of 0.5%.

What should you do?

You should approach your bank and find out if other regimes are available and if yes, you apply for a change. This is a service that banks provide without any question. They may charge a processing fee plus GST. For a small expense, you can lower your home loan EMI burden for years to come.

Go for tenure extension

This may not reduce the amount of overall money that you will be paying to the lending party and in fact, you may end up paying more, but it can reduce your home loan EMI burden for the time being.

What does this mean?

If you are to pay ₹ 50 lakhs in 10 years, you can get an extension by agreeing to pay the same in 20 years. Since the amount will be distributed over more years, your EMI will be less. Depending on how much money you have loaned and what interest rate your EMI is using, you can make a difference of ₹ 10,000 – 15,000 in your monthly installments.

Watch out for various relief packages

During the pandemic, RBI had allowed a moratorium on EMIs for many house owners. To give some respite to homeowners who had taken loans the government had introduced various schemes. Although such schemes come with multiple caveats, keep an eye on them if you are looking for some temporary relief.

Make a partial prepayment to reduce your home loan EMI burden

Some banks and creditors allow you to make partial prepayments without imposing a penalty. If you have some spare cash, you can reduce your home loan EMI burden by making a lump sum payment and reducing your outstanding principal amount in the process. With a reduced principal amount, naturally, your EMI will be less than what you might be paying before making the partial prepayment.

Conclusion

There are multiple steps you can take to reduce your home loan EMI burden, but you need to proactively pursue them. You can even go to the extent of transferring your loan to a new lender that may have a better EMI option for you. The key is, keep yourself updated of what is going around and then proactively take steps to find out ways to reduce your EMI.

How to get the lowest home loan interest rate in 2022

Posted on by HomeCapital Team

Planning to get a loan to purchase your first or second home in 2022? Considering that you may be paying the EMIs (estimated monthly installments) for the next 25-30 years, naturally, you’re looking for the lowest possible interest rate so that cumulatively you need to pay back as low an amount as possible.

What are interest rates and EMI?

When banks and financial institutions lend you money, they charge interest for the money that they lend you.  This is kind of an expense that you incur for being able to use a huge amount of cash despite not having it. It is also a means for the bank or other financial institution to make money using its capital to provide you an opportunity that was not available to you before.

Every institution levies its own interest rate based on the facilities and the services you are availing, the amount of cash available with the institution, and your creditworthiness.

The interest rate is calculated per annum. For example, if a bank says that it is going to charge 6.5% per annum interest on the loan that you are taking, it means for every Rs. 100,000 you owe to the bank, every year you will be paying 6500 extra. So, if the principal amount is Rs. 100,000, by the end of the year, you will be paying back Rs. 106,500.

Depending on how much money you are taking (around 50-80% of the total value of the property) and how many years it would take for you to pay the amount plus interest back, the bank or the institution calculates an EMI, which is also called your loan’s amortization schedule.

How much you pay every month depends on how much interest rate you have agreed to pay on the amount you have loaned. The lower your interest rate, the lower EMI you pay for the same period. How do you get the lowest home loan interest rate, especially in 2022?

1. Do proper research before settling with a particular bank or company

An unprecedented amount of information is available on the Internet. Use it.

Every bank and every creditor these days has an online presence. All their interest rates are listed on their websites. They have real-time calculators that allow you to easily calculate how much interest you may have to pay for different amounts you plan to take and for the number of years you need to pay everything back.

You can maintain a spreadsheet to compare interest rates in various columns. The moot point is, don’t make your decision in a hurry.

2. Maintain a healthy credit score

A healthy credit score means you have a history of returning what you owe, on time. Now, this is something that you cannot do immediately when you need a home loan, hence, it is always better to pay attention to your credit score from the beginning itself.

Have you taken another loan? Have you taken a car loan, and have you been paying the EMIs on time? What about your credit card? Are you regular with your payments? Delaying your credit card payments may seem harmless but over a period, it begins to negatively reflect on your creditworthiness.

Many banks and companies use your credit score to gauge how much interest you ought to be paying. If you have had no problem with your other loan payments, banks and companies will happily provide you a home loan at a lower interest rate.

You can find out your credit score in the Home Finance section of HomeCapital. If you think that your credit score is lower than what it should be, you can contest your current rating and get it rectified, if there is scope for it.

3. Make a bigger down payment

Just because you are getting a loan from a bank or a home finance company it doesn’t mean you should take the maximum amount you can get. Remember that the bigger the home loan is, the more interest you will be paying.

Normally you can get 75% to 80% of the total value of the property and you can contribute the remaining on your own. If you can contribute more, then definitely do so. For example, instead of getting 80% of the money from the bank, just get 70% depending on your actual requirement. This way, you will be paying your interest on a reduced amount, and hence, lower interest.

HomeCapital can help you in this regard. You can get down payment assistance from HomeCapital for a significant down payment at a competitive rate and then you can use it as leverage to lower your main EMI.

4. Use the option of prepayment

After a certain period, many banks and creditors allow you to prepay a bigger chunk of the amount. For example, if you owe a bank 50 lakhs and somehow after a few years you can make a prepayment of 10 lakhs then this can bring down your interest rate for the remaining EMIs. Carefully read the terms and conditions to check the prepayment option with your bank or the creditor.

If you get a better interest bargain from another bank, you can loan them money from there and then use it to make the prepayment to your current creditor.

5. Explore the option of a shorter tenure

If you stretch your tenure then naturally you will be paying a lower EMI, but then, you will also pay a higher interest rate because you are going to keep the bank’s money with you for a longer period.

If you can manage, agree to pay back the money in 15 to 20 years instead of 25 to 30 years. Since the money won’t be tied to you for these many years, your interest rate will be lower.

6. Opt for fixed rate of interest

In a fixed interest rate, the rate of interest remains the same throughout the tenure of the home loan. Currently, due to the repo rate, home loan rates are at a decade low. These rates may increase from here as they are rock bottom. Hence home buyers should opt for a fixed rate and secure this rate of interest such that they are effectively paying lower interest.

Keep a close watch on the economy and decide accordingly.

Conclusion

Information is power when it comes to opting for the best home loan and in the 21st century, the information is at your fingertips. Allocate at least a few weeks to compile all possible information. Talk to friends, relatives, and colleagues who have already taken loans and may have some experience. The more informed you are, the greater there is the possibility that you will pay a lower home loan interest rate.

5 Reasons for Buying Property in Navi Mumbai

Posted on by HomeCapital Team

Navi Mumbai is becoming a preferred destination for buying a property offering affordable rates than Mumbai City and Suburbs. Many SMEs and even large companies have their manufacturing and/or production units and even operational offices in Navi Mumbai. This is because of affordable property and land prices. Navi Mumbai has a good strategic location connecting Mumbai, Thane, and Panvel. Currently, Navi Mumbai is thriving with ongoing infrastructural projects like Transharbour Link, Metro Rail, and International Airport. Let us have a quick run-through about the reasons for buying property in Navi Mumbai.

1. Good infrastructure and connectivity

In Navi Mumbai, Vashi is the most developed locality to connectivity in three directions, Thane, Panvel, and Mumbai. Belapur has several government offices like CIDCO, Maharashtra Public Service Commission Office, Consumer Court CBD Belapur, etc. Juinagar has several SMEs offices creating employment opportunities. Kharghar is another locality developing at a fast pace. Vashi and Kharghar have all the amenities like shopping malls, banks, gyms, restaurants, schools and colleges, parks and clubs, multispecialty hospitals, etc.

The entire Navi Mumbai region is well connected with a network of wide roads. From Vashi, you can connect to Thane, Mumbai, and Panvel as stated earlier. Pune is also a 2.5-hour drive from Navi Mumbai as Express Highway is at a distance of 20 minutes from Vashi and less than 5 minutes from Kharghar.

Vashi is situated close to MHAPE IT Parks, MIDC Mhape, and Dhirubhai Ambani Knowledge City-based at Koparkhairane.

2. Growing economy

In the last almost 3 decades, Navi Mumbai has been progressive through its continuous development. There has been a rise in commercial and industrial infrastructure creating a lot of employment opportunities. People from different cities are choosing Navi Mumbai for employment as well as for accommodation for its affordability. So it has become a popular destination to buy or rent a place.

3. Complete lifestyle

Navi Mumbai through its continuous development in the commercial, industrial and infrastructural sectors has now established itself by offering a complete lifestyle. It offers great employment opportunities, widespread connectivity, and the life essentials at convenience as mentioned earlier. It is a 1-1.5-hour drive to Khandala and Lonavla for a quick weekend destination.

4. Property pricing

Navi Mumbai has a variety of properties to offer. You have several options like apartments, villas, plots, commercial/industrial property to choose from.

Property prices vary as per the location in Navi Mumbai. Vashi stands at the top for price and Panvel is the most affordable. In Vashi, you can buy a 1 BHK starting from ₹50 lacs and around a crore for one in a prime area. Whereas, Karanjade in Panvel offers a 1BHK starting from Rs.25 lacs and 2 BHK from ₹35 lacs.  

The rent for a 1 BHK property ranges from ₹6,000 to ₹18,000 spreading over localities from Karanjade, Panvel to Vashi prime area.

5. Good Investment opportunity and a high ROI

Navi Mumbai is one of the best destinations for investment purposes as well. You can consider buying a property close to the infrastructural developments like the International Airport, metro, or Transharbour Link. The property price will be appreciated by 30-40% post completion of these projects.

On a concluding note, Navi Mumbai is sprawling with building and infra developments. If you are employed in Navi Mumbai then it is worth considering buying a property here. And even a property bought as an investment will fetch you guaranteed appreciated returns in the next couple of years

A post covid snapshot of Chennai real estate market

Posted on by HomeCapital Team

The real estate market in Chennai has shown resilience to the pandemic and experienced a significant recovery from the second half of 2020 onwards.

As per the FICCI-ANAROCK report ‘Tamil Nadu – Growth Engine of India’, the mid and premium housing segments saw huge demand and supply growth during pandemic times.

While in the pre-pandemic period(2018-2019), the premium and mid-scale housing segments formed only 48% of the total units launched (28,700), during the pandemic period, of about 19,900 units launched in 2020 and the first 9 months of 2021, the share increased to 64% supply of units priced between ₹ 40 Lakhs and ₹ 1.5 Crores.

Chennai real estate scenario

Chennai‘s southern quadrant witnessed the highest number of launches and sales over the last three years, accounting for almost 62% supply in total as well as 66% housing sales in the city.

The recent pandemic has done little to dampen the spirits of Chennai’s real estate market. This can be seen in new launches and absorption gains during the first and second waves, all inspired by rising homeownership sentiment as people look for safe places they know will always welcome them back again no matter what life throws their way.

The high demand from mid-to-premium segments proves that there are buyers out here ready when homes go on sale predominantly dominated by the salaried class.

The property market in Chennai has remained steady over the last few years in terms of demand and supply, with prices remaining range-bound. The weighted average price per square foot is under ₹ 5000 and most home purchases are by end-users.

The state is among one of the most urbanized southern states with significant economic growth in recent decades. Working professionals from within or beyond can find opportunities across industries thanks to Chennai’s dynamic economy.

Chennai is a hotspot for industry, with data centers, warehousing, and logistics being the future demand drivers. Manufacturing hubs across the state ensure that this city will be part of an expanding sector.

Reasons for the real estate growth

Tamil Nadu has been growing steadily for over five decades, and it shows no sign of slowing down! See what makes this diverse region so special:

  1. Tamil Nadu is India’s second-largest economic contributor with over 9.84% of the national GDP.
  2. The state is first in terms of the number of manufacturing factories (over 38,131 units), accounting for 17% of the total factories in India.
  3. Tamil Nadu, India’s fourth-largest software exporter after Karnataka and Telangana accounts for 10% of the country’s total IT exports. The state has 41 operational SEZs – most are in the IT/ITeS sector.
  4. Tamil Nadu attracted USD 4.1 Bn between Oct-19 to June-21, accounting for 4.1% of total FDI equity inflows into India
  5. The Chennai-Kanchipuram-Thiruvallur cluster has an extensive auto and components industry base; Chennai alone accounts for more than 350 suppliers. Furthermore, there are numerous small and medium businesses in this sector too.
  6. The robust existing physical infrastructure and a healthy pipeline of upcoming infra projects will drive the next wave of growth in this state:
    • Chennai’s 2nd airport is planned at Sriperumbudur at a total cost of ₹ 15,000 Cr. The project is scheduled to be completed by 2027.
    • The state’s 4th major port is planned at Enayam and is expected to be completed in phases by 2035 at a total cost of ₹ 19,884 Cr. Phase 1 of the project is expected to be completed by 2025 with a capacity of 24 MTPA.
    • The 119-km-long 2nd phase of the Chennai Metro is expected to be completed by 2026, at a total cost of ₹ 63,246 Cr.
    • 18 new railway stations are proposed across Tamil Nadu, including at Vandavasi, Cheyyar, Arani, Arcot, Ranipet, Kodaikanal, and Pallipattu.
    • The 134-km long Chennai Peripheral Ring Road will connect Ennore port to Mamallapuram near Poonjeri junction of ECR, at a cost of ₹ 12,301 Cr.