Is It a Good Time to Buy Property? Mr Raj Khosla Shares Views

Ahead of festival season builders & developers are launching offers and discounts on housing projects. Already we have witnessed huge correction in price of realty and lending rates.

Ms Shambhavi Mehrotra of Economic Times speaks with Mr Raj Khosla, Founder and Managing Director of MyMoneyMantra to understand if it is the right to time to buy property for an end user. Here are the excerpts from interview:

It may not be the best time to spend on travel or extravagant items, but here is what it is an ideal time for – buying property.

Property prices have declined and are expected to fall further. Adding to this, there is an overhang of inventory. A recent ET article said that unsold housing stock in the top 8 Indian residential markets stood at 7,23,060 units as on Sep 30, 2020. Some owners in Delhi’s Lutyen’s zone are desperate enough to sell off their properties at 50% of pre COVID price, according to property consultants & brokerage firms. Adding to this is the lure of the Lowest Rate of Interest on Home Loans. Also, we are entering festive season, due to which builders and developers have launched various housing schemes, benefits & offers.

I have with me, Mr Raj Khosla, Founder & MD, MyMoneyMantra.com, who will help us understand how a buyer can gain in terms of pricing, interest rates etc. while buying property and shed light on the pitfalls one must look out for when it comes to real estate.

Q1. So, national inventory overhang has increased to 43 months as of this quarter, compared to 28 months in Q3 2019. Do you think home buyers should not postpone their purchasing decisions any more?

If I was a home buyer today, I would have actually gone out and pulled the trigger because you have double benefit of lowest ever interest rate and property price. I don’t remember in decades when home loan interest rates were as low as today.

If you think property prices are going to fall any further well. Well, it is a must game to protect the future. But if I were a guessing man I will say property prices are not falling any further. You have lowest interest rate, so go out and make the purchase. There is a survey that says 2/3^rd of the buyers are waiting and watching. I will urge stop waiting and make the purchase of your dream house, if you can afford.

Q2. Is there room for a further correction in prices? If yes, what factors could cause such a correction and how will buyers benefit?

My personal view is that, there is nothing further left to correct. They are down to barebones. So I don’t think there is any correction in terms of price happening.

What may happen for further fall? I could not think of an incident for further fall, though if we see some really whacky events such as collapse of economy happening & causing dumps (I do not see that happening either). May be then something will happen but I don’t think you will be buying anything in such economy.

So, all those who are considering to buy a home, this is the time!

Q3. Alright, as property prices are at lowest as you said, do you think going from here, it will be a recovery phase?

Well recovery will be slow. It is not as if real estate was doing well before COVID. The realty market was already slow from many years. COVID 19 has exacerbated the effects of that slowness of real estate.  Yes, at some point there will be recovery in future. But not so soon, for sure. Prices are not crashing any sooner I believe.

Q4. In this covid-led uncertainty, home loans are available at attractive rates. Is it a good idea to avail of these rates?

Absolutely! Rates have never been so low & I can’t see them getting further lower than where they are. But a slight caution is required here. Don’t go overboard with the purchase. At any given point in time, your EMI should not be more than 30-40% of your take home income. Do not consider next year’s raise or bonus. Work out on EMIs & see how much you can afford and save. Don’t borrow more because rates are low.

If you have income strain due to COVID, don’t borrow.

Q5. Indians have traditionally been more biased towards real estate. As an investment, do you think it scores over other asset classes in this period of uncertainty?

I don’t think one takes long term decisions with respect to one event. We are going through a bad phase but nothing is forever. We will soon adjust to new normal.

The distribution of wealth in different asset classes is not something that is dependent on COVID. You would not take Covid in account to assess how much goes into gold, shares, real estate & so on. So, Pandemic is not going to define proportion of asset classes for your investments. This decision is unique to each individual. It depends on one’s risk appetite, age, long term ambitions & so on.

Owning a home, there are a few things that go in favour. Amid bad phase as we are today, being in your own place, commercial or residential brings sense of psychological security. When you are living in your place, you do not have to deal with landlord. Also don’t forget that property purchases are also decided as we want to leave an asset behind for successive generation. So, real estate is a good investment. But we never go overboard of choice due to pandemic.

Q6. Any kind of risks you want to point out for home buyers?

Try & make a reasonable account of your cash inflows. Check out all fine prints of prepayment charges. Ideally, there should be no prepayment charge. How quickly a loan is going to be re-priced in case there is further fall in rate is another consideration.

Always keep in mind the worst that can happen. If by any chance you are unable to pay EMI, relationship with your lender is something that can save you. The lender can actually help you get out of bad phase. So make sure you have a stable bank or lender and take a holistic assessment of the relationship towards the lender and not purely base your decision on rate of interest.