Realty rates across India are nearly at their all-time highs, attractive teaser rates on home loans are being phased out and housing loan rates have been firm for a while. This may be just the perfect time to identify a great opportunity. Put aside the apprehension of signing up for a home loan at the high prevailing rates, and you could reap double the benefits when realty rates eventually start moving northwards and the interest rate on your housing loan cools off to sub-10 levels.
"The economy is showing signs of decelerated GDP growth. Inflation has not abated and even the recent rate cut by the Reserve Bank of India is yet to translate into drop in housing loan rates," says Anuj Puri, Country Head — India, Jones Lang LaSalle, a real estate services firm. "With the hike in service tax rates in the budget, this trend is likely to continue in the short term. Moreover, real estate developers are facing high debt and the high home loan interest rates have dampened local demand further." He adds that this is indubitably a buyer's market now and the right time for cash-rich NRI customers to shop for a good deal.
Borrow back home
The key question is: should you borrow funds here in the Emirates at a relatively lower rate of interest, or take a home loan from an institution back home in India that may come at a higher rate of interest, but has its attendant benefits? "The first factor is currency fluctuation. If you are assured about continuing to earn the current income until the repayment period of the loan, then it makes sense to borrow in the UAE," says Harsh Roongta, CEO, Apnapaisa.com, which offers price and feature comparison for financial products. He says earning and repaying the loan in the same currency insulates the borrower from variance in currency rates. Another crucial factor is eligibility for the loan amount. "Borrowing in the Gulf for a property in India will have to be through an unsecured loan, which not only comes at a higher rate of interest but also limits the borrowing capacity," says Roongta, adding that borrowing in India also makes good sense if one is not assured of continuing service abroad throughout the course of the repayment period. Not to mention the increasing convenience in recent times in securing and servicing loans in India. Right from helping NRI customers to identify a property in India to processing the loan and management of the loan repayment, everything can be done through the Gulf-based offices of Indian home finance companies.
Timing it right
The right approach to a home loan should be to go for the best deal when you need it, instead of choosing an offer just because it's attractive. Going by expert advice, the change in the interest rates are merely a reflection of the prevailing economic conditions and should not be deterring factors for the home buyer. Says Renu Sud Karnad, Managing Director, HDFC, "Home buyers often focus on home loan interest rates at the time of their buying decision. While interest rate plays a role in the value chain, buyers need to understand that it is only one link in the long chain. However, there are a lot of other important aspects one needs to look for, which may have long-term implications on the entire transaction." She says buyers need not worry about finance as it is available easily. What is important is the property he/she plans to buy — whether the property is the right one, whether the builder has good credentials and has all the necessary permissions, and what the builder's track record is in terms of timely delivery, etc.
"Since a home loan is a long-term commitment, the home buyer should go beyond the short-term benefit of a marginally lower rate and consider all the other factors involved before settling for the home loan," says a senior official of SBI Home Loans.
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Interest rates: fixed or floating?
As much as a floating-rate loan lets you take advantage of falling interest rates, you stand to lose if the interest rates move northwards. In other words, floating-rate loans make sense only when the interest rates are high and are expected to fall — which is what the current scenario is.
If the near-zero rate of interest prevailing in the West and the imminent relaxation on the cash reserve ratio in India are any indication, one can expect the housing loan interests to dip in the middle to long term. In that scenario, opting for a floating rate loan is still a good bet. Also, most institutions in India do not charge a repayment fee on floating-rate loans, which saves a further two per cent on the outstanding amount, especially if one intends to knock off the loan amount by making periodic principal repayments. For borrowers whose cash flows are comfortable, the floating-rate option is recommended since they can cope with any rise in the interest rates. For salaried borrowers whose monthly cash flows are tight, fixed rate is advisable so that any increase in EMI does not impact their monthly budget.
— A.R.
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