This million-dollar question plagues the mind of every prospective home buyer as they contemplate cutting the biggest cheque of their life i.e. Purchasing a home. After witnessing the stock and bond market haemorrhage, the experts are painting all asset classes with the same brush, and therefore they believe home prices will correct. I have a contrarian view and strongly endorse the view that ‘Now’ is the best time to buy a home. History will prove this. My thought process is grounded in a fundamental supply-demand analysis, which will be evidently clear once the dust settles. However, the buying opportunity may not. Some key themes I would like to address are:
Mortgage Rates: Home Loan Rates are at an all-time low (SBI Home Loan: 7.15%) with indications that rates may come down even further. The impact of mortgage rate decline is not under appreciated. A mere 1% drop in interest rates translates into INR 24 lac saving on INR 1 cr home loan (30-year tenure). Across the world, history shows us that low mortgage rates are followed by an unprecedented boom in housing markets.
Asset Allocation: The unfolding of the recent bear capital market has taught investors the meaning of volatility. The benchmark indices (BSE & NSE) have corrected close to 36% and investment grade corporate bonds have become worse than junk, making even debt products a bad option. We have witnessed the demise of two large banks in form of PMC Bank and Yes Bank and in the former even the depositors have got wiped out. Investing your savings in asset class that offers stability like Real estate couldn’t be truer in these times.
Paradigm Shift in Consumption: The forced lock-down during Covid-19 has accelerated the adoption of the Work from Home (WFH) culture, which is here to stay. Having the requisite amount of space to work freely from home without family members’ interference has become a priority. A 22% surge in search results on Google for ‘Homes’ during the period of this lockdown bears testimony to this fact.
Tangibility: A home is only the real asset that not only provides an inflation hedge by protecting and slowly growing your capital but at the same time you can enjoy the lifestyle benefits. Moreover, today’s housing projects are gated communities with all style amenities such as a swimming pool, gymnasium, cinema, sport’s facilities etc. This aspect ensures that every family member irrespective of age doesn’t have to leave the project once he/ she is back from school or work and can enjoy the asset.
NRI Capital Flows: The Covid-19 pandemic has affected countries disproportionately and fortunately; India has been the least impacted. The global Indian diaspora amidst all this panic feels the need for a safety nest in their home country and we are witnessing record levels of NRI interest. The obvious sweetener is that the rupee has devalued close to 12% (w.r.t. to the US dollar) in the last quarter. This NRI demand on the margin may provide some additional tailwinds to the residential RE market.
Flight to Quality: The housing demand will migrate only to RTMI (Ready to Move In) homes because the buyer then has nothing to worry about. I would strongly caution everyone to avoid any under-construction projects irrespective of developer reputation, given the uncertain times. This buyer migration will provide freeze out new launches and consequently, this supply side shock will start to drive up housing prices.
In conclusion, I would like to say that these peculiar times have presented a unique opportunity to home buyers to buy the house they’ve always wanted. Fundamentals show that this opportunity window is short and once prices rise, your ‘dream home’ may become a dream. So, the time to act is ‘Now’.