How long will the low interest regime last and why?


The low interest regime should continue till the end of Q4FY22, and then may see a slight spike.

As real estate moves ahead after witnessing a really difficult phase amid a global pandemic, things are coming back to normal once again. With developers recording more registrations now than ever before and real estate stocks booming, sentiment with regard to real estate is optimistic. We expect this trend to continue building towards increased demand for housing. The low interest regime should continue till the end of Q4FY22, and then interest rates might move upwards

Why so?

Urbanization and nuclearization are the two major forces driving India’s home buying and this urban housing shortage will touch 34.1 million units by 2022.  With incomes gradually increasing over time, housing has never been this affordable. Adding to this sentiment there are factors like low interest rates. The festive season is around the corner, and banks have reduced their interest rates while also adding enticing offers like booking-based incentives and lottery-based models.

State governments have also joined in to assist home buyers as stamp duty for registration has been slashed in a few key markets. As the stock market has provided regular, positive returns for the last year or so, investors, especially from the middle income group, are set to improve their standard of living. With the pandemic further driving the need for a family to have a self-owned house, there are plenty of reasons to expect the real estate industry to thrive for the long term. 

While the stars are perfectly aligned to favour home buyers, there are also some very interesting tools available to further ease the burden of interest payments on the customers. Chief among these is the pre-payment facility. So, taking a home loan adds a regular expense to the customer in the form of monthly EMIs. For a mutually agreed upon period of time, you have to pay a fixed amount of money. Now, prepayment is a superpower that helps you hack into the system to decrease your total loan expense.

Every month, a customer pays a fixed amount of money as EMI to their lender. EMI contains repayment of a certain portion of the principal loan amount and interest on the same. However, if you pay any amount more than your EMI as a pre-payment for your loan, it gets directly deducted from your total principal due.

This in turn also reduces the interest charged on the total principal. Also, since your principal is paid back sooner, you end up closing out your loan much before the tenure as mentioned in your loan agreement thereby saving you all the EMI payments you would have had made. Some lenders have now started offering an auto debit service to make regular pre-payments starting with amounts as low as Rs 500. This is highly beneficial for customers as they can flexibly adjust their pre-payments as per their means and at zero cost repay their loans early and save themselves some valuable time and money.  

With the housing sector all set to make huge gains along with the support industries like cement, steel, construction industry, etc., we are potentially in for a healthy economic period ahead. All signs point to very favourable and positive trends for real estate and home buying for the long term.

While prospective home buyers stand to get some really good deals this festive season in the short term, the long term future also seems secure for an industry that could lead India into an era of prosperity.

(The writer is Chief Marketing Officer, HomeFirst Finance)

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