Your dream home gets even more distant
RBI's new diktat --- banks should not include stamp duty and registration in loan amount --- will make home buying more difficult
The Reserve Bank of India's (RBI) latest verbal guidance to banks —not to include registration and stamp duty while arriving at the value of the house — will mean an additional hit of 5-10 per cent for home buyers.
Earlier, banks and housing finance companies included these two components while calculating the amount. This helped buyers in several ways: Their requirement to raise the cash — between Rs 2 and 5 lakh in case of a Rs 50-lakh property —was reduced. Also, the interest rate payable on this loan was much less, compared to a personal loan. In case of a personal loan, the equated monthly instalment (EMI) would be much higher because of the shorter duration. The new warning, therefore, comes as a serious setback for the potential home buyer.
Experts believe home buyers will have to take the personal loan route to fund this cost, in case of inadequate funds. This could lead to defaults. "We fear there will be a spike in borrowers taking personal loans to fund this cost, as it means a lot of money for the larger section of borrowers," said a regional general manager of a public sector bank.
| REALTY THAT PINCHES | ||
| States / Cities | Stamp Duty (%) | Extra cash needed (Rs lakh) |
| Maharashtra | 5 | 3.0 |
| Karnataka | 8 | 4.5 |
| Madhya Pradesh | 3 | 2.0 |
| Delhi | 4 | 2.5 |
| Kolkata | 7 | 4.0 |
| *Property cost = Rs 50 lakh Registration fee is assumed at one per cent, though it varies across states, but the variation is not much | ||
Most experts are on the same page as bankers. "Personal loan is the easiest option. Most home loan borrowers, anyway, depend on it to fund 15-20 per cent initial down payment," says Adhil Shetty of Bankbazaar.com.
The additional cost will vary across states, as stamp duties are different. In Maharashtra, it stands at five per cent. Add to that a registration fee of one per cent, value added tax (VAT) of one per cent and service tax of another 2.6 per cent. Total = 9.6 per cent of the property value. For a Rs 50-lakh property in Mumbai, you will have to shell out another Rs 4.80 lakh from your pocket. Similarly, in Kolkata, you have to cough up Rs 4 lakh for the same property (excluding VAT and service tax). In Delhi, you would pay Rs 2.50 lakh.
Given the cost, buyers preferred the bundling option. "And it was a cheaper option also. Comparatively, personal loans will work out more expensive and will mar their chances of getting any more credit in case of an emergency," explains a former banker. As a thumb rule, banks do not lend if your monthly loan outgo is more than 50 per cent of your income.
Sample this: For purchasing a property costing Rs 50 lakh in Mumbai, one was already paying 20 per cent or Rs 10 lakh from one’s own pocket. Add another 9.6 per cent to it, and now you are expected to shell out almost Rs 15 lakh or 30 per cent. Say, if the Rs 5 lakh is raised through a personal loan for three years, the EMI would be Rs 19,160 at the 22.25 per cent rate.
Earlier, if your monthly take-home salary was around Rs 90,000, you would have been eligible for this property of Rs 50 lakh. After deducting the initial down payment, the loan amount would have been 40 lakh, plus registration and stamp duty — a total of Rs 45 lakh.
Given the rate of interest is 10.5-11 and 20 year tenure, the EMI would work out to be Rs 44, 927. Under the new regime, the bank will lend you only Rs 35 lakh. But, if you are raising the cash through a personal loan, the numbers would go against you.
While the new EMI will be Rs 34,943, there will be an additional Rs 19,160. In other words, your total EMI-to-salary will go up Rs 54,103 or 50 per cent or more, if your take-home salary is any less than Rs 1 lakh a month. So, your eligibility criteria will also take a hit.
This ratio will make the bank uncomfortable about lending. It may seek extra investments to ensure there is some insurance if you were to default.