Buying a home? Does it really help to wait till May 1 for Rera?

First-time buyers stand to gain more, but investors have to be cautious

For some time, most experts have been saying that home buyers should wait for the Real Estate (Regulation and Development) or (Rera) Act to be implemented. For one, it is supposed to be bring more transparency and expected to impact prices as well. 
 
But, if one goes by reports, states have actually diluted Rera and are unlikely to meet the deadline of May 1. No wonder, experts are beginning to push buyers to make purchases rather than wait for the implementation of this Act. “Most of the provisions of Rera deals with under-construction property. Those who have been waiting for the real estate regulator can opt for projects that are completed or few months away from completion or even a house in the secondary market,” says Gulam Zia, executive director, Knight Frank India. But if you want to buy a property under construction, you can wait it out until the state implements Rera, suggest Zia.
 
Amit Oberoi, national director, knowledge systems, Colliers International, India says that a buyer should not entirely rely on Rera for protection. Whether the realty regulator comes into force or not, an individual need to do their due diligence. Irrespective of Rera, opt for developers with a track record.
 
Good time for the first-time buyer: For the first-time buyer, there cannot be a better time to buy a house. Interest rates are down and is expected to show downward bias for some time, the government has started a scheme to subsidise your loan, and smaller houses have been made more affordable by policy changes. But if you are property investor, relying on home loan to make a neat profit, something that was possible till FY17, times have changed dramatically.
 

For one, the cost of acquisition will go up significantly due to changes in taxation. “The government has taken benefits from the well-off and passes it on to the first time buyers and the poor,” says Ashwinder Raj Singh, CEO - residential services, JLL India. According to him, end users have now started coming to the market and most of the sales happening are for of properties between Rs 40 lakh and Rs 80 lakh.
 
Benefits galore for end users: It has been a buyers’ market for the past three four years and the opportunities have increased with time. “Since 2012-2013 prices have either remained stagnant or move down 10-15 per cent depending on the city. If inflation is considered, the real prices are down significantly,” say Anshul Jain, managing director, Cushman & Wakefield India.
 
Add to this, the benefits that the government has provided in the Union Budget, and a buyer is in a much better position financial year compared to past any. If you earn up to Rs 18 lakh and plan to buy your first house on a loan, the government is offering a subsidy on the interest component of the loan under the Pradhan Mantri Awaas Yojana.
 
Then, the government has said that houses with carpet area of 30 square metres (323 square feet) in the big four metros and 60 square metres (646 square feet) in smaller cities would qualify as affordable homes. The built-up area for such houses would be 30-50 per cent more, depending on the amenities provided. If a developer constructs houses of these sizes, he would get deduction in the tax, which can be passed to the buyers. But the realtor has to complete the project within five years to claim the benefit. “There’s lot of institutional money eyeing such projects. Many are evaluating the benefits that will accrue,” says Amit Oberoi, national director, knowledge systems, Colliers International, India. If institutional money finds its way in projects, the buyer can be assured of quality and timely completion.
 
Even those buying bigger and more expensive houses are better off today as it’s a buyers’ market. “Developers have been restructuring their marketing strategies in order to offload existing inventory. This includes, being open to price negotiations, providing various payment schemes and even freebies,” says Anshuman Magazine, chairman, India and South East Asia, CBRE
 
Be a calculative investor: For investors, it’s a huge setback that the government has taken away the income tax benefit on buying an “unoccupied” property. Earlier, if an individual was buying a house that is not self-occupied with a home loan, he could deduct the entire interest component of the loan from his income. The deduction is now capped at Rs 2 lakh a year. If a person had taken a home loan of Rs 80 lakh for 20 years at an interest rate of 8.65 per cent, his equated monthly instalment works out to be 70,187. In the first year, he repays Rs 8.42 lakh to the bank. Of this, the interest in the first year works out to be Rs 6.86 lakh, as banks charge a higher interest in the initial years. “It will have a huge impact on property purchased for investments,” says Jain.
 
Investors now need to work out their cost of purchase as rental yields, too, are low. They can only make money if they are in the market for a long haul. “There would be more scrutiny and checks, including evaluating the long-term return on investment, before going ahead with a purchase,” says Magazine. There are minor sops for investors, too, but they are too little when compared to the cap on interest deduction. When selling a property, an individual can now claim long-term capital gains deduction if he holds it for just two years. Earlier, the period was three years. Also, the government has changed the base year for cost inflation index (CII), which would lower the tax outgo. Capital gains will come down because the cost of acquisition of property will go up.