REPO-RATE LINKED HOME LOAN & ITS PROs & CONs

In order to transmit the benefit of repo-rate cuts to the general public,a new home loan product referred to as a Repo-Rate linked home loan has been introduced. Find below its details along with few pros and cons associated with it-

By definition, a repo-rate linked home loan is a loan where the rate of interest is levied in tandem with the repo rate decided by the Reserve Bank of India (RBI). Here, the interest paid on the home loan  is subject to the variations in the repo rate. For instance, if the repo rate is reduced by 0.30 basis points (bps), the interest paid by the homebuyer would also be decreased by 0.30 bps, which was not the case earlier. 

Previously, under floating rate of interest, banks had only one option, i.e. Marginal Cost of Funds-Based Lending Rate (MCLR). Moreover, banks determined the rate of interest levied on the principal amount depending upon the remaining tenure for the loan repayment and the risk associated with the recovery. Resultantly, the final benefits of the repo rate cuts were not passed onto the homebuyers. Besides, the MCLR rates varied across banks, and the process of calculation largely remained opaque and complex. On the contrary, the repo-rate linked home loan ensures transparency and has been touted as a pro-investor move.

Key features of Repo-Rate linked home loan

Interest levied

It is crucial to understand that the repo-rate linked home loan is not the repo-rate itself; instead, it is based on it. For instance, if the repo-rate is 5.75 percent, the credit would not be available at this rate; banks will add a base spread, and a risk base spread over the repo rate. In case of SBI, the current Repo Linked Lending Rate (RLLR) is 225 bps over the repo rate. Besides, the bank levies 40 bps to 55 bps risk spread depending upon the credit score of the borrower. Thus, the home loan lending rates in SBI currently vary from 8.40 percent to 8.55 percent. The RBI recently slashed the repo rate by 0.35 bps, bringing it down to 5.4 percent. Post this, the new RLLR of SBI is expected to be brought down to 7.65 percent from September 1, 2019.

The RLLR directly benefit from the repo-rate cut, unlike MCLR, where banks determine the final benefit shared by the homebuyers.

EMI payment

EMI disbursements in RLLR differ from the conventional home loan EMIs. “In RLLR, along with the basic EMIs, the borrower also has to repay a minimum of three percent of the principal amount every year before he attains the age of 70. Though the arrangement poses an additional burden on the buyer, it is still a better choice over MCLR since the principal decreases by three percent every year, which further reduces the interest levied and the final payout.

Tenure

The maximum tenure of Repo-Rate-linked home loan is 33 years. However, in the case of under-construction properties, two years moratorium has been allowed because of project delays. Typically, a moratorium is a legal authorisation to debtors to postpone the payment. However, the interest levied during the moratorium period has to be serviced monthly. For ready-to-move properties, the EMIs begin immediately a month after the loan disbursement.

Investor or end-user: Whom would RLLR suit?

Since RLLR is based on repo-rate, it is bound to experience fluctuations. While the option may seem attractive when the repo rate is falling, it can be challenging in a vice-versa situation. Thus, RLLR may be more suitable for the investor community than first-time homebuyers.

Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. RISHI Grou & its associated Cos.does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.

SOURCE: https://www.99acres.com/articles/what-is-repo-rate-linked-home-loan.html?othersrcp=35470&wExp=N

Advantages of Buying Home early…

Buying a home early in life has several advantages…

A house is one of the most expensive & a lifetime investment, as compared to other purchases. Hence, buying such an appreciating asset early helps in correctly setting one’s financial goals.

 

 Benefits of buying a home early

  • Future investment & Wealth creation: It allows youngsters to invest in their future, as it provides them with an asset that can be used, rented or sold as per their need, when the asset are ready to move on.

  • Tax benefits: As home buyers get tax credits, youngsters can use it for lowering their tax liability and this additional savings can substantially lower their new financial responsibility without additional income.

  • Youngsters tend to learn better spending habits: It changes the young buyer’s decision-making process, as they learn how to save and spend money in the most effective and efficient manner.

Planning aspects that a buyer in his/her decision should keep in mind

Planning the budget for a home, is more important than evaluating the maximum loan eligibility. For a first home purchase, set aside a budget that is affordable and in-line with your career growth and pay scale.

While most banks provide loans of up to 85 per cent of the property value, youngsters need to first check the EMI that they would be comfortable paying each month.

  • Loan planning: Consult at least two to three reputed banking/financial institutions, to understand the nuances of the home loan process, including documentation, interest, repayment terms, tenure implications, EMIs, etc.

  • Social infrastructure: Nearby retail, dining and entertainment options must be considered, given the fact that youngsters give significant importance to recreation avenues.

  • Project location and connectivity: Work hours tend to be longer at an early career stage and thus easy connectivity to the core business districts/hubs are important.

  • Clear titles and other documentation: A younger buyer may need extra guidance on the various legal aspects of a property, such as land titles, statutory approvals, WBHIRA compliance, etc. A consultant or expert can help evaluate the feasibility of a project in this context.

Prioritizing savings through asset building and one can end up becoming a smart real estate owner.


Source Reference: https://housing.com/news/buy-home-20s/

AFFORDABLE HOME BUYER BENEFITS - BUDGET 2019

The finance minister has proposed to provide for an additional benefit for home buyers, in the form of interest on home loans, of Rs 1.5 lakhs. This is in addition to the benefit of interest available under section 24(b) up to Rs 2 lakhs, for

a) if self-occupied property.

b) if the home loan is sanctioned between April 1, 2019 and March 31, 2020.

c) The borrower should not own any house, on the date of sanction of the home loan.

d) This benefit is available, only if the stamp duty value of the property does not exceed an amount of Rs 45 lakhs.

e) This benefit can even be claimed with respect to interest paid during the construction period, which is not available under Section 24(b).


Source Link:-

https://housing.com/news/budget-2018-proposed-income-tax-changes-transfer-real-estate/

Why Madhyamgram is the Favourite Location of the Property Buyers

Strategically located on Jessore Road, Madhyamgram is a forthcoming real estate destination of Kolkata that’s offering a plethora of advantages. For the first time property buyers, Madhyamgram is quite a favourite location.

With the shrinking space in the city mainland, real estate developers are looking forward to the fringes for construction. Such a trend has encouraged real estate development in the areas like Madhyamgram. Several other conducive factors also promote the real estate expansion in this place. Here’s a probe at how investment in Madhyamgram looks favourable for the first time home buyers.

 Affordability is the Prime Concern

A home buying decision is most of the time governed by the budget factors. A first time buyer is instinctively apprehensive about making a huge investment. No wonder he will always look for the properties at a comparatively lower price. For them a 2/3 BHK affordable apartment in Madhyamgram is definitely a great option. Since, the region is a developing one; the price is a bit lower than the prime areas of the city.

Excellent Location & Surrounding

Situated adjacent to the Jessore Road, Madhyamgram shares a strategic location that offers it an uninhibited connectivity to the rest of the city. Alongside, it offers you a serene and cosy surrounding, a little away from the urban mess. Madhyamgram is enveloped by the true essence of nature, thereby compelling the developers to construct exclusive living spaces that offer a s comfortable blend of nature with modern homes. Moreover, the Jessore road extension has raised the potentiality of commercial facilities in this region. No wonder, such an approach will bring in more such investments in the upcoming years.

Connectivity with an Edge

Madhyamgram is one of the strategic locations of Kolkata which offers it an uninhibited access to the rest of Kolkata. With plethora of commute facilities, including railway and metro (at a close proximity), Madhyamgram certainly offers you an excellent investment opportunity. The Noapara Barasat metro link is already underway, which is soon going to be a prime communication medium of this region. Even for the frequent flyers, a flat near Jessore road is quite a wise investment option due to its excellent connectivity.

Top-notch Facilities

As already mentioned, the focus of the leading developers of Kolkata is now shifted to the fringes like Madhyamgram. No wonder, the flats in Madhyamgram is now at par with the ones found in posh areas of the city. Even the affordable flats and apartments here are featured with world-class amenities. It makes dwelling in a modern flat easier without digging a hole in your pocket. Most of the residential projects come with features like:

  •  Gym & Fitness Centre

  • Sitting area for senior citizens

  • Swimming pool

  • Games Room

  • Community Hall

Few Projects have also surprised the customers  with unmatched premium features / amenities  like – Cabanas , Amphitheatre, Party Zone ,Sky Garden, Infinity pool etc.

 The Final Takeaway

Madhyamgram is emerging as one of the fast developing fringes of Kolkata. Due to its strategic location, it’s not only a lure for the developers, but also for the home buyers alike. After all, the region offers easy and effortless communication, modern dwelling, smart lifestyle and everything within your budget. Isn’t it a smart bargain you would opt for?

Summary:  For the first time property buyers, Madhyamgram is quite a favourite location. Here’s a look into the factors that make Madhyamgram the ideal location for real estate investment.

GST Council approves transition plan for 5% rate for under-construction flats, and 1% for affordable housing

The GST Council has reduced the GST rates for under-construction flats and affordable housing to five per cent and one per cent, respectively and also increased the carpet area of flats under affordable housing

Update on March 19, 2019: The GST Council, on March 19, 2019, approved a transition plan for the implementation of the new tax structure for housing units, revenue secretary AB Pandey said. As per the plan, builders will be allowed to choose between the old tax rates and the new ones for under-construction residential projects, to help resolve input tax credit (ITC) issues.

As per the decision taken by the GST Council, the developers of residential projects which are incomplete as on March 31, 2019, will have the option either to choose the old structure with ITC or to shift to the new 5% and 1% rates, without ITC. Builders will get a one-time option to continue paying tax at the old rates (effective rate of 8% or 12% with ITC) on ongoing projects (buildings where construction and actual booking have both started before April 1, 2019, but which will not be completed by March 31, 2019), Pandey explained. The new tax rate of 1% for affordable houses and 5% for others, without ITC, will apply on new projects.

The meeting deliberated on the transition provision and related issues for the implementation of lower GST rates for the real estate sector. The Council had, in its last meeting on February 24, 2019, slashed tax rates for under-construction flats in the affordable category to 1%. The GST rate on other categories was reduced to 5%, effective April 1, 2019. Pandey said the GST rates for new projects will be mandatory from April 1, 2019.

 

Source :

https://housing.com/news/gst-real-estate-will-impact-home-buyers-industry/?utm_source=housing-existing&utm_medium=email&utm_campaign=news-digest-22032019

 

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How the GST rate reduction will impact property prices

SINCE DEVELOPERS WILL NOT BE ABLE TO CLAIM INPUT TAX CREDIT, WILL COST OF PROPERTY COME DOWN?

Once accepted and included in the official gazette, GST would be charged at an effective rate of 5% on the total value of non-affordable under-construction properties (property costing ₹45 lakh and above), which would be 7 percentage points less than the earlier effective rate of 12%. However, in case of low-cost or affordable housing, GST would be charged at an effective rate of 1%, down from the current 8%. Here is how the new GST rate will impact property prices.

Will the Price of Property come down?

Though the GST Council has recommended a rate cut, it also restrained developers from claiming ITC on various raw materials like cement, steel etc. As explained, developers used to claim ITC, bringing down their cost. But with developers not being able to claim the ITC, will the overall cost change?

“Developers will be burdened with GST payments to vendors, suppliers, agencies and contractors and this will land up increasing the cost further amid the already shrinking margin in business due to dynamic policies implemented by government," said Parth Mehta, managing director, Paradigm Realty, a real estate developer.

Prices of the apartment will start looking northwards if developers lose ITC, said Om Ahuja, chief operating officer, residential business, K Raheja Corp., a real estate developer.

Kapil Sharma, partner, Lakshmikumaran & Sridharan Attorneys agreed. “For buyers, prices may not actually reduce (after GST reduction) as the developers would not take hit of the tax cost which is incurred on the goods/services and such cost would form part of the price of the unit," he said.

However, some experts differ, and believe that given the current market situation, it would be difficult for developers to pass on the ITC burden to the home buyers. “The withdrawal of ITC could impact the profitability of real estate developers. Developers will need a price hike of 2-4% to maintain margins, which seems difficult in the current market scenario," said Rahul Prithiani, director, CRISIL Research.

In general, it is expected that cost of buying a house will come down, but not to the same extent by which GST rates have been reduced.

 

Source URL:

https://www.livemint.com/money/personal-finance/how-the-gst-rate-reduction-will-impact-property-prices-1551111008025.html

 

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From April, home loans to be decided by markets

The RBI said on Wednesday that from April 2019, it will be mandatory for banks to link all floating rate loans, which are extended to individuals and small business, to an external benchmark.

MUMBAI: Borrowers can now expect more fairplay when it comes to pricing of home loans which will now be decided by markets rather than banks.

The RBI said on Wednesday that from April 2019, it will be mandatory for banks to link all floating rate loans, which are extended to individuals and small business, to an external benchmark.

This benchmark can be the RBI’s repo rate, yield on the 91-day or 181-day treasury bill, or any other yardstick produced by the Financial Benchmarks of India.

“We have been moving towards enhancing transparency on loans. As part of this, we moved from base rate to marginal cost of lending rate. In furtherance of this objective, we are making it mandatory for banks to link personal and SME loans after April 2019,” RBI deputy governor NS Vishwanathan, said.

The actual cost of loan will be at a spread over the benchmark and the spread will be constant throughout the tenure of the loan unless there is a change in the credit worthiness of the borrower.

Citibank is the only lender in India that uses external benchmark for home loans. In March this year, the bank had introduced a home loan scheme where the rate of interest was linked to the government’s 91-day treasury bill. “We believe the use of external benchmarks for floating-rate home loans provides transparency to the end consumer. We have seen a favorable response since its launch in March 2018, with 95% of all new bookings opting for our three-month T-bill rate-linked home loan product,” Rohit Ranjan, head of secured lending, Citibank India, said.

Besides improved transparency, an external benchmark is expected to result in improved transmission of rates. The effectiveness of the RBI’s policy in stimulating demand or curbing it will work only if banks pass on its rate actions.

It has been seen in the past that banks try to protect their margins by not bringing down rates in line with the RBI’s rate cuts or during growth phases they refuse to pass on rate hikes, resulting in loans continuing to grow despite the apex bank’s efforts to curb demand. With an external benchmark, banks will have no choice.

The move to have an external benchmark was first proposed by a committee headed by Janak Raj, principal adviser at RBI’s monetary policy department.

For several years now, the RBI has been trying to address the issue of floating rate loans, which move up easily when market rates rise but tend to be sticky when interest rates come down. Banks have been managing to vary rates for new borrowers by varying the spread at which they extend loan.

To address this RBI asked banks to replace PLR with the marginal cost of lending rate (MCLR). MCLR, which was to be based on the incremental cost of funds, came with its own problems of having multiple rates.

Source: https://realty.economictimes.indiatimes.com/news/industry/from-april-home-loans-to-be-decided-by-markets/66969391

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Home sales surge 40% in 9 months to Sept on Government policy reforms: JLL data

Housing NSE -0.91 % sales across top cities in the country is seeing some green shoots of recovery with both sales and new launches rising despite liquidity issues and low buyer sentiment with Hyderabad and Kolkata leading the revival.

According to JLLNSE 0.00 % data for the nine-month period ended September 30 sales in residential segment have risen 40% on year.

Business environment for real estate has seen rapid change with series of reforms in the form of demonetisation, implementation of Real Estate (Regulation & Development) Act, 2016, the Goods & Services Tax (GST), Benami Properties (Prevention) Act and the Insolvency & Bankruptcy Code.

“While the implementation of GST and RERA led to some initial challenges for developers, most of the issues have been addressed and the industry as a whole is aligned. Going by the data for sales and new launches in the January to September period, home buyers are no longer delaying or postponing decisions on buying homes,” said Ramesh Nair, country head, JLL India.

Hyderabad and Kolkata were the standout performers with growth rates of 277% and 230% respectively. The relatively small residential markets in the two cities also provided a low base effect for the jump in bookings. These were followed by Chennai (77%), NCR (53%), Pune (19%), and Bangalore (12%), the report said.

“There is definitely an increase in confidence in the market amidst positive signs of recovery. This, coupled with stable pricing, augurs well for the industry and demonstrates the return of buyers’ confidence in the market, which has in turn prompted developers to launch new project,” Nair said.

In terms of launches, Kolkata led the way with an astounding 325% on-year growth followed by Chennai (289%) and NCR (152%) rounding off the top three. While Bengaluru and Hyderabad recorded growth rates of 101% and 82% respectively, in Pune had launches was pegged at a niggardly 3% growth.

https://economictimes.indiatimes.com/industry/services/property-/-cstruction/home-sales-surge-40-in-9-months-to-sept-on-government-policy-reforms-jll-data/articleshow/66780367.cms

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