Low interest rates, stable prices and festive season loan offers are some of the reasons which make it right time to invest in real estate. But should you buy residential or commercial real estate?
Interest rates have been at record low levels since March 2020 when the Reserve Bank of India slashed rates to support economic growth. Despite already low rates, several banks have introduced home loan offers for those looking to buy residential real estate during the festive season.
Union Bank of India became the latest lender to introduce such offers recently. It reduced interest rates on home loans to an all-time low of 6.40%. Other banks with ongoing special home loan offers include State Bank of India, Kotak Mahindra Bank, Punjab National Bank, Bank of Baroda, among others.
Property prices have been stable due to the pandemic which makes it a good time to buy. According to a recent report by real estate consultant Knight Frank housing sales are up 67% year on year but prices were largely unchanged during the same period.
Good time to buy residential real estate
Those with disposable incomes are mulling to buy second homes to make use of the favourable finance and price environment. For salaried class, it is important that Fixed Obligation to Income Ratio (FOIR) remains below 50% of take-home incomes, suggest experts. A home loan requires a long-term financial commitment and this is just crucial to assess the cash flow situation by families before taking it on. There is no point taking on large ticket debt if there are concerns regarding paying it off.
If you decide to take on a loan, check your credit score as a low score might mean increased borrowing cost. It is also important to check processing fee, other charges levied by bank, prepayment clause, if any among other factors. Taking all of these factors will give you a clear picture in terms of overall cost and repayment.
If you want are convinced to buy a second home, now might be a good time as property prices are set to go up, say experts.
“Expectations that the pandemic would cause property prices to crash were dashed by the fact that demand for housing is so strong. This demand coupled with the increased construction input costs to developers will cause the prices to rise sooner rather than later. Property prices are at their lowest best currently. While costs to developers have gone up, they have managed to keep the prices down in order to harness the demand from the festive season – and even added lucrative discounts and offers,” says Santhosh Kumar, Vice Chairman, ANAROCK Group.
Residential property vs commercial real estate
If you are someone who wants to buy additional property solely from income perspective then you can also look at commercial real estate.
Residential properties offer rental income of 3-4% of the asset value while commercial properties yield rental income of about 8-10%, yet commercial real estate remained out of league for most investors due to huge investment and complex technicalities involved trust factor etc.. However, the rise of fractional ownership is changing this game. Besides significantly lowering the ticket size for Grade A commercial properties, it undertakes end-to-end asset management and due diligence, according to Sudarshan Lodha, CEO & Co-Founder Strata.
Investment in Commercial Real Estate through fractional ownership helps investors to diverse their portfolio across different assets such as warehouses and office spaces, since the entry ticket size is quite low when compared with residential property, he adds.
Source : Times Now News