Monday, August 19, 2019

What impact does interest rate have on the state of real estate sector in India?

Author: Sachin Gupta | Find me on Twitter

18th December 2013 was keenly watched by the markets and industries alike, particularly the real estate sector in India. RBI governor was to announce the monetary policy and interest rates hike was expected because of the stubbornly high inflation prevailing in the economy. However, to the surprise of all and sundry, Raghuram Rajan refrained from rate hike and brought smiles to the market and industry.

Commenting on the policy, Real estate major DLF Group Executive Director Rajeev Talwar said: "It's a welcome step. This is the first sign of recovery. If government can release food stocks to contain food-based inflation then possibly in coming time RBI may be able to take more steps for recovery of the economy. RBI governor has taken a bold step by keeping the rates flat." Most other real estate developers and consultants welcomed the step. So, what kind of impact can interest rate have on property sector in India, let’s explore.


  • Firstly, what are interest rates?

Consider an investment portfolio having investments in all productive activities in the economy based on their respective share of the economy to the total value of all productive activity in the economy, the rate of current earnings on such a portfolio would be equivalent to the real rate of interest. Such a rate would also be the rate required by economic units to save rather than consume from current income. This is also the minimum rate of interest that any investor, be it in realty sector, would least likely expect from their investments. Therefore, when RBI announces that Repo rate would stay unchanged at 7.75%, it was welcomed by the industry.


  • Relation to inflation:

In addition to the real rate of interest, a concern that all investors have when making investment decisions is how inflation will affect investment returns. Inflation in India is particularly high; however, of all the commodities which form the basis of calculating inflation, the food inflation has been highest. And RBI was worried about curbing the inflation which eats into returns on investments or future incomes. However, RBI’s view is that most of the concern for inflation is the supply side and having had excellent monsoon would probably bring the inflation down due to bumper crops. Therefore, Rajan refrained from raising interest rates.


  • Effect of interest rate on real estate supply:

Real estate supply is the addition of new stock of housing, office spaces, retail spaces, etc. to the market. Now, when a real estate developer decides to bring that supply to the market, he/she has to justify at-least the real rate of return on his/her investment. If the returns are low, investors would rather save their money than invest in realty projects. Therefore, when interest rates are low, it encourages builders to invest in real estate projects rather than save their money. At the same time, they can borrow funds from the market at lower rates and thereby cost of building real estate projects come down. Additionally, the debt servicing for the leading real estate developers come down and there is renewed excitement for all the real estate players. Financing real estate projects involves borrowing on a long-term or short-term basis. Because large amounts are usually borrowed for property development, financing costs are significant in amount and weigh heavily in the decision to develop real estate projects. Therefore, the lower the financing costs, the better it is for builders to bring new supply to the market.


  • Effect of interest rate on real estate demand:

The demand for housing or commercial property is generally determined by the population growth, household income, household preferences for other goods and investments, and the interest rate that must be paid to finance the loan. Now, an individual who is looking to invest in a property will certainly evaluate his/her financing costs and higher the financing costs, the less likely, that individual would be to refrain from investing in property. For example, an individual buys an apartment at Rs. 30 Lacs. He procures a loan of Rs. 20 Lacs for 20 years at 11%. The EMI or monthly payment will be Rs. 20643.77. However, as we noticed today, State Bank of India has recently reduced their lending rates. And even a drop of 50 basis points or 0.5% would bring down the EMIs from Rs. 20643.77 to Rs. 19967.60. Thereby, cost of financing goes down by Rs. 676.17 a month or Rs. 8114.04 a year. Hence, bringing interest rates down encourages buyers to invest in property.

































  • Desired Scenario:

Having the desired equilibrium between inflation and interest rates will lead to the growth of realty sector where both suppliers and consumers of real estate feel encouraged in participating.  And this will eventually lead to the overall growth of the Indian economy.


Have any Questions?

Tuesday, August 13, 2019

Looking to invest in real estate? Here are a few guidelines you must follow

Investing in the realty sector can be a good decision if done wisely. Most people channel all their savings and take out loans to purchase a property hoping that it will give them a good return on investment. Hence, this has to be done cautiously to make sure that the money invested bears fruit.

  • Set a budget:
Budget is the most important thing you should take into consideration before buying a property. Set a budget and make sure your finances are in order. For many, Paying EMI is not an easy option. Paying EMI empties out their pocket by the end of the month. It would be wise to ensure that the EMI does not exceed 40% of your monthly income. Make sure that you don’t overestimate your financial capabilities.

  • Research:
Once your finances are in order, the next important thing for you to do is research. You should work with the localities which match your requirement. Some of the criteria which one should consider while looking for a property are:
  1. Locality
  2. Accessibility and connectivity
  3. Presence of social and physical infrastructure
  4. Proposed infrastructure developments
  5. Safety and security
  6. Livability
It is always advisable not to invest in localities which lack basic amenities such as road, water supply and drainage system. Never get carried away with the promises of upcoming infrastructural developments and do not invest your money on those promises. Infrastructure takes time to be built and a few even fail to take off.

For guidance, you can visit IndiaProperty.com as this site provides expert analysis of localities through the micro market research reports and the locality pages.

  • Check the builder’s credibility:
The real estate market is vast and the industry has both reliable and unreliable builders. Do not blindly invest your hard earned money after seeing a too good to be true offer from a small time builder. Make sure you check on the trustworthiness of the builder by visiting their previous projects. This will give you a clear idea about the credibility of the builder and then you can decide whether to invest your money or not.

  • Verify legal documents:
For any property related transactions, title deeds play a crucial role. Check whether the seller has a strong title deed, if not, do not purchase the property. Here are some legal aspects to keep in mind while purchasing a property:
  1. The title deed is an important document without which you will have legal troubles in the future.
  2. Make sure you get the original title deed verified by an attorney before buying the property.
  3. Before acquiring the property, confirm that all the clearances for the property are in place.
  4. If you are planning to buy an under-construction property, do not forget to get the allotment letter and the development agreement from the builder.
  5. The allotment letter has details about the project such as the price of the property, floor plan, delivery date and liability details if there is any delay in delivering the project, whereas the development agreement has the details of the terms and conditions under which the landowner has allowed the builder to use his property.
  6. Make sure that the taxes related to the property are cleared before you buy the asset.
  7. Never hesitate to get an expert’s help if you have doubts.

This is a guest post by Amy Anstey Seelan J

Wednesday, August 7, 2019

DIYs that can increase the value of your home

Every home once in a while has to go through some improvisations to increase the value of the house. It is more so if you are looking to rent or sell your property. Some physical changes and improvements can add to the appeal of your house and make it look more attractive. A fresh coat of paint, some new wood work inclusions etc. can be a good start to home improvisations. But if you are looking to do some value additions without spending much, you can try some of the DIYs listed below.

To make a house look more elegant and bright, light color drapes paired with white upholstery and white based furniture pieces are the key. So you can start off by changing the curtains. De-stain any old wooden pieces and re-stain them according to the color tone of the room. Few other economic changes would be to either steam vacuum the carpets or change over the carpets to lighter shades. Lighter shades of carpet make the house look big and elegant. Symmetrical patterns on the back-splash of the kitchen counter, stairway railing and verandah railing will make the house look organized and high fashioned. Keeping the kitchen counter top clear of unwanted items will make the counter seem big and attractive.





Bedrooms are the biggest appealing points when considering a home. Big beds with neatly laid white and fresh linens are biggest attractions. Symmetrical arrangements of the bed with side tables and other furniture pieces in the room gives the room a sense of space. At the same time, one must make sure that bedrooms are free from Mosquitoes and flies. That can be a real turn off for potential buyers or renters. There are variety of options such as Mosquito Net, Mosquito Killer Machine, Mosquito Repellent that can be used to eliminate mosquitoes from the bedrooms. Similarly white sheer curtains and drapes make the room seem brighter. You can customize the door and cupboard knobs by painting them all in a same tone of metallic shade. These metallic shades make the home appear custom made and add value to the property. Landscaping in the backyard or merely adding some greenery to your terrace garden will show detailed touch in the house. Every buyer or renter want to see a personalized touch in the house they are looking. Creating a specific purpose for each space in the house will show how each space can be efficiently utilized. Even if it is not utilized the same way as yours, it throws opportunities and ideas for much more use to the space.

Use of energy efficient fixtures and appliances adds as a huge advantage when trying to put the house on the market. Energy efficient incandescent light bulbs, power saving smaller appliances will be looked up as a huge saving on a long run. Adding additional storage outside of the house in the garage will also be considered a value addition. Leaving these additional storage half empty will make the storage space seem more and will help the buyer visualize how much the storage space can accommodate. Every home improvement once started must be completed to satisfaction. Refrain from taking bigger home renovation projects if the deadline seems too tight. Or hire a professional Home Renovation company which can provide you end-to-end solutions including modular kitchen, wood work, steel or iron doors, electric & bath fittings, flooring, walls, interiors, and exteriors. Consider the use of the particular update or renovation in the long run and foresee how it will add value to the house before implementing any changes to your home.

This is a guest post by A. Ramya