Will ‘Real Buyers’ Make a Come Back in 2017?

Monthly rent is a great way of earning constant income without much effort. Especially in metro cities where properties fetch healthy rents as denizens migrate every year for better job and educational opportunities. Realising the benefits, in the last few years, buying a second home through home loan route and renting it became a popular trend. And why won’t it be! After all, one could enjoy constant income as well as tax benefits. However, the recent budget cracked a whip for such investors.

The Finance Minister in his speech said, “In order to address the existing anomaly of interest deduction in respect of let-out property vis-à-vis self-occupied property, it is proposed to restrict set off of loss from house property against income under any other head during the current year up to Rs 2 lakh. The loss not so set off would be allowed to be carried forward for set off against the house property income for eight assessment years.” Thus, under the Section 71 of the Income Tax Act, the owner of the second home can now just set off an amount of up to Rs 2 lakh as against no cap earlier.

Till now, if you had taken a home loan for your second property and put it on rent, 30 per cent of the rental income could be claimed under standard deductions, plus municipal taxes paid for the property. Apart from that, you could also enjoy deductions on the interest paid on the home loan. Thus, the announcement came as a shock for investors enjoying tax benefits on the interest paid for their rented-out property.

Now, let’s understand the impact in detail.

Let’s assume Ram is earning Rs 35,000 per month from his property that he has rented out.  He has a loan on which he pays a total interest of Rs 10 lakh per annum. Now, considering standard 30 per cent deductions on rental income (Rs 1,23,000) and Rs 10,000 for municipal taxes, till now Ram could show Rs 7.13 lakh as loss from his rented property. But, with the new announcement, he will be able to show the loss of only Rs 2 lakh, a difference of nearly Rs 5.13 lakh. Thus, he will have to now shell out more money from his pocket.

Clearly, the major intention behind the move is to subsidise first-time home buyers instead of investors.

So, how will it impact the real estate market? Well, after demonetisation, sales volume have already decreased and with this new announcement, the sales are likely to be impacted further as investors will now shy away from the market. Second, the impact is likely to be felt more on the luxury properties.

On the flipside, more end-users will enter the market as against the investors that will put a full stop to speculations resulting in price rise.

Opting for Home Insurance Can Reduce Your Interest Rate Soon!

Every year we make sure to renew our vehicle and health insurance. But unfortunately, we often tend to ignore one of the most important insurances- Home Insurance. Last year, ICICI Lombard conducted a survey which brought forth certain shocking revelations. As per the survey, nearly 93 per cent respondents did not have a home insurance policy. However, what was more shocking was the fact that out of the total respondents, 62 per cent were aware about the benefits of an insurance policy.

Shocking, isn’t it? Now, one of the major reasons cited for not owning a home insurance was the cost factor. Thus, to promote awareness about this important subject, National Housing Bank (NHB) is working on an agenda with the Insurance Institute of India that could reduce home loan rates by about half a percent if borrowers opt for an insurance cover. Now, this is already a common practice as a few housing finance companies offer property insurance to borrowers taking home loans.

“The magical thing about home is that it feels good to leave, and it feels even better to come back.” These lines by Wendy Wunder holds true for all of us! People who have survived earthquakes, flash floods, massive fires or landslides are true evidence of how a home can be destroyed or damaged in just a matter of few seconds. Now, the impact of natural disasters can be reduced to some extent if you have a home insurance.

So, what does a basic home insurance policy covers? The home insurance usually has two parts-one that covers the structure and the second that covers the household valuables such as electronic appliances and furniture. Also, depending on the insurance, one can get cover for fire and allied perils, including lightening, storm and flood, and earthquake. One can also get insured against burglary, damage, and mechanical or electrical breakdown.

Points to Remember

Here are a few points to remember while opting for a home insurance policy.

• One of the most common myths that people usually have is that low premium equals to low insurance cover. However, the cost of premium can be reduced if you select a home insurance policy that suits your needs well. Thus, before finalising one, do compare policies offered by different companies. It will also give you a holistic picture of what is available in the market.
• Do not buy unnecessary add-ons. For instance, if you are staying in peaceful area, in all the probability, terrorism cover may not be useful for you!
• Home insurance can generally be taken for a minimum of one year to a maximum of five years. Make sure to renew your policy once it expires!
• Read the terms and conditions of the policy carefully.

Did you Know?

Tenants can also purchase a home insurance policy. But since it is a rented property, one can just get the contents (valuables) insured and not the structure. And in case, you plan to shift your rented home, you can just get the address change in the policy for it to become relevant for your new abode!

Best Time to Buy Your First Home is NOW!

Is your annual salary up to Rs 18 lakh per annum? If yes, then we must tell you that this is the best time for you to buy your first home, if you haven’t already bought it! Read on to know more.

In order to achieve the ambitious ‘Housing for All by 2022’, government is trying all possible means to motivate fence-sitters to take the plunge. After the Budgetary reforms, it announced two new subsidy slabs to spur the real estate market. However, these slabs will only apply to loan with a tenure of up to 20 years as against the current 15 years limit.

Buying a home is an exciting chapter in one’s life that has several factors at play. And budget, undoubtedly, is one of the most crucial aspects. Since a good number of people take the home loan route, reduced interest rates or subsidies like these are expected to encourage more prospective buyers.

After the reduction of long term capital gains (LTCP) to two years from earlier three years and the lowering of the base tax rate to 5 per cent from the earlier 10 per cent on income between Rs 2.5-5 lakh, this has come across as another measure that is likely to encourage more and more youngsters to enter property market.

Subsidies are based on the following income brackets.

• So, if you earn up to Rs 18 lakh per annum, your first home will cost about Rs 2.4 lakh less as the government will give you a subsidy of 3 percentage points on a principal component of Rs 12 lakh.
• For people earning up to Rs 6 lakh per annum, a subsidy of 6.5 percentage points on a principal component of Rs 6 lakh, regardless of their total loan amount will be given.
• For those in the bracket of up to Rs 12 lakh per annum will get subsidy of 4 percentage points on a principal component of Rs 9 lakh.

Since 2015, the RBI slashed repo rates by 150 bps. Now, a general feeling that prevailed in the market was that the banks never passed on the complete benefits to the customers. To be precise, banks just slashed rates by 26 bps in home loans.

However, the recent demonetization made banks flush with funds. While the long queues in the banks and ATMs did trouble the ‘aam aadmi’ for a certain period, the move seems to be working well in favour of prospective home buyers. Banks received about Rs 14.9 lakh crore deposits following the ban of higher denomination notes, which prompted several banks to reduce their term-deposit rates.

In January 2017, the State Bank of India (SBI) announced its decision to reduce one-year marginal cost of lending rate (MCLR) to 8 per cent from previous 8.9 per cent. This meant that a home loan of Rs 75 lakh that was earlier available at 9.1 per cent will now be available at 8.6 per cent. Other banks also followed the suit and slashed their interest rates. In the last decade, the interest rates have never been this low.

So, does your 2017 wish-list includes buying your first home? Well, this could be the ideal time for it then!