Buying a home occupies a singularly important milestone for a middle-income Indian household in its lifetime. Fast paced urbanisation combined with rising household income has led to a steady rise in middle-income households looking forward to set down their roots in cities.
At this year’s World Economic Forum, experts expected Indian
middle-income households to grow from 54 percent today to almost 80 percent by 2030. This demography would be largely composed of millennials with a higher propensity to undertake a long term investment in homes.
Some of the enablers that would drive demand for new homes include improving affordability; higher financial inclusion ; reforms like GST, RERA and Benami Transactions Act ushering in a new era of transparency and benchmarked product quality; policy incentives especially for affordable housing like
Pradhan Mantri Awas Yojana (PMAY), National Urban Housing and Habitat Policy (NUHHP), National Urban Livelihoods Mission (NULM) and expansion of Credit Linked Subsidy Scheme (CLSS); and large-scale infrastructure development projects such as smart cities, industrial corridors, road, rail and shipping hubs, and power projects.
However, finding the perfect home takes a lot of research and planning and requires one to be flexible when it comes to household budget and financing, especially in today’s market where property rates are high. To bridge this funding gap, most individuals seek financial assistance from banks, NBFCs or other housing finance companies (HFCs) for a home loan facility. In such a scenario, when there are more than 90 HFCs apart from the commercial Banks, to have a trustworthy and credible partner that offers bespoke home loan solutions also becomes a critical factor in the decision-making process.
Get a Loan That Suit Your Needs
Despite home loans being a fairly standard product offering for most banks and NBFCs alike, a homebuyer should keep a few key factors in mind while deciding on a service provider:
1) Strong credentials: Since a home loan is a long-term product (with tenures typically ranging from 20-25 years), one must diligence the credentials of the loan provider as well as their product portfolio rather than just the price point at which the loan is being offered. The recent NBFC credit crisis has in a way exposed the weaker sections of the market and we expect NBFCs and HFCs to consolidate further, with only the best companies evolving out as winners. Understanding of the industry: 2) Before deciding on the partner, it is important to check on the lenders' past track record in terms of their understanding of the sector as well as their association with the project/developer . IT would help to ascertain how closely the home loan provider is able to diligence the underlying project and ratify a purchase decision. 3) Product offering: It is important to fully understand the product on offer, including key terms such as interest rate, repayment tenure, processing fees, other charges, custody of documentation, etc before deciding on a provider of choice. 4) Better rate of interest and cash flows: Naturally, price in the form of the interest rate on offer becomes key in the decision. Buyers must also understand the fine print (and any unnecessary fees or charges, etc should act as a natural deterrent). Reputed NBFCs and HFCs with lower costs of funds are in a better position to transfer these benefits to the home buyer in the form of lower interest rates. 5) Customer centricity: Features such as doorstep document pick-up, turnaround time from application to disbursal of home loan, a dedicated relationship manager, a robust post disbursal service, response time to queries and speed of processing documents etc. should all factor in the ultimate decision.
Nowadays, more and more home loan companies are tying up with developers at a project level – such projects are termed as ‘Approved Projects or APFs’ by the developer.
It is essential to check if the developer has one or more financial partners associated with the project, who addresses the legal and technical checks which make the home buying journey simple, fast and hassle-free for the homebuyer.In addition to the above-mentioned fact checks, home loan borrowers should also ensure the following:
At the risk of repetition, it is absolutely essential for the buyer to have absolute clarity on all the bells and whistles that come with the home loan – the various associated charges, recommended insurance products, top-up offers if required in the future which will only be charged once disbursed, and foreclosure charges if any. They also need to be fully aware of the interest and principal amounts and how those have an impact on the journey of their home loan. It is vital to understand the payment and amortization schedules so one can plan their finances better. Homebuyers should be aware of the part prepayment options to bring down the overall outflow.
On a closing note, it is imperative for homebuyers to have a more holistic approach to the home buying process as opposed to an independent one, in order to have a hassle-free and seamless experience.
Khushru Jijina is Managing Director of Piramal Capital and Housing Finance