How pay-cuts and job losses will impact home buying for young and salaried

The goal of owning a home may see a big shift in the days to come. For those who are living on rent, there could be several new factors to look at before deciding to buy a new home. Post-COVID-19, the environment could be different and as a young and salaried buyer, one needs to keep following them for the opportune time.

Amidst the COVID-19 outbreak and pay-cuts, job-losses, those staying on rent may have been impacted more. “Currently many of the workforce has not witnessed large lay-offs and though the cash flows have been impacted on account of some cuts, the fixed expenses are being serviced for now. However, if we witness large-scale layoffs, then certainly the impact would be very high on this class in an adverse way,” says Vijay Kuppa, Co- Founder, Orowealth.

Job losses and pay-cuts across most corporates in the country will leave less in-hand income with the salaried individuals. Similarly, loss of revenue and income for self-employed and professionals will also lead to a cash crunch for them.

For those looking to buy a home, unless the home prices fall, the affordability ratio will be important to look at. “Prices across India more or less have remained stagnant in last 3-4 years. That has made property already affordable. Also, the shrinking size of the apartments have further made residential properties more affordable and within the reach of the consumer. A decrease in housing loan interest rates post COVID is going to be a big trigger for end-users to buy a home,” says Ritesh Mehta, Senior Director and Head (West India), Residential Services, JLL.

The home loan interest rate has been falling over the past few months. “Homes loan interest rates by public and private sector banks are approximately as low as 7.20% and 8.05% respectively. This coupled with falling property rates as inventory piles up and RERA rules in favour of buyers could make real estate a sought after asset. for those with a steady income,” says Tarun Birani, Founder and CEO, TBNG Capital Advisors.

For those who had booked apartments in a new project, there is some good news. The lockdown across the country had halted the construction activities at the project sites. As a part of the economic relief package of the government, the government has relaxed the timelines for the delivery of the projects. “Rera body has allowed 6 months extension period for all the projects which had possession dates beyond 25th March 2020. In special cases, the extension of 3 months beyond the permissible 6 months is also allowed,” says Mehta.

For those who may be considering buying a home of their own rather than paying rent to the landlord, the price is always a crucial factor. While the better option would be to move into a ready-to-move apartment, there are buyers who may wait for prices to fall further. But will the real estate prices fall as per the expectation? “We may not see a big correction in housing prices. Also, construction, approval cost and borrowing cost are expected to rise further due to shortage of raw materials and labour. Homes can only become cheaper now if the government announces some waivers on taxes or passes on some benefits to developers, further cascading the benefit to an end-user,” informs Mehta.

But, what if the home prices do not fall and become cheaper? Should those staying on rent be impacted? “I don’t think that those staying on rent will be impacted more as due to high capital value v/s rental it made sense to continue on rent and resulted in significant savings. There is valuation matrix-like rental yield which is clearly at a very low level,” says Birani.

Finally, it’s all about meeting your long term goal of having a home of your own. If the home is within one’s budget and one is getting a good bargain, one may consider buying after carefully evaluating the household income expense and other goals of the family. “The dynamics of the real estate industry are likely to change post-covid-19. People who are looking forward to buying a house property should keep themselves updated on the changing trends which may benefit them. From a financial planning point of view, buy a property for which the EMI is affordable after factoring in a possible salary cut,” says Rahul Jain, Head- Edelweiss Personal Wealth Advisory.