Want to buy your dream home? Know how the union budget may impact home prices

• Buying a home remains one of the obsessions of the average Indian, with a very high ownership ratio in urban India.
• While the Indian government has been hoping for real estate prices to cool down, it has set an outlay of ₹48,000 crore for affordable housing under the PM Awas Yojana.
• But does the relatively high price of homes make home buying a good option in 2022?
• Business Insider tries to decode this with the help of experts.

Indians are obsessed with buying a house, and now might be a good time to get one. From tax incentives to historically low interest rates on home loans, now might be the time to buy your dream home.

“When one gets a home, a poor person gets courage,” said Finance Minister Nirmala Sitharaman while announcing the budget, clearly outlining the government’s priority when it comes to homes.

But before you make a decision, you should know what the Budget 2022 has in store for home buyers, and how the new announcements may impact home prices going forward.

In her Budget 2022 speech, Sitharaman also announced a slew of incentives for home buyers. The most eye-catching is the allocation of ₹48,000 crore for the Pradhan Mantri Awas Yojana (PMAY). But there’s a lot more to digest beyond that, and here’s what the experts think will impact home prices, thanks to Budget 2022.

What about the prices of homes?

The steady and multi-fold increase in prices of inputs used in constructing homes could be the biggest contributor to real estate prices not coming down. This is despite Piyush Goyal – one of the key ministers in the government, urging real estate developers to cool down prices of homes at a time when other sectors have also passed on price cuts to customers.

“This government is more comfortable with real estate prices cooling off,” said Shubhada Rao, the founder of QuantEco Research.

However, is there enough room for real estate prices to correct?

Vikram Kotak, cofounder of Ace Landsdowne Investments, points out that while land prices may not have gone up by much in relative terms, the prices of other core inputs like cement have gone up by three to four times.

And the fact that there is sustained demand makes it difficult for a price correction to take place – both in terms of the inputs as well as the finished product, which is the house itself.

The relatively high prices of real estate may seem attractive from an investment standpoint, but Deepak Shenoy, the founder of Capitalmind, has a different view.

“Houses are not investments if you live in them, they are expenses and therefore, I don’t consider them as useful investments,” he told Business Insider, which is something you will want to keep in mind before making your home purchase.

Why are home loans so cheap, then?

But houses are still an attractive avenue for banks and finance companies to lend money for, since they have a lower risk factor than, say, starting a business. This is one of the reasons why interest rates for home loans start around 6-7%, while business loans start at upwards of 8%, going all the way up to 21%.

Apart from this, there are a multitude of tax incentives for home buyers, from additional deductions on the interest component, to exemptions on reinvesting the proceeds from the sale of an asset into a new home.

For instance, under the provisions of the Income Tax Act, you can invest up to ₹50 lakh into a house or park the money from proceeds of a house property sale in qualifying investments to claim exemption from capital gains tax, which makes it one of the most lucrative tax incentives available in India.

Here are home loan interest rates offered by some of the most popular banks and finance companies in 2022:

Source: Banks, finance company websites

Should you invest in real estate stocks if you don’t want to buy a home?

If you have the additional income that you would like to invest in equity, the real estate sector could be one of the avenues for you to plough in some money, but what should you be looking out for, exactly?

Shenoy says that the criteria that he would consider for real estate stocks is how well they are selling their inventory of homes, rather than the pressure or performance of the stocks themselves.

If purchasing a home is not your top priority and if you expect the real estate sector to perform well over the next few years, real estate stocks could be an option worth considering. However, this is not investment advice, Shenoy added, so you will have to do your own due diligence.
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