Covid-19 has impacted the home building/buying decisions of many young and old. This pandemic has taught us the value of a roof over our heads. People who have been living in a rented house for a long time have been forced to think about buying/building their own homes. Social distancing and quarantine are new words in today’s times that renew the value of homes in our lives.
So, even though we know that owning your own home is the most important thing right now because of the current pandemic, let us see why it is also financially the best time as well.
Pradhan Mantri Awas Yojna (PMAY):
The Finance Minister in her recent announcement has increased the validity of the PMAY CLSS till 31st March 2021. This was a much-needed relief for people who are looking to Build/buy homes.
Under the CLSS (Credit link subsidy scheme) of PMAY, a beneficiary (check your eligibility here) can avail a subsidy of Rs 2.35 lacs for the Middle-Income Group (MIG) and up to Rs 2.67 lacs for the Lower Income Group (LIG) and Economically Weaker Section (EWS).
People who want to build/buy their first homes will be able to avail of this offer. After availing this scheme from the central govt. they will be able to reduce their principal home loan component and therefore reduce either the tenure of their loans or reduce the EMIs.
E.g. Mrs. Sharma recently decided to get her dream home built through Limpid Construction. She applied for Home Loan through SBI (Loan amount Rs 10,00,000) for construction of her home and availed the PMAY CLSS scheme. Through this scheme she got a subsidy of Rs 2.35 lacs directly transferred to her loan account. This reduced her Principal Home loan to Rs 7,65,000. After this she opted to reduce her EMI.
Lowest Home Loan Rates:
The Reserve Bank of India, in their announcements on 22nd May 2020 has declared to cut the REPO rates down to just 4.0% from the existing 4.4% as on 27th March 2020, which is the lowest in Indian history. This is the second time that the RBI has reduced the Repo rates in just 2 months time. The cut in the Repo rate has brought down the Home Loan rates across various banks to the range of 7.2% – 8.0% which is again the lowest in Indian history and, after the Repo rate cut on 22nd May 2020, the home loan rates are expected to come down even further. Availing home loans at such rates will bring down the overall cost of your owning your dream home.
Tax Benefits:
Availing home loans for the construction of your dream home can yield considerable tax benefits. To avail tax benefits the construction of the house must be completed within 5 years from the end of the financial year in which loan was taken.
- Deduction for Interest Paid on Housing Loan: If you are paying EMI for the housing loan, it has two components – interest payment and principal repayment. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24.
- Deduction on Principal repayment: The Principal portion of the EMI paid for the year is allowed as a deduction up to a maximum amount of Rs 1.5 lakh u/s 80C. But to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
- Deduction For Stamp Duty and Registration Charges: Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed u/s 80C but within the overall limit of Rs 1.5 lakhs. However, it can be claimed only in the year in which these expenses are incurred.
Most preferred asset class:
- In recent times, FD rates have reduced to 5%-6% from existing 7%-8%.
- Sensex and NIFTY has plummeted close to 33% in the past 3 months
- Historically, Gold has always been volatile.
Out of all the asset classes on which the middle class relies, Real Estate has stood its ground and has emerged a clear winner. - In times when the world is facing waves of economic crisis and every investment option seems to be volatile, Housing and Real Estate emerged as the most preferred asset class.
Irresistible deals from Construction companies and Builders/Developers:
The pandemic has reduced sales and has also impacted the revenue of all small and big companies. This situation has emerged as a blessing in disguise for people who are looking to build/buy homes for themselves. The time is right to negotiate rates and come to an agreement over a price that will be suitable for both parties.
Questions?- I’d love to help. Have I missed any important points?- I am all ears! Get in touch with us, today.
Author- Sarbojit Dutta
Civil Constructions, Home Interiors & Renovations!
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