Covid Alters Trend in House Buying & Renting

The pre-pandemic world saw working professionals focusing on rental properties to accommodate their ‘never settle’ lifestyle. They preferred living in rented units around their workplace to cut down on long commute hours.

However, the times have changed, perhaps irreversibly so. With the birth of concepts such as rotational shifts and remote working, the distance between the home and the workplace is no longer relevant for prospective homeseekers. Instead, they are now focusing on other factors when deciding to buy or rent a property. The most important priority right now is spaciousness, given that our home now needs to play the role of workplace, classroom, fitness center, and a place of relaxation, among others. The unit’s affordability is a close second.

Let’s have a look at the top determinants that influence the homeseekers’ decision of buying or renting a property:

1. Income Levels and Value for Money

An individual’s financial bandwidth remains the main determinant in decision-making. Before 2020, young, salaried homeseekers typically opted for rental properties because they were disinclined to make a big-ticket investment that would restrict them from settling in different locations. However, the pandemic has ironically made people realise the importance of owning a home as it offers a security unmatched by other assets. Also, in the post-pandemic landscape, their expenditures are limited to the bare essentials. As a result, their savings have flourished, leaving them better equipped to make a down payment for a home purchase.

Further, over the past decade, the average income in India has increased more than the average prices of properties. For the last four to five years, prices have been quite stable and ever since the pandemic broke, low-interest rates, reduction of stamp duty (in a few states), and builder discounts have made it even more affordable. 

These have allowed prospective homeowners to aspire for and purchase bigger, better homes–a trend that is likely to continue in 2021. Reuters recently estimated that property prices in India will rise by a meager 1.3 per cent this year and will not match the inflation rate until 2022. In contrast, salaries in India will rise in 2021 by an average of 6.4 per cent. These developments have encouraged homeseekers to sincerely think about investing in property with bigger budgets. According to the recent NoBroker.com builders’ survey, more than half (57 per cent) of the respondents stated that property seekers expanded their budgets while searching for their dream homes in the post-pandemic landscape. 

Another reason tilting the balance in favour of property purchase, as opposed to renting, is the long-term value. When renting a property, homeseekers are typically not required to make as hefty a security deposit as the down payment needed to make a purchase. However, the monthly rent amount increases year-on-year. EMIs, on the other hand, remain fixed for the duration of the loan. Coupled with possession-linked loan repayment plans, homebuyers simply need to make a 20 per cent down payment and repay the rest, once they take possession, which means the loan interest will only apply once people start living in their homes. These benefits make homeownership more preferable in the eyes of property seekers as, at the end of the day, they will have a tangible asset in their possession, something that is not possible through renting a house.

2. Regulatory Incentives and Builder Discounts

According to the NoBroker.com Real Estate Report 2020, 82 per cent of the respondents indicated their willingness to purchase a house in 2021. In a builder survey conducted recently,  84 per cent of builders affirmed that sales in H2 2020 were better than sales in H2 2019. This was echoed by the latest Knight Frank-FICCI-NAREDCO Real Estate Sentiment report, which noted that the real estate sentiment in India turned positive in the fourth quarter of 2020 for the first time since the outbreak. Besides the post-pandemic uncertainty that made people recognize the comfort, convenience, and security of owning a home, the reason that more people believe in buying a residential property today as compared to a year ago is increased affordability and sense of security. 

Regulatory push to stimulate investor activity among Indian real estate customers is a major factor driving this change. Recently, the Karnataka government announced a stamp duty reduction to three per cent from five per cent on houses costing between Rs 35 lakh to Rs 45 lakh to promote affordable housing in the region. Other states are also expected to follow in the footsteps of the successful precedent, set by Maharashtra, which had reduced the stamp duty to 2 per cent until March 2021 to drive housing sales.

Property developers are also making home-buying more affordable to accelerate the shift towards homeownership. To achieve this, they are developing residential projects in outlying urban regions as well as nearby tier-2 markets. These residential units are more affordable than those located in high-density city centers, enabling homeseekers to access a more luxurious and spacious homeownership experience at lower rates. At the same time, builders and developers are also offering strategic discounts on property purchases. In the aforementioned NoBroker.com report, three-fourths (75 per cent) of the surveyed builders admitted to offering some discount on property prices to stimulate investor activity, out of which 87 per cent claimed that offering discounts attracted homebuyers and resulted in sales.

3. Long-Term Personal and Professional Goals

A key factor that determines whether a person chooses to purchase or rent a property is whether they will be living alone or with loved ones. For single professionals, especially those working in mission-critical sectors such as manufacturing, logistics, construction, a rental property can present a better option, as remote working is not a feasible option for them. 

The rise of the remote work paradigm, on the other hand, is leading a lot of professionals to think beyond the nomadic lifestyle, especially those who are planning to raise a family, as well as, those looking to move in with their partners and families. In these cases, the discounts offered by developers and builders along with low-interest rates, a more relaxed EMI schedule offered by leading banks, and a relatively low cost of owning a home at present, can influence a new-age Indian’s decision to buy a property within this year itself.

4. Amenities and Facilities

There are factors independent of remote work and the immediate socio-political context that people consider in their home-hunting calculus. These pertain to how their lifestyle will be affected in the long run after they close their decision. These include access to essential facilities such as healthcare, schools, shopping centers, connectivity to the city. 

For instance, professionals looking to raise a family will factor in the location of good schools in the vicinity when deciding where to settle down. Besides these, amenities such as access to parks, recreational facilities such as swimming pools, sports clubs, meditation clubs are some other factors that most new-age property seekers consider in their decision-making. This is also the reason that is making society living popular among aspirational Indians as top societies offer these services and amenities, besides the comfort, convenience, and security of living inside gated communities.

Conclusion

All said, 2020 has provided an unexpected shot in the arm to the Indian residential real estate market. The number of new launches and residential unit sales registered a significant year-on-year increase in the fourth quarter of 2020, thanks to the improved affordability and accessibility. New-age homebuyers in India today, have a range of options available to them to choose from, whether they want to purchase a spacious home at affordable price points in the suburbs, rent an apartment in a gated society, or rent a house or a room in a neighbourhood of their choice. Above all, the present offers the most opportune time for homeseekers to finally make that commitment and turn thought into action by taking a firm step towards realizing their dream of owning a home.

The author is Co-founder & Chief Business Officer, NoBroker.com

DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.