As we move into 2024, the real estate market continues to be a dynamic and evolving landscape, particularly when it comes to financing. For potential homebuyers, investors, and even those looking to refinance, understanding the latest trends, government policies, and financial products is crucial.Here's what you need to know about real estate financing this year.
Increased Allocation for Affordable Housing: The Union Budget 2024 has allocated ₹79,000 crores to PMAY, marking a 66% increase from the previous year. This substantial boost underscores the government's commitment to ensuring housing more accessible, especially for first-time buyers.
Interest Rate Dynamics: With inflationary pressures in mind, the Reserve Bank of India (RBI) is likely to maintain a cautious approach toward monetary policy. As of early 2024, the repo rate stands at 6.75%, with potential fluctuations expected throughout the year.
Capital Gains Tax Reforms: The Budget has introduced a rationalization of the capital gains tax structure. For long-term capital gains (LTCG) on property transactions, the holding period has been standardized to three years across all asset classes, and the LTCG tax rate has been adjusted to 15%.
Infrastructure Push: A total of ₹10 lakh crores has been allocated for infrastructure development including smart cities, metro projects, and housing. This increased focus on infrastructure is expected to boost real estate values in targeted regions, providing better financing options for buyers in these areas.
Rising Interest Rates: Interest rates are a critical factor in real estate financing, and 2024 is expected to see a gradual increase. With the current repo rate at 6.75%, mortgage rates are projected to rise slightly, reaching an average of 8.25% to 8.75% by the end of the year. Homebuyers and those looking to refinance should consider locking in rates early to mitigate the impact of these increases.
Affordable Housing Financing:The increased budget allocation for PMAY is set to make affordable housing loans more accessible. With interest subsidies available under the Credit Linked Subsidy Scheme (CLSS), buyers in the lower-income segment can avail of home loans at significantly reduced rates, sometimes as low as 6.5% per annum.
Green Home Loans: Banks and financial institutions are offering green home loans at preferential rates. In 2024, the interest rates for green home loans are expected to be about 0.25% lower than standard home loans, making them an attractive option for environmentally conscious buyers.
Digital Mortgage Platforms: The adoption of digital platforms for mortgage applications, processing, and approvals is growing. In 2024, nearly 70% of mortgage applications are expected to be initiated online, with AI and machine learning tools playing a pivotal role in credit assessments and risk management.
Tighter Lending Standards: Due to the economic uncertainties and a cautious approach by banks, lending standards have tightened. Borrowers will need stronger credit profiles, with minimum credit scores of 700 becoming more of a norm for securing competitive mortgage rates.
Adjustable-Rate Mortgages (ARMs): Given the expected rise in fixed-rate mortgages, ARMs are gaining traction. These loans start with lower interest rates, which can adjust after a few years. In 2024, new ARM products may offer initial rates as low as 6.5%, making them a viable option for buyers planning to sell or refinance before the rates reset.
Interest-Only Mortgages:Interest-only loans, where borrowers pay only the interest for a set period (usually 5-10 years), are making a comeback. These loans are especially attractive to investors and high-income earners who anticipate higher earnings in the future.
Jumbo Loans: With real estate prices continuing to rise, especially in metropolitan areas, jumbo loans are becoming more common. These loans, which exceed the conforming loan limits set by Fannie Mae and Freddie Mac, are essential for financing luxury properties. In 2024, jumbo loans are expected to offer slightly higher rates than conforming loans, but with more flexible underwriting criteria.
Monitor Interest Rates: Keep a close watch on interest rate trends and consider locking in a rate as soon as possible if you're planning to buy a home or refinance. With rates expected to rise, securing a lower rate early can save you thousands over the life of your loan.
Improve Your Credit Score:Aim to maintain a credit score of 700 or above to access the best mortgage rates. Pay down existing debts, avoid new credit inquiries, and ensure your credit report is accurate.
Save for a Larger Down Payment: Aim for at least 20% to avoid private mortgage insurance (PMI) and to qualify for better loan terms.
Consider Pre-Approval: Getting pre-approved for a mortgage can give you a competitive edge in the real estate market. It shows sellers that you are a serious buyer with financing in place, which can be particularly advantageous in a hot market.
Explore Special Loan Programs: Investigate government-backed loan programs, especially if you are a first-time buyer or fall into a specific category, such as veterans or rural homebuyers.
Real estate financing in 2024 is shaped by a combination of rising interest rates, new government initiatives, and evolving market dynamics. By staying informed about these trends and understanding the financing options available, you can make smarter decisions whether you're buying, refinancing, or investing in property.
