Housing Loan Advantge

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A wise man said, “Buy land now, they aren’t making any more of it, so price will NEVER go down.” My father retired a General Manager, Western Railway. He never took a loan, even though in those days govt. as well public sector companies and large corporations such as Telco (now TATA Motors) used to give interest free loans to employees. When he retired, he got his provident Fund, with which he bought a three bedroom flat and lived in it. In contrast, Mr. SGT, a friend of mine, who joined LIC as 0ffice Boy and retired as 0ffice Boy, took a HOUSING LOAN early in life. He too is retired, but lives in a multi-bedroom bungalow with a garden. So who is a more sensible financial planner? The answer is obvious. 

Then the Income Tax dept. stepped in. They said an interest-free loan is a fringe benefit, a kind of financial subsidy, and must be taxed. So the govt. passed a law saying, “An employer cannot give an interest-free loan to employees, and must charge a specified minimum rate of interest on loans given to employees.” I believe this law is still in force and the minimum rate of interest is 4%. 

35 years ago, in the days of socialism, banks did not finance builders. An aspiring house buyer had to “B00K” a flat by making a down payment to the builder and paying the rest of the price in instalments. The building work progressed as the instalments came in. In effect, the builder was constructing houses with the aspiring owners’ money. Banks were nowhere in the picture. Housing finance companies did not exist because housing finance as a concept did not exist. No regulations were in place. It was a fish market. Vanishing builders were the order of the day, and cheated aspiring house owners committing suicide was common. This was highlighted many years ago in the hit movie GHARONDA, in which the protagonist Sadhu Meher, an aspiring house buyer who gets cheated by a vanishing builder, commits suicide. 

Socialism was creating shortages. Real estate prices were skyrocketing. Around 1980, real estate prices in Shivsagar Estate, Worli, Bombay, were going up at the rate of FIFTY PAISE PER SQUARE-FOOT PER DAY! Even so, you never could see what you were paying for through your nose ! The closest you got to seeing your dream house was a drawing, a blueprint on paper. The builder promised that he would use A-grade material, but when you got “possession” of your dream house (if at all), you found that the material used was not even C-grade. The dimensions of the house were fudged. If you protested, the builder would use words like “Built-up area”, “Plinth-area”, “Super built-up area” and suchlike, and would hand over (if at all) a structure that vaguely resembled a run-down shelter with damp walls, leaky plumbing, and windows, which would not move on their hinges! And there was nothing you could do about it. Going to court did not help at all because the builder was very well protected by the fine print. 

But that was thirtyfive years ago. Today the scenario is entirely different. It is now WYS-WIG==What You See is What You Get. Builders have access to finance. Aspiring buyers too have access to finance. The death of socialism has turned the property market from a seller’s market to a buyer’s market. Builders like Paranjape, always has some scheme in progress, while DSK and Magarpatta build entire townships in advance, with a ready show-flat to attract buyers, who are offered not only WYS-WIG, but “touch-feel-and-experience” as well, before shelling out a single paisa! What a sea change from those days! 

Today banks are more than willing to extend credit. In fact banks are competing with each other to extend loans to aspiring house buyers. HDFC and LIC Housing Finance were specifically created to cater to people’s housing needs. Various other funding bodies have opened shop precisely to fund house buying. The govt. too has realised that socialism is a failure and has done its bit to ease housing shortage. Interest paid on housing loans is now tax-deductible up to a certain limit. In fact, govt. is promoting house buying so much that even if you have your own money, it makes more financial sense to borrow money to buy a house, rather than use your own money because the interest you earn on your savings is more than the interest you pay on a housing loan, while the tax subsidy on the housing loan interest is an added bonus. 

Paperwork remains complicated, but now there are bodies that speed up paperwork, albeit at a cost. But it is worth going through them because they know the ropes. To be sure, not all paperwork specialists or all builders are Satyavadi Harshchandras or paragons of virtue. There are black sheep everywhere. The operative factor today is the BRAND EQUITY of the builder. Just like Rolls Royce, Mercedes and Hero Honda have built up their BRAND EQUITY by adhering to quality and best practices over the years, builders too have done the same. 

The building industry is booming. So is the financing industry. Whether you are looking for a bungalow, a row house or a high-rise, it is all there ready for you. Whether you prefer to live in Wagholi, Phursungi, Kondhwa or Mundhwa, housing is available. And if you prefer to live in a condominium with a swimming pool, clubhouse and gymnasium thrown in, that is available too. And If you need finance to fund your dream house, that too is available, almost at the click of the mouse! So what are you waiting for? Go live in your dream house NOW! 

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