Home buying advice for young couple

How does one invest in a home when young? What kind of home should one look for?

Here are some tips for a young couple looking for their first home. While dual-income nuclear families have become the new norm, young married couples are the preferred customer 'configuration' for banks and home loan companies.

While one young couple with a certain degree of financial agility may see a lot of sense in buying a home as soon as possible, another of comparable fiscal ability could be content to live out their lives in rental homes and invest their surplus money elsewhere.

The 'starter home'

The idea of buying a starter home is to secure a property within one's existing means, and then upgrade to a larger home as the family as well as financial capability grows. This is by no means the default choice for all young couples many prefer to invest in larger homes, which their combined credit-worthiness can certainly permit. Herein lies a primary fact of the market a budget for home purchase is not always only a function of financial ability, but often also of personal choice.

Deciding the budget

When it comes to deciding on how much to spend on buying a home, much depends on whether the newly-baked family comprises of a single income earner or whether it is a dual-income scenario. If it is a single-income household, a starter home in a good project by a reputed developer is the way to go. In the case of a dual income situation, a couple can set its sights a little higher but it is important not to overreach.

The main focus at this point in one's family life should be to secure home while simultaneously retaining the ability to enjoy the first years of married life in reasonable style. Travel and entertainment will and should be on the cards. Later, they also need to factor in the financial pressures of parenthood, and these eventualities should be prepared for in advance. The objective for a newly-married couple unless they come from wealthy families should not be to immediately buy the biggest, flashiest home on the block.

Buy vs. Rent the jury is always out

For a considerable segment of young married couples in India today, the purchase of a home is definitely still a priority because: It frees the family of empty rental expenses which reap no returns and instead secures a performing asset which will appreciate in value With the predictable expense of monthly EMIs on a home loan factored in, one gets a clear view of what other investment options and life flexibility is still available A self-owned home in India has a singular power to provide not only accommodation but also a sense of security and comfort For others, it makes more sense to stay in rental homes and invest into other instruments like mutual funds or even more adventurous speculation on the stock market.

While it is obviously a challenge to judge how many d young couples in India lean towards one philosophy or the other, what can be said is that home purchase has become a far more attractive option in India than ever before

The current market scenario

Over the past couple of years, we have seen significant property price rationalization in many cities. As a result, many more properties have now become affordable for a much larger cross-section of aspiring buyers. Also, thanks to more ready inventory, the legendary mental torture of 'waiting for possession' is now an option, not a necessity.

We will not see any further lowering of prices, especially now that RERA is cleaning up the market of fly-by-night operators and causing supply to slow down. However, as of now, residential property in India has become more affordable than it has been in several years. Simultaneously, home loan interest rates have declined to further boost the logic of home ownership in the country.

As the economy gathers further impetus and the real estate market recovers faster, bringing with it inevitable price escalations, locking into the currently prevailing low rates is the best possible investment choice for young couples.

Investment rationale, emotional value - or both?

All over the world, real estate as an asset class provides excellent risk-adjusted returns in the long term. This is not to say that investment in other instruments does not reap comparable or even better returns; what it largely boils down to is one's own outlook.

Finally, we do know that RERA will significantly crimp the supply pipeline going forward, and reduced supply has a direct implication on prices. Losing out on the best opportunities today in the hope of further price corrections can imply a significant loss to those who defer their decision too long. The best strategy for young couples who are firmly decided on buying a home today is to negotiate the best possible price and go in for purchase.

Ashwinder Raj Singh, Group Business Head, Bajaj Housng Finance Ltd., Bajaj Finserv.