Tuesday, October 20, 2009

Festive real estate and loan offers Assetventures

Festive real estate and loan offers

Diwali is a time for festive offers. But, real estate and housing loans aren’t consumer goods and the advertised festive offers are usually just a marketing gimmick.

There is very little similarity between buying a domestic items like a kettle, on which one can get genuine deals, and getting a big ticket item like a house or a housing loan. Here we tell you why you should not fall into the trap of a so-called festive offers on real estate and related loans.

Why the marketing spin?

Marketers recognize that during festive seasons, whether its Diwali in India or Christmas in the western world, consumers are looking for good deals.

In India, Diwali is also seen as an auspicious time to make financial decisions. So, marketers play on this pre-existing momentum in the minds of consumers looking to make a house purchase decision during the festive season.

However, the deals are usually no different than what you would get before Diwali, or just after the festival season.

Don’t rush the big decisions!

Buying a house and getting a housing loan against it are the probably the biggest financial decision that any family will make. We aren't talking of a toaster oven here, that costs just a few thousand rupees at most. We are talking of at least Rs 20-40 lakhs, and a loan that will likely keep you indebted for up to a decade.

Such decisions cannot be rushed, because you will have to live with its consequences for a long time. And, the risk of getting it wrong is very high if you rush through your decision.

What drives real estate and housing loans? The economic cycle

Real estate companies and housing lenders are at the mercy of the financial markets. The prevailing interest rates, that are set by the market or policy makers, are one of the key drivers of real estate and housing loan prices.

To stimulate demand, a company might offer what appears to be a discount, but realistically speaking the pricing criteria for these products is no different around Diwali from the weeks just before or after the festive season. If the economic situation is good or bad that has a bigger influence on the pricing of real estate and housing loans.

So what deals are genuine?

At best, you might be in position where the developer reduces a modest fee to stimulate demand, or a housing lender reduces their processing fee.

However, its unlikely that the monetary benefit of these reductions will be any more than say Rs 10,000 – Rs 20,000 maximum, and if you tried hard enough you could get these reductions at other times of the year as well.

For instance, some developers in North India were offering a Navratra discount of up to Rs 100 on the booking amount. However, this was no different from the inaugural discounts usually offered. Similarly, some lenders might waive the loan processing fee during the festive season. But such waivers are no different from what you can get during the rest of the year if you negotiate with your lender.

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