Chennai Property When should I buy my house ?

There are quite a few reasons why property prices go up. Here are 2 out of the many reasons.

* Buyers buying more than they really need :-)
* Builders and land owners get greedy seeing demand picking

1) Buyers buying more than they really need :-) or in other words people buy a second house so that they can give the second house on rent and also have the feeling (yes that's what it really is) they are saving income tax by claiming the interest component as exemptions from the tax they pay.

However going forward the finance ministry is possibly going to make it unattractive to invest in a house unless you really need it, and hence may ensure only those who really need a house invests in land or buys a house.

I think Finance Ministry will kind of ensure there is a better home buyers market.

Two reasons for the above statement :

A per the new recommendations and IT Code possibly taking effect April 1 2011,

a) Removal of all benefits for buying a house i.e the interest component will be, no more exempt from income tax. This makes it actually more expensive to own the second house as you need to still pay tax on the amount that you were previously saving. Yes it also makes it seem expensive for first time buyers. But wait first time buyer have normally lesser salary and they actually do not loose much as income tax slabs itself would have increased your pay to compensate the removal of the benefit.

b) As per the new code, Long Term Capital Gains and Short Term Capitals Gains will be clubbed and there will be no differentiation between the two.

c) All capital gains will be included as part of INCOME for that year.

This is a very damning thing. Especially for salaried class. Even if you sell your ancestral land you are going to pay "Income Tax" for the profits you gained out of selling it. People selling land to get their child married are going to feel the pinch for this as these are people who need the money and buying bonds etc are not going to help.

This will hence kind of force some people to sell their land / flats before the tax code actually comes in to place to make sure their returns are not impacted.


Ofcourse the above case is within the context of newer slabs for Personal Income Tax planned for 2011. You can see the various slabs in the below image.
http://www.hindu.com/pp/2009/09/12/images/2009091250010102.jpg


So what ?

I think flats and houses will see some kind of best prices in the year 2010 if the Finance ministry decides to go with this recommendation in 2011 because investors may stop buying the second house helping to cool demand (maybe to a small extent). Additionally those sitting with land banks may want to clear some of it so that their "Income tax" is within limits.

Now the new IT Code itself could reduce the "buying" capacity of a home buyer as he is going to pay more taxes or have the perception that he does not get tax benefits. Hence he will perceive the house as being more expensive now than before.
This will in turn put pressure on the builder to reduce prices. But in reality it looks it will be a zero sum game for the buyers.


Good luck with timing the buy of your home.

Well this blog post is only half complete, Will need to update this in the near future.


This blog has been inspired from data obtained from the article in the Hindu.