Nina Varghese for IndiaProperty.com | Moneycontrol.com
Will the 2016 retrenchments in the e-commerce space impact home finance? This is a question on many minds especially in a place like Bangalore where a large number of e-commerce companies are headquartered.
In recent times there has been disturbing news in the daily broadsheets about the pink slips in the e-commerce space. Of course, as many would say this was a bubble that was waiting to burst, mainly because of the proliferation of e-commerce companies offering a variety of services and yet there has been no corresponding rise in internet penetration; in other words, an increase in net users.
In addition to this, the other bad news from the Middle East, where a large number of Indians work, is that companies are retrenching staff to combat the declining oil prices and the squeezed profit margins.
It is likely that a majority of the people who have lost their jobs this year would be paying equated monthly installments (EMIs) on homes, cars and other household items, and EMIs will be impacted.
The impact on the home loan EMI may not be immediate but it is likely in the next two quarters. This seems to be a persistent worry for the real estate sector, especially as surveys show that home sales in major metros are improving and a number of new launches are going up.
So how do you service the home loan if you have lost your job? At this point you must be aware that banks have the provision to restructure loans and that there are a number of ways to do this; all depending on the type of loan that you have taken.
The first option would be to extend the tenure of the loan; wherein your EMI reduces and makes it easier to manage. The bank, however, has to be convinced that the reason for restructuring the loan is a genuine one. The second option is foreclosure; where the borrower can sell the house which is most likely the collateral, to settle.
However, in most cities in India, the housing market is tight and it might be difficult to sell at this point. If you show undue haste, it is likely you will not get the price you desire. It is very important that you talk to the bank in question and remember that running away and defaulting on this loan and other financial commitments is not a wise choice. Most bankers understand if there is a serious issue such as a loss of employment and it is imperative that you make yourself open to them.
Let’s take a look at which companies are doling out the pink slips this year. According to newspaper reports, Flipkart, the e-retailer laid off 1000 employees pan India, in July. In September, Twitter, the online social networking services sent 20 people home, in Bangalore while OLA the online cab service sent out 700 pink slips across India, in August. ASKME’s 4000 employees lost their jobs when the company shut shop, in July, after their investor exited. GROFERS, the online grocery delivery service, laid off 150 to 200 employees and revoked 65 job offers, in September.
In the first quarter of 2017, CISCO, the e-commerce shopping list firm, is likely to lay off 14,000 people worldwide with 7000 of them likely to be engineers in the company’s Research & Development centre, in India.
According to the Middle East news service MEED, Abu Dhabi National Gas Co (ADNOC) plans to cut 5000 jobs by the end of the year while 2000 layoffs have already been announced. Similarly, many companies in the oil and gas industry in the United Arab Emirates have cut flab in a bid to reduce operational costs. The job cuts have affected mainly engineers and those on contracts. These job cuts are likely to have a domino effect on the hospitality and retail industries too.
The banking sector in the UAE has also been impacted by the declining oil prices. The Emirates Islamic, the Sharia compliant lending arm of the Emirates NBD, sacked 100 people because of the diminished growth in the second half of this year. Those laid off were mainly from the sales force.
Newspaper reports from Qatar said that many large multinational oil companies were downsizing because they were suspending or cancelling projects.
So it’s the right time to sit tight and fasten the belts tighter.
While job security cannot be guaranteed today, a skilled or experienced worker can find another one before long. However, the interim period can be difficult if one does not plan one’s finances well.
“Having an emergency fund that can take care of at least three to six months’ expenses can be of enormous help,” says Suresh Sadagopan, a Mumbai-based certified financial planner. If you have an emergency fund, you won’t have to worry about money matters and can focus on hunting for a new job. However, if you don’t, what should you do? The following steps can help you manage your household till you find a new job.
Plan a new budget
Drafting a new budget is the first step and it entails cutting down the lifestyle expenses. A monthly budget has two components: fixed expenses such as rent, and variable expenses. The former include compulsory expenses, such as groceries, electricity bills, mobile bills and other utilities that you cannot avoid, whereas the lifestyle expenses would be weekend movies at multiplexes or restaurant dinners. “The first expenses to let go off during the unemployment period are these discretionary expenses,” says Kiran Telang, a financial planner.
Take independent health insurance
It is likely that your employer offered you and your family a medical cover. However, when you lose your job, you let go of the health insurance as well. This is the reason that most financial planners insist on employees buying an independent cover besides the group cover from the employer.
Medical emergencies can happen any time and paying medical bills while out of job can be excruciating. “Getting health insurance is of paramount importance. The cover should be at least `5 lakh,” says Sadagopan. Financial advisers suggest that you buy a separate family floater policy. The average premium for a family of four is usually around `12,000 per annum. You can port your group health insurance policy to individual health insurance by the same insurer. Check with your former employer’s insurer if this is possible.
“If your life or medical insurance premiums are due during the unemployment period, you must service them, even if it’s difficult to do so,” adds Telang.
Prioritise debt repayment
Most households have debts, such as a home loan, personal loan, and credit card bills. Make sure that you pay your EMIs, especially for the home loan. If you are finding it difficult to pay the instalment, request your lender to restructure the debt.
You can also ask for deferment of loan payment. If you have been a good borrower, chances are that the lender will oblige. Switching the loan to another lender who offers lower interest rate on the loan is also an option you can explore.
Credit card debt can prove very expensive if ignored, so pay at least the minimum amount due. You can also apply for a balance transfer to another bank’s credit card, which will reduce the minimum due amount. “If you have skill sets that can enable you to get a job within 3-4 months, you don’t need to aggressively look into restructuring debts. But if you are working in a lull sector and the overall job market is not looking good, it makes sense to restructure debts as soon as possible,” says Telang.
Tap into your portfolio
Even as you look for a job, you will need to tap into your investments. “Check your portfolio and take funds keeping your asset allocation in mind,” says Sadagopan. For instance, if you have a higher asset allocation in equities, you could sell a portion to meet your immediate needs and, in the process, balance your portfolio.
WAYS TO TACKLE LOAN INSTALLMENTS
The lender will increase the tenure of your loan, reducing the EMI.
You will have to convince your lender to give you a better deal in terms of interest rates.
Inform your lender that you won’t be able to pay the EMIs for some time, but assure repayment after the said period.
Switch the loan to a lender who offers a lower interest rate.
Source : http://goo.gl/OQ3nFq