POSTED BY August 7, 2010 COMMENTS (186)ON
Are you thinking of buying your dream house? If yes , then you must be having a lot of questions and you must be looking some guidance from everyone you know, Why not utilize the knowledge of readers here.
Over the last couple of days I was tying to catch up with readers who have bought flats or other real estate property and asked them 3-4 questions which could give you good understanding/points of what all you should take care while buying real estate.
You will also get to know some basic tips and tricks given by our readers here which they learnt or heard from others while making their purchase in Real estate. Overall see this article as a real life experience’s of readers on real estate and their learning out of it for others.
I hope you had a look at the debate on Buying vs Renting
Costs other than quoted per square feet rate. Few of costs like floor rise, parking, stamp duty and registration are fairly well-known. However, I was surprised when asked to pay for value added tax liability and service tax.
Since I bought under construction property and with all payments by cheque, I did not have much option but to pay for these costs. These are substantial costs and buyer needs to be aware of these additional costs while budgeting for the property purchase.
While buying under construction property, buyer needs to do a thorough due diligence on builder’s track record on completion of property on time as well as quality of work. It is better to buy from a big name builder like Raheja, Hiranandani, Lokhandwala like (as far as Mumbai is concerned).
Even though one might need to pay a bit higher rate, it is worth it as it gives peace of mind when someone accepts all payments by cheques and abide by contractual terms. A good read from Subra on Mumbai vs Navi Mumbai Real estate .
One thing which helps, is to buy little old / used property, may be 3-5 years old property. 3 to 5 years do not make much difference in usable life of property. However, usually one can get such property at much better rate than normal market price for new property.
More important though, buying little old property has several advantages:
1. One gets good idea of available infrastructure like nearby groceries, shops, availability of household help, situation regarding water supply etc which matters more to the lady of the house.
2. One can see whether building is being maintained or not. When I visited a building just two-year old, I was quite surprised to see its shabby look. It turned out that many members of society were quarreling and not paying their dues. One can easily skip such headache if buying slightly old property.
3. You can very well see the neighbours. It might be good idea to just meet them and greet them even if for only little time. It gives good idea on what standard of living is maintained by residents and whether one can easily fit-in.
my brother skipped a building which was really well maintained, with quite good location and flat available within budget. Surprised, I asked him the reasons. It turned out that almost every one of the residents was having more than one car in family and holiday trip abroad was fairly common.
My brother did not want to be part of such residency as he thought it would not be possible for him to fit in with people having such life styles since he could not afford such life style and, then, he would be odd man out.
4. There are some buildings where there is only one flat occupied on a floor, others being bought by “investors”. One can avoid possibility of living on a ghost floor by buying little old property..
I am quite amazed by people stretching themselves on floating rate loans while buying property. I think people need to be aware that rates could be headed much higher, and higher enough to make material difference in their EMI obligations.
I think there are a lot of people who do not understand risks of floating rate loans or loans with first couple of years of very low-interest rates.
I will definitely give my inputs based on my experience. My advice will be more geared towards those who want to buy a house for the first time for self-occupancy and NOT those looking for immediate gains and make a killing in the real-estate market.
I am not the right person to advise those people as there are experts in that area. Here are my 2 cents:
Affordability – Do not go for over-priced properties which are beyond your means. Do not be impressed by those fringe attractions that builders dole out to impress the potential buyers like club, swimming pool, golf course, gyms, landscaping and what not…All these so-called benefits inflate the price of the property.
More important than these are the quality of construction and the basic facilities provided by the builder like earthquake-resistance (the richter scale it can withstand), the ratio of super area:built-in area, quality of material used within the apartment, 24 hr backup of electricity etc.
If you can manage your cash flow by reducing some other expenses, go for a size which is bigger than required i.e you need 2 BHK for now, go for 3 BHK and so on.
Location – This is important. I know most people cannot afford to buy a property on a prime locality like South Mumbai or South Delhi but when you are house-hunting in the suburbs, look for the development activities in the surrounding areas.
If there are metros, malls, highways, office or commercial and residential building being constructed in the vicinity, such properties have the potential. Choosing a right property in a right location is like picking up a good stock.
Buy when prices are low but has a potential to go up in the medium to long-term.
One last piece of wisdom:
Go for your first property when you are around 30 years of age and do not DELAY it. Go for a 15 year loan tenure and aim to repay it within 10 to 11 years. So by the time you are 40-42 years, you are out of the loan liability. CAGR % for Meena house is around 12% and Tenure is 14 Years , She lives in Delhi-Ghaziabad Border
1. After identifying the property, look if the builder has constructed any apartment nearby/surrounding that is already occupied. Go..talk to people find out how genuine this builder is.This gives you a feedback how genuine and chalu the builder is.
That way be prepared based on your questionnaire.
2. Read Agreement carefully before signing it. Eventually, in the process of purchasing Flat we built mutual trust and the builder promised me to give parking, but this was not included in my agreement. He called me to sign at registration office without handing over a copy of agreement in advance.(I also didn’t question being a good relation)
I got the copy after a registration..same day I read carefully all the lines..and noticed parking is not included..called builder he assured to give parking. Am still waiting..as parking is not yet alloted to the Flat owners yet.
Ratio of parking available to the owners is less. And I am following it up..to get my part.
I will start from the first step instead of the zeroth. A buyer has an option to choose from a ready-to-occupy apartment or an under-construction project. Ready to Occupy projects are priced much higher as the risk associated is far less.
The unit is all ready. An Under Construction on the other hand is cheaper but other than the risk you also have to wait for the unit to be complete. If one has enough fund for the Ready to Occupy option, people prefer it. In our case the Under Construction works better.
We did not have enough funds to actually buy a Ready to Occupy unit. A 2 BHK from a reputed builder was priced upward of 50 lakhs, It would have required a loan of more than 40 lakhs. An EMI of 45k per month was in the uncomfortable zone, plus it meant very little monthly savings.
Remember we had a car loan too.
Under Construction plan has a silent benefit which most people tend to neglect in their calculation. While the project is under construction, we are also drawing our salaries. Since the payments are construction linked, initial EMIs are quite low. This has an advantage.
By the time we get the possession of the flat we would have easily saved more than 10 lacs (we are considering 3 yrs time frame), something which would have been difficult in the Ready to Occupy plan.Other than the financial aspect we also have the legal aspect to take care off.
The project should be clean and should have all the necessary permissions from various govt. bodies. SBI seems to have the most stringent legal policies. So if a project is rejected by SBI, one should show extra caution. If one is looking for a flat which is Ready to Occupy type, one should consider the second sale option also.
This should be used just before the registration in the original owner’s name. Most of the original buyers are investors, they would like to sell the property before the registration to avoid paying registration fee.
Check Your EMI
Connectivity and basic infrastructure (grocery stores, road/ rail connectivity, safety), Consider re-sale property (less than 5 yrs old construction is the ideal bet) as there are several advantages of it :
Keeping apart the finance / affordability aspect because it has already been discussed, one important aspect while buying a house is the maintenance expenses,basic amenities and cost of living in the area.Not all places have good water / electricity availability + distance from workplace.
To be very careful of the person you are dealing with in case of non branded flats/homes because a new buyer can easily be caught in the nexus of land mafia which are obviously gundas and if something or the other goes wrong you cannot do a thing about it.
In small towns we even have instances of some properties being sold multiple times and also illegal land grabs/kabjas. I was lucky enough to escape such a condition but only after facing a lot.
New to this process but if you plan to sell the investment flats or homes in some short time you can save the registration money by holding a POA ( power of attorney ) in your name and save the investment on registration.
Later when you sell you can directly transfer the registry to buyer saving you a good amount. + in case of small town purchases more u bargain ( and more the upfront money ) more the price reduces.
Other than flats /duplex which yield a return of 12-15% CAGR the land prices in tier 2 and tier 3 cities offer much higher and brisk return sometimes.Thus if you are looking to invest irrespective the location , small cities are a good option to consider.
Moreover having been to all major cities and small towns , trust me that living conditions and resources are still much better in small towns with respect to electricity , basic cost of living , proper water and food availability.
First thing I would say is dont rush, learn about things, buying a house is one of the biggest decision (atleast financial) you will make in your life and you will commit your lifetime of cash flows in it. Planning things well in advance and doing your investigation will lead to smoother and successful execution.
Your chances of making wrong purchase or a bad purchase will be minimized if you take time and do your investigation well enough.
You buy a house , you do your basic investigation and the house was available at very very attractive price, and gives you a hope of making 100% profit in 2-3 yrs and suppose later you come to know that everything was fine, however the construction quality is not that great and have been compromised.
You really don’t want to get into that situation because first point is that if its your first home , you probably be planning to get settled there and wont move out once you are in your comfort zone and once things settle down like your office is very near, your children schools are there and you feel good there.
Every decision you take is your decision. Just like Wasim Sayyadd (One of the above), we Indian’s are emotional, we shy away from talking direct and think too much about feelings, relations and how others will think?
We make oral promises and also rely on them many times. There is nothing wrong in asking straight questions and questioning each and every step when you buy anything, because Damn! , its my money and its me who will suffer if things go wrong . So make sure you go through a detailed checklist because you buy a house or any other real estate property .
Question: What was the biggest or most valuable learning you take out from this Article, If you also bought a home, please share your learning and we can add them in the post.