POSTED BY August 7, 2010 COMMENTS (187)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.
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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.
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187 replies on this article “Tips while Buying House, Real life experiences”
It gives knowledge of purchasing property, the tips that are so valuable to buyers listed in this article.
Thanks for your great experience while buying house. I think buying residential plots in Bangalore will be the greatest investment on real estate by the people. There are many plots are available for sale at affordable price.
Thanks for your comment Ramkumar
Hi Manish, my society is going for redevelopment and has finalized two builders without doing a thorough background check. Can you let me know if there is any agency that can be hired to do background check on builders?
I am not aware of anything like that !
Thank you Manish for a wonderful article.
I see that this was written in 2010. Is this one still relevant 6 years on? Also, any chance of having the date of the article within the page itself (I refer to hyperlink info)
The article is more of experience and general points , so I think it will still be valid !
I booked a flat in may 2010 @ 3010.sq unit plus PLC, covered car parking, club membership etc at additional cost. And was supposed to get possession by Aug 2013. Total cost of flat works out to be 3010 x 1172 + other charges. Out of this I have paid about 34L till date. Now I am planning to sell this flat and buy another one from resale. Kindly guide how should I proceed.
I am not sure what exactly I should tell you here ?
I need some information about tax on capital gains from sale of house property. I have a flat which is under construction and bough in the year of 2011-12. Now i am planning to sell that flat in March 2016. As per section 54, if you reinvest capital gain again in new residence house with in 2 years then you can enjoy tax exemption so is it mean if i can purchase new residential flat by March 2018 to get the tax benefits?
Also if i sell that flat in March – 2016 then i have to show capital gain while filing ITR return for FY 2015-16? or do i have to deposit that amount in Capital Gain Account?
I suggest that you now take the RTI route. You can file the RTI and ask your queries to them. THey are bound to reply you on your queries.
Its a bit long cut, but works well
Thanks for sharing this post. As i am looking for a flat in Mumbai, it will be very helful
we are planning to buy one second hand flat. its of 1150 sq ft ( Car parking+ common area+carpet). we are getting share of 50 sq ya land area. its in Madeenaguda , Hyderabad . Where the govt Market value of land is 15000 and flat sq ft rate is 1800 . this house is 7 years old. the little knowledge I have based on that the registration cost is property cost * 9.5% + property cost * 0.5 %. which is stamp and registration cost. we are buying that falt at the cost of 2425000. now the problem is on what cost which should do registration , how to calculate the registration cost, is it based on only flat in sq ft or calculate land cost. please provide your inputs. Thank you
Check this with property lawyer !
I have a own independent house.. is it a good idea to invest on building extra floors for renting purpose? i see that to recover the money that we spent on building the extension takes nearly 15 years… need your valuable inputs here
I think if its going to take 15 yrs, its not a great idea unless you also have an option to use that for yourself .
Wondering, how to calculate the registration/stamp duty cost of constructed independent house?
It will be shared by you by the department where you go to register !
Thank you for your great experience sharing with us. It’s absolutely a great tip for everyone who want to buy a flat,villa or apartments.
Thanks for your comment Sanjay
dose Religare home lone provie tax exemption benefit ….
dose private bank or financier charge high interest rate
Any home loan will qualify for the tax benefit !
It is good to say that backup is very important when we choose EMI options for big amount. Current trend is 1 K per 1 Lac if you take loan for 30 Years which very long span of time. So think before choose EMI.
Thanks Amit Kumar Jha
Thank you so much for sharing this Manish.
I am planning to buy a flat of 955 square foot and I also have a garrage of 108 square foot in the same premises.should this garrage be included in agreement separately ?
Ican I sell the flat when EMI IS STILL GOING ON ?
Obviosuly the garrage should be there in the agreement . You can sell the flat even if EMI is going on ..
Wonderful work Manish, awesome compilation!. I have been researching on real estate articles..regarding my first house purchase/construction – for a long period. Honestly, have never come across such a genuine and extremely useful article on house purchase (especially for first time buyers). Usually what we see on the net are the paid articles with masked intentions of gravitating you towards their venture/sale.
Truly, it was an absolute delight for me to go through this article and to awaken my senses on real estate subject. Great work!
Thanks .. glad you loved it , spread it to more people you know might need it !
It’s a great informative post for property buyers, You have shared nice home buying tips. It will surely helps people who are looking to buy property.
If the land on which the flats are being constructed is on lease ( say for 99 years), Does that mean if i buy a flat , that will also be on lease for 99 years and i can not make registry of my flat.
I am in confusion over this issue, as some dealers say that u can do registry and some say you can’t.
I will be very thankful if anyone shares knowledge over this issue.
This question needs more people views , so can you please open it on our forum – http://www.jagoinvestor.com/forum
We are planning to buy 20 years old building which is in city limits of chennai and it costs 30 Lakhs. It is on the ground floor. We are in early 30s. Is it worth to buy the house? We are planning to stay in abroad for 10 years.
Generally a building life is 40-45 yrs (depends on lot of things) . So if there is a redevelopment plans ahead, you can surely go ahead considering the future price potential of the location
Your posts are highly detailed. Thanks a lot for that. We are purchasing a resale flat (3 years old) in Chennai for 66lakhs. I am eligible for 85% home loan and I intend applying for the same.
I have a question. This 66lakhs is arrived at a market sqft rate of 4888/sqft while the guideline value for that area is only Rs.1800/sqft. The apartment has an area of 1350sqft. So should I register for 1350*1800=24.3lakhs (based on guideline value) or 1350*4888=66 lakhs (based on market value)? If I register for 24.3lakhs will I get a bank loan of 85% of actual value i.e 66lakhs? Or will I get a loan only on 85% of 24.3 lakhs?
Bank loan depends on your agreement value ! . So if you register at guidance value – then bank loan will be 85% of that amount and also in future you will pay more tax ! – here is more explanation on this – https://www.jagoinvestor.com/2013/06/paid-black-money-for-property-and-saved-for-stamp-duty-and-registration.html
very usefull information shared on this site. Thaks to all..
Thanks for the article and sharing the various experiences. I see a big list here of the checklist to be verified before buying any property. I have the below queries:
1. Is there any checklist of the documents which we need to verify for resale and underconstruction properties.
2. People always advise to do a thorough background check but how should we go about doing a background check on the builder. I mean at the end of the day it is word of mouth which we rely on or are there any agencies or banks which provide these services just like there are agencies which MNC’s hire to do a thorogh background check on the candidates before joining any organization.
Yes, only those are your options to check on builders credibitlity . Check what other projects he has launched and search about those projects discussions over net on how the customers are responding to those !
So I’m contemplating on buying an independent house. How can I verify if the price the seller is quoting is reasonable??
See the market rate and check out other properties around !
I am in plan of buying 1o years old flat, but here society is still not formed. Will there be NOC required for seller now ? is there any issue in buying such flat?
http://www.jagoinvestor.com/forum/ is a better place to ask such kind of questions which also need other readers experience
have purchased a flat in Navi Mumbai. However, SBI is sactioning loan much lesser than actual value. basically they have decreased valuation for property than actutal registered price :(.
HDFC bank is willing to give on actual registered price.
Can two banks differ in valuation approach?
I would like very mch to get loan from SBI…what is the way forward?
YEs banks can be different in that approach ! .. If you want to go with SBI , I dont see a short cut , meet the bank manager and try to explain him your issue
Want to ask you taking a new flat costing is around 23lac and downpayment is 17lac. what should i take a floating rate of interest or a fixed one.or can i take a 50%floating and a 50%fixed rate of interest.
You have to decide for yourself on this , I would have taken a fixed one If I was at your place .
We are into buying a resale flat in Thane (Mumbai). I have not yet changed my wifes surname as yet, the procedure is on with the registrar (got married recently). However she insists (and I agree) to keep both her surnames in all the docs going forth. In the matter of our loan arrangement with SBI we are left stumped by this question, do we apply for the joint loan with her maiden name and mine or with her new name (with both surnames) and mine, bcoz the proof docs are all in her maiden name.
Will that have any legal implications or any other probable issues.
You can keep any name , that does not matter , but she should have the documentary evidence to prove things . You need to also update all the documents which are on old name like driving licence, passport , PAN etc ..
I am looking at buying a re-sale flat in Navi Mumbai, property still under construction its an investor’s flat I have a few question
1)I am looking for home loan from SBI and IDBI SBI offers only 2200000 and IDBI offers 2500000 which is better in terms of interst rate and overall repution of banks in market ?
2)Owner have a some loan on that property so please explain me is there any drawback to purchase this property ? Which document I need to check ?
3)Final question can we cancel deal after MOU ?
I think its a question suitable for discussion on forum as people can give their opinions – http://www.jagoinvestor.com/forum/
I am looking at buying a re-sale flat and the following conditions are put forth by the broker of the seller:
We need 2 months to stay in the flat even after transferring the title and need the cheque (of bank loan) asap so that we can use that for contsruction of furniture at their new home.
They are not ready to make a rent agremeent but insist inserting a clause to this effect in the sale deed. Is that ok?
Also the token money will be refunded if there is a fault in the title, so do we take these terms and conditions on a seperate stamp paper?
REquest your most earliest reply, we intend to finalise today.
Thanks a lot in advance.
Dont agree on those things which you are not comfortable about .. There cant be a YES or NO for each .
Thanks for your prompt reply Manish.
We discussed the matter yesterday & finalised the deal with a seperate notarised rent agreement for 2 months.
Manish, can you give me any more tips to watch out for in such a re-sale property purchase?
Also the bank has requested for a draft agreement, does it mean a MoU which has details of the parties, token amount paid and refund terms, schedule of remaining payments, possession date or is it the actual registered sale deed.
Thanks for your advice, it really is a huge help for someone like me who is a first timer.
There is under construction project in Malad, Mumbai. The work stucked for more than 2 yrs. The reason given is, It’s SRA project and there was some disputes with local people and now everything is resolved. This is what is shared by Builder. I want to buy Invester’s flat here, since builder is planning to start booking with higher price say approx. Rs. 400-500 per sq.ft. Is it safe to buy in this property?
I dont think there is any safety issue just because there was a delay , its very normal , but you can always drag the builder to consumer court on this !
Please can you let me know how is the registration cost calculated for a flat of say 1110 square feet, with a UDS of 700 Square feet.
Is it 8% of 1110*Guideline value or the UDS is calculated.
This question is better discussed at https://www.jagoinvestor.com/forum/
Whether I can purchase flat in my daughters’ name who is 21 years and studying.
Why not ! 🙂 . You can do it
Thanks Manish.Any idea how to arrive at the selling price of a house or flat?Just to give some pointers,a mall has newly opened within 700mts from the house,A major hospital shifted its main gate to within 5 mins walking distance.Any idea how these can impact the selling price?
This simply means the place has more facilities around , now the selling price will increase, but there is no formula to decide how much ,its all about how much you feel to charge !
I have a 1800 sq.ft duplex house on a 7.15 cent plot at a prime area of Coimbatore. Does it make sense to dispose this property off and invest the funds in an apartment and an independent house/plots.I understand that the new investments will be somewhat on the outskirts of the city.I am confused and hesitant to take the leap
Reasons for selling 1.Wife has a congenital medical condition(spine) and going up and down is putting her in discomfort. 2)She would like to take a 2-3 year break during conception and there on,hence want to have some hot cash in hand post the disposal and purchase. 3-Ground floor 20 yrs old and 1st floor built in 2007. Maintenance is a issue since both work and the properties age is beginning to show. 4)et rent from one of the new properties 5).Feel that this house is not so lucky and vaastu compliant(west facing) 5.My wish to live in a gated community/villa/apartment will all the facilities offered.
Yea if there are so many issues, better sell if too and with that take a apartment or flat somewhere in good society . It would be much easier . Also you can put additional money in FD for income generation .
I am planning to buy a row house in Bangalore. But the builder is registering an undivided share of land instead of a separate plot. What are the pros and cons of an undivided share of land (registered in your name) vis-a-vis a separate plot?
I am planning to buy a row house. But the builder is not giving a separate plot but an undivided share of land. So, what are the pros and cons of getting a separate plot vis-a-vis undivided share of land.
Thanks & Regards,
What do you mean by undivided land ? Do you mean the whole land belongs to someone else and not you ?
I mean, it is a gated development and every buyer gets a portion of the land registered in his/her name. If you add up all the portions, plus some that the builder has kept, you would get the total land area of the gated development. I believe a similar thing happens in apartment complex where every flat owner gets an undivided share of land proportional to the SBA of the flat.
I am ignorant on this aspect actually .. will look at it in detail !
I like to know if there is any standard value for VAT and service tax while buying flat/apartment under construction (BBMP). I have seen multiple projects in Bangalore from different builders. Some builder charge 5% VAT , no service tax whereas some builder charger 5% VAT and 4% Service tax.
When I search in net, someone says as follows :
VAT & Service Tax is calculated on Base Price+Car Park for the apartment.( Currently it’s 2.5 % VAT & 2 % Service Tax )….
If the above information is true, looks like builders are cheating .
Can anyone point where can I get this information?
See this – https://www.jagoinvestor.com/forum/service-tax-vat-for-under-construction-propertyflat/4123/
it is only 4 floors,There is no lift and other facilities are ok ,can i get good resale valuse after 4 or 5 years .
Thansks in advance
depends on location then .. 4-5 yrs is a good time frame to get a good resale amount , but nothing can be assured like this
my query is i have seen two flats with 600 sq ft ,in same area one is 6 yrs old and another is in construction ,both the owners are quoting same price per sq feet.
which flat i want choose old or new flat
I would say its a tough choice , but you will get the same thing in Ready to move in , If its meeting your criteria, I would say go for it , if its at a good place .
one thing i forgot to say the old flat is on top floor (4 th floor),is it a good choice,because i am taking the flat for investment purpose.
Thanks in advance
How many floors are there ? If its only 4 floors , then your floor would be top most ,it can get too humid and hot in summers , thats the only negative issue , also how is the lift and other kind of facilities !
I am planning to purchase ready possession flat. What document should I demand from the builder before Registartion/Agreement to sale.
my loan eligibility is 18 lac
I have zeroed in a 2 bhk flat around 31 lac , my net takehome is around 37k and 3 lac in hand, shud i opt for personal loan for rest amount.
Why personal loan ? GO for a home loan
Very aptly written as usual.Searching for a dream house for the past few days has certainly enlightened us and made us conclude that THINK THINK THINK before you buy one.
I am sure your comment would educate a lot of young buyers.
Thanks for your views 🙂
Pardon me if I sounded to mean that “home buying is simple , easy and straighforward”. I never intended so. Its just that in the excitement of reading and learning so many things over the article and related posts, I might have used incorrect words. Home buying is NOT any of those mentioned above. Surely, I shall keep updating as and when the ‘mystery’ unfolds in front of me.
No , I understand that .. I meant that the thinking required to buy the house (value added things are not used to much and you need to look at basic things) , these are the things which are easy and straightforward to think , I was not talking about the hunting you need to do outside and the running around .. that obviously is time consuming and takes a lot of hard work
Boundless thanks to each and every contributor on this post. Kudos to Manish of course for starting the article. As most of us, I too am a first time house buyer. Having come into the fairly decent bracket of salary me and my wife have just planned to purchase a house of our own. Originally from Pune, I could not even contemplate buying a house over there as the prices sounded a BOMB. Currently residing in Hyderabad(a relatively affordable place for real estate), I am still in the process of searching a house to buy. My findings till date :
– Cut the waffle,come to point : There is no limit to desire. Builders wishing to exploit this vulnerable spot of the buyers dazzle us all with ‘exotic’ and ‘godly’ feature/amenities being planned in the premises. Of course, the next statement they would make is “There is no free lunch. All amenities are futuristic and top of the class.So in lieu of these you should not be minding to shell out some additional money.” Very recently, I visited a premise which promised a host of amenities(Roof-top swimming pool , Proline certified gym equipments, Solar panels for water heating, Video-intercom et al). After speaking with one incumbent family residing over there, we were made to know that more than half the promises were actually not kept.However, as positive they sounded it was pretty much evident that they had given up hopes to keep following up. They paid lumpsum for all amenities but got lesser than promised. Brood over what are the most important amenities you would require as a resident of the house(power backup,water abundance,electrical robustness,peace of mind and value for money). Hardly any of us(hand-counted) use all the amenities stated. We dont need whole premise to be Wi-Fi enabled all the times;We dont need a video intercom all times;We would not mind switching off our fans/AC’s and lights rather than trying to control them through ‘Home Automation'(Yes this was the term used!!).
Don’t go over the Roof(literally) : Fix up a budget with a ceiling and stick to it. A lakh here, a thousand there add up considerable. If you are unable to get a desired house within this budget in the ‘prime’ areas, go for ‘potential’ areas which are definetly in the offing for a rapid development. It would’nt hurt anyone if the wallet retains a few more rupees. Though time taking, these areas have a good chance to scale up for price appreciation over a period of time. Quick gains are best avoided by us(let us leave this pie for the speculators!)
Research on the builder’s reputation : Most builders I have met are/were smooth talkers. One whipped up a tablet to show the progress;the other talked me to a real-time update through live-video streaming over the net. Though impressive over a cup of tea, mind you, the amount you would lose would buy you an entire mountain of tea trees. Most of the builders trick us all by talking impressive dishing out a plethora of unique offerings each has to show. Timelines, as I learnt the hardway(in Engineering and currently IT job) are of primal importance when taking up a project. Every additional minute/hour/day/month is costing us precious hard-earned money. The builder should have completed atleast a couple of projects on time to give your confidence a boost. Lame excuses like prolonged strikes within the city/industry et al can be easily caught if compared to other builders who measure their success NOT by Rupees but by timelines. Honesty of the builder is yet another thing which needs to be derived by ‘seeing through the veil’. Bloated stories of stunning successes in the past are to be taken with a pinch of salt.
Documentation : Every builder must be meticulous enough to document and demonstrate his/her project. I did meet a couple of builders who simply did not give me a brochure because they said the are getting printed. When I requested for a soft copy, they took my email but never bothered to send me one. Beware of such ilk. Additionally, they need to have all documented evidences of approvals from all concerned government authorities without any violation of any strictures mandated by government.
So far I managed to visit some places of my interest,however the research goes on and will surely keep posting.
Great to see your long comment, it was great sharing from you . I agree with you that home buying is simple and easy process , but time consuming and a common man can not think straight as you have put up things . I agree with all the points you have raised 🙂 . Keep us updated
Awesome wealth of information! Just wished to seek your opinion/others opinion about fixed deposit related loan. I understand that you can use the money to buy but if you can take a loan against the fixed deposit, you still have your money down the line. It does have tax benefit and you are disciplined to save( cannot save the same without the FD). Any thoughts/suggestion on that?Thanks
I am not sure of how you have income tax benefit by taking a loan against FIXED deposit , can you explain ?
What are the differences between CIDCO & Load Bearing construction?
Is there any risk on buying Load Bearing flat if Ghar Patti of that flat is available?
I am not aware of these terms personlaly, better you ask it at our forum : https://www.jagoinvestor.com/forum
Owning a house is an important thing in one’s life. However, one needs to be careful while buying a property to avoid falling into legal hassles. Before buying a land, a number of checks need to be done to confirm that the land has a clear and marketable title. The legal status of the land is one of the first issues that should be addressed before confirming a property.
The first step is to see the title deed of the land, which you are going to buy.
* Confirm whether the land is in the name of the seller and that the full right to sell the land lies with only him and no other person.
* It is better to get the original deed examined by a lawyer. This is to check details like whether the seller has permitted any entry/access to others through this land and whether any other fact has been suppressed/left undisclosed by the owner of the land.
* Along with the title deed, you can also demand to see the previous deeds of the land available with the seller.
* In some cases, more than one person may own the land. So before registering, check if there is more than one owner, and if there is, get release certificate from the other people involved.
Conveyance Deed or Sale Deed
A sale agreement is a document by which the title of property is conveyed by the seller to the purchaser. Here, conveyance is the act of transferring ownership of the property from a seller to the buyer. This document will help you ascertain whether the property, which you are buying, is on land belonging to the society/ builder/development authority in which the property is located.
Tax receipt and bills
Property taxes, which are due to the government or municipality, are a first charge on the property and, therefore, enquiries must next be made in government and municipal offices to ascertain whether all taxes have been paid up to date.
* Inspect whether the latest tax paid receipts have been paid.
* Enquire with various departments of the municipality to ascertain whether any notices or requisitions relating to the property are outstanding.
* If you are buying a house along with the property, then the house tax receipt should also be checked.
* Also ensure that the electricity and water bills are up-to-date and if there any is balance payment to be made, ensure that it is made by the seller.
Before buying any land or house, it is important to confirm that the land does not have any legal dues.
* Obtain a certificate called encumbrance from the sub registrar office where the deed has been registered, stating that the said land does not have any legal dues and complaints.
* You can check the encumbrance certificate for the past thirteen years or could demand verify the 30 years encumbrance certificate.
Some people may have taken loan from the bank by pledging their land.
* Ensure that the seller has paid back all the amounts due.
* Ask for a release certificate from the bank, which is necessary to release all the debts over the land legally.
Measuring the land
It is advisable to measure the land before registering the land in your name. Take the help of a recognized surveyor to ensure that the measurements of the plot and its borders are accurate. You could also take the survey sketch of the land from the survey department and compare for accuracy.
Purchasing land from NRI landowners
A person staying abroad can also sell his land in India by giving a Power of Attorney to a third person authorizing him the right to sell the land on his behalf. In such cases, the power of attorney should be witnessed and duly signed by an officer in the Indian embassy in his province.
Power Of Attorney
Power of Attorney is the power given to an agent by the principal to execute several acts and deeds for and on behalf of the principal. Stamp duty payable depends on the nature of power given.
When ‘power’ is given in respect of a number of acts in a number of transactions it is called General Power of Attorney. It is always advisable to hold a registered GPA while registering an immovable property in order to give better title to the property.
When ‘power’ is given in respect of a particular act pertaining to one transaction it is called Special Power of Attorney.
Once all the matters, financial/otherwise are settled between the parties, it is better to give an advance and write an agreement. This ensures that the owner does not change his word regarding the cost as well as make a sale to someone else who offers more money.
* The agreement should be written in Rs.50 stamp paper.
* The agreement should state the actual cost, the advance amount, the time span within which the actual sale should take place and how to proceed in case of any default from either parties, to cover the loss.
* The agreement can be prepared by a lawyer and should be signed by both the parties and two witnesses.
* After signing the agreement if one of the parties
makes a default, the other party can take legal action against him.
It is tax, similar to sales tax and income tax collected by the Government, and must be paid in full and on time.
* A stamp duty paid is considered a legal document
and such gets evidentiary value and is admitted as evidence
* Stamp duty is a State subject and hence would vary from state to state.
* When an agreement is to be stamped, it needs to be unsigned and undated one may execute the agreement only after the Stamp Office affixes stamps on the agreement.
Registration is the process of recording a copy of a document, transferring the title in immovable property to the office of the Registrar. It acts as proof that a transaction has taken place.
* A draft should be prepared before actually writing the document in stamp paper. Registration is done after the parties execute the document.
* The agreement should be registered with the Sub-Registrar of Assurance under the provisions of the Indian Registration Act, 1908 within four months from the date of execution of the document.
* Make sure all the details mentioned are accurate.
* Original title deed, Previous deeds, Property/House Tax receipts, etc plus two witnesses are needed for registering the property.
* The expenses involved during registration include Stamp Duty, registration fees, Document writers/ lawyers fees etc.
* Make sure that the deed is registered within the time limit mentioned in the agreement.
* Stamp duty should be paid prior to the Registration.
Changing the title in Village office
The whole legal procedure of buying the property will be complete only if the new owners name is added in the village office records. An application can be made along with the copy of the registered deed to the Village office to get this done. Purchase of property is a lifetime investment. A lot of care is needed from the beginning- right from site seeing till the registration of the land. Ensure that the documents of title are scrutinised for marketability with due care by an experienced advocate.
Thanks for the tips
It is an excellent and highly informative and very correct article. I am planning to buy a resale flat in Chennai. I am retired and 63 years old. I fully understand the need for checking the quality of construction and reputation of the builder.
My question is: In general what is the life of a flat? Is it right to buy a 20-25 years within the city limits or to buy one 3-6 years old at some distance from main city?
Dr V Krishnan
Sir ,most of us are new age guys who have not seen enough world , you being much senior to us would know better about how long the houses last . take your case . you might have seen buildings and houses much older than 20-30 yrs , I have personally not seen a house older than 20 yrs in big cities .
Most of the people who buy houses have no idea how it would look like after 25 yrs .they dont think so far .
That was the fastest response I ever had!
I stand corrected about your opinion.
Actually, what I wanted to say is that, all these calculations about EMI and loan tenure go kaput if significant amount of the purchase price is in black money (‘do number mony’ as they say in our area).
I have seen my friends not being able to buy the land / flat they wanted because they could pay the entire amount only in white money while the seller wanted cash.
Yes i got that , transparancy and white business is the issue right now in real estate , thats the reason the regulators are not easy to form in this field
I had two interesting experiences last month.
I live in a small town. With property prices soaring, I thought about buying an empty plot for investment purposes (Sorry Manish, I know you do not approve). The real estate agent showed a piece of land worth Rs. 10 lakh. We agreed on the price. Problem – The agent wanted a sale deed of only Rs. 2 lakh. Rest of the 8 lakh he wanted in cash (a whooping 80 % of the amount!). I don’t have black money. I asked my CA. He said he can somehow manage Rs. 1-2 lakh; 8 lakh is not possible. I abandoned the idea of buying property for investment.
2nd experince – I wanted to buy a shop for my wife’s dental clinic. The price aggreed was Rs. 15 lakh. I told the builder that I can pay amount only in white money by cheque (my own component + loan component). To my surprise, the builder readily aggreed.
Two radically different experiences in the same town within a month of each other. One filled me with despair, the other with hope.
Any idea which way the things will move in future?
Why do you think I dont approve the idea of buying land ? I definately do ! , Somehow readers feel that I am against real estate, which is mistaken , I am only against the decision taken with out understanding . I even approve buying house and flats if taken with care ful thought and analsys
This statement “I don’t have black money. I asked my CA. He said he can somehow manage Rs. 1-2 lakh; 8 lakh is not possible. I abandoned the idea of buying property for investment.” gives me an impression that you were contemplating buying the property with your own funds. Right ?
In Bangalore, people register properties at prices lower (govt. guidance prices) than the actual purchase price even when it is purchased with white money. So, you see, it’s not about whether you have black money or not. To give an example, say when the property purchase price is 40 lacs and the loan amount is 30 lacs paid by a nationalized bank and rest 10 lacs paid by the customer via cheque you can find that the property is registered for just 10-20 lacs based on govt guidance value for the area.
And yes the registration document is accepted by the nationalized bank for mortgage and the registration charge is in fact paid by the bank as part of the loan.
Interesting, isn’t it ? So, what is white and what is black!
Good point , I am not involved in these property things till now , but I can see that the whole system is in agreement of these irregularities and its allowed in open . Unless govt rules are tighted, it does not make much sense to talk things about white and black ! .
Your knowledge about things in real estate is miles above the rest.
To continue the example you have given, if a property is bought at 40 lakhs by cheque and registered to government of 10 lakhs only – How will you calculate depretiation? – and if you sell it, how will you capital gains? Is it on actual price paid or on governement registered price?
If buyer purchases undivided share of land lessthan the quanity mentioned in the sale agreement, is there anyway, he can demand from the builder the balance share, say by means of separate sale deed. If possible, please inform the proceedure. Thanks.
Why will one buy less than what is mentioned in the agreement ? Its better to make another agreement then !
Hi Manish and Raja,
Thank you for sharing such valuable information. I am planning to buy a 2bhk in Bangalore. Can anyone please tell me what all government approvals should i check? How do i check this? Going to a lawyer is a good idea??
Please help me regarding this issue.
I personally have no idea on that , but you can ask your questions here : http://www.indianrealestateforum.com or search it for some query
I think, Manish has already given a very good list at the end of the post answering your question. Regarding your question ‘How to check this’ – You can get most of the document’s from the builder.
Regarding lawyer, my answer is YES. Because they are supposed to have the updated information in this regard.
Thanks such great inputs. I am 26 yrs old & unmarried, me & my GF plan to buy a home after around 2-3 yrs, we have started researching, planning & investing for the same!
Your initiatives & tips are very help ful! I noted it down & we will certainly consider them while our researching /buying.
Thank you! Continue your good work!
Thats nice to hear 🙂 . Keep researching and finding more 🙂
Recently I / we bought an apartment (under construction) in South India, via aid thorugh bank loan.The reason we choose the builder is (his reputation) that he is been in the city building for last 20 years. We saw the building’s “model flat” as well which were spacious eenough. Once we paid the majority of the amount,we went look for the progress of bulding later to find every room/floor they bult is not proper 90 degree angle.. Means rooms/floors were not right angled. There was a guy (from builder) who accompanied to the floor spilled beans says “structure fault”. This thing became prominent only after they laid floor tiles. We are in a difficult situation wher we cannot opt out (or can we?). But there is another option…. is to go for another block where the problem is not that obvious….any advice is helpful….Thanks
the problem is there is no proper regulator or body which can hear your grievience , other than consumer court . What part of EMI’s have you paid ?
we are planning to purchase a 8 years old independent house in lingarajapuram. Is it wise to purchase this 8 years old property??? Suggest me some good points to be checked especially when we go for resale properties …
The plot is 1200sqft & built up is around 1530sqft & the seller quotes it for 50L. it is corp site with clear titles & has marble flooring, own borewell, all standard fittings etc ….
The main issue is with the titles only and to see if some hidden issues are there or not . I would recommend that you taken some part of loan from bank even if you have 100% money for downpayment . So that bank will check all the important things . It will save you from the hassle for making all the fine checks , but still keep an eye on it .
also I would recommed you ask this on our forum ,where people might have real life experience in these things : https://www.jagoinvestor.com/forum/
I would like to say something over here about the real life experience with the builder.
I have purchased a flat in a city where the population is less than 15 lacs. The builder has got a good track record in our city and completed good amount of project successfully in our locality. While paying the advance, he particularly told that he doesn’t want to give any written agreement on the amenities he is going to provide and other charges he is going to levy. But he informed me orally that, all the taxes are inclusive of price he has quoted. But when we have started paying the money towards construction, he was asking us to pay all the taxes such as VAT, Service Tax and Sales Tax extra in addition to the price agreed. Since we haven’t done the enough home work, we have paid all these taxes. I requested him to provide receipts for all the taxes paid. He has given the receipts for VAT and Sales Tax but not for service tax. I then started reading the rules of the service tax law. I contact various friends who are chartered accountants and I find that if the land owner and the builder are one and the same, then the customer need not pay the service tax. In our case the land owner and the builder are one and the same. He has consturcted over 120 flats in our area and he has charged service tax to all the people. I started raising my voice against him and I eventually visited the service tax office in our region to find out the amount paid to tax authorities is zero. I threatned him that I will inform all the people who has purchased flats in our area from him. Atlast he has reimbursed the amount to me.
Thats some really good information out there ! . Good point that one does not need to pay service tax if builder and land owner are same
Excellent Article. But i am very late to read. I purchased house last year itself. Eventhough I checked almost all the points mentioned, i was disappointed in some aspects. The builder does not construct shelfs and almirahs as i told. He left the house only with walls and lafts. So, I had spent more than 2 lacks for wooden works in kitchen and two bed rooms. Really that was a big burden for me apart from loan amout. So, here after anybody buying house, must ask the builder to mention all in agreements like painting, shelfs, windows, doors,etc., otherwise they may suffer like me.
Thanks for sharing your case 🙂
This is very good information. I’ve a query – how do I ascertain that the builder I’m planning to buy the house from, is genuine?
You can go to http://www.indianrealestateforum.com/ and search and read about builder there . Also a simple query on google will give you reviews .
This has been very useful article for me. Also, about at the right time. Just wanted to say thanks!
Oh, I discovered your gem of the blog recently and am going through the archives. If you can write about how to go about assessing if price quoted if fair/market price or how to assess potential appreciation in the area, that would be awesome. I had one site checked out by the valuer and it seems about right, but there is always a fear…
Thanks for your comment, its not an easy job to write on how to see if an area has growth potential or not , but i will see if that can be written !
Extremely helpful article. Great job in educating people. I found it helpful especially because I have recently started looking for a house. And yes, as stated in the article above, buying an older property has its own pros and cons. One thing, one has to ensure is thorough inspection of property you are planning to buy, of course things like water, electricity, quality of construction, connectivity o highways, Bus and Railway stations, schools, hospitals are of prime focus, also just give a check to other essential things in an older property are in good working conditions. For example :- things like tube lights, and power switches in all the rooms, fans and other electrical switches, all the water taps in bathrooms, sinks and w.c.s. You should also make sure that bathrooms, w.c.s or sinks do not have leakages.I am stressing on these things because most of the older flats which are available on resale were most likely rented out by owners previously as they might have bought it for investment purpose. And as we all know, once property is rented, most of the times, such facilities tend to get ignored by owners. Recently, when I visited one flat in Sus Road, Pune, I found that regulators for ceiling fans in all the rooms were not working and owner told me that as the flat was rented for long while, they did not care for it.Also, he wasn’t ready to repair it. Such things do seem to be minor, but believe me, these are the problems which may eat up your major time. We invest most of our life savings in purchasing our dream house and we don’t want our dream to get infected by such issues.
Great forum here. Can potential buyers like me get a guidance about what should be the ideal property rate for a 2-5 year old construction in a particular area against the current market rates which will help us to negotiate better?
the article was throughly enlightening. Specialy on the legalities. I have checked out a 2 bhk apartment costing almost 24 lakhs. The max loan amount that i can get is 15 lacs (approx EMI 15000). I have 3 lacs in hand. Should i opt for personal loan. Currently i hav no liability. My Sal is approx 24K. I am buying this house only for investment purpose at the moment.
Its not advisable to pay for the house using personal loan , Better use family/friends to get more money and do the downpayment .
Please please do not go for PL at any cost. Many of my friends were suffered a LOT and still suffering.
Few months back RBI introduced BASE rate on homeloans and it was been declared that the existing buyers have an option to switch to this without any costs. When I checked with HDFC, they asked me to pay 10K and also clarified that they are NOT a bank and hence do not come under RBI guidelines.
Has anybody have any idea on this. If HDFC does not come under RBI then why do they have introduced something called BASE rate in the first place and secondly why do they hike the interest rates whenever RBI increses their Key rates…
Can anyone shed some light on this?
Home loan interest rates are linked to the rates of RBI , so they have to increase/decrease the rates as per the movement in RBI rates , that does not mean that they have to be Bank , but recent guidelines might be only for Banks which also provide home loans like SBI , Canara Bank etc .
Wow! what a gr8 compilation of very useful for all potential buyers!
Thanx to Manish,superb work!
I have not come across details to be exercised while completing the Home Loan,waiver of pre-closure charges,documents to be retrieved,any new EC to be applied to rule out any Hypothecation by Bank,Loan completion certificate,complete Loan statement,Interest certificate…I think all are important!
This details regarding Loan completion is not mentioned,if anyone come across,kindly share your details,
Thanks in advance!
In Chennai,present trend is that value of a 2nd hand Residential Flat is 160-190% of the guideline value (if the guideline value is 20lakhs,seller usually quotes approx 39lakhs),I hope things will improve in favour of buyers!
I hope some one replies to his , I have no idea 🙂
We are in a dilemma. We are staying in a 2 BHK house in Gokula, Bnagalore. We still have a Rs. 10L loan pending on it. We are in desperate need of a 3 bhk house as my in-laws also stay with us and my son is growing up. One 3 bhk is for sale now in our complex. The building is 5yrs old. Should we buy this house by selling the old one or retain the old one and buy. Pls advise s we will be buying on loan again.
You cant put ball on my court so deep 🙂 . At the end I would say just make sure the loan burden you can take is under control and in worst case like interest rate going up , salary cuts, still you have provisions for paying the loan somehow .
Given that you already have 10 lacs of loan pending, it would be better to have just single loan ,are you making a good profit on the first house ? Will you be able to sell off first house and buy the next house just by the sale proceeds ?
First of all thanks for sharing your views. It was really very helpful.
Can someone please let me know —
1. What is Conveyance Deed
2. Why it is important
3. Will this have an impact on “undivided share”
4. What if, some natural calamity happens and building collapses & we/society dont have conveyance deed
Thanks in advance
Thanks for an interesting read. I am positive that I read and even saw on TV that if you purchase the house in the name of your wife/mother, the stamp duty is less. The % varies across different states.
One thing that every person who’s buying a house needs to remember is to count the future risks. For example, if a couple is buying a 2bhk by paying 50K EMI, then they should also consider factors such as: will the wife’s job be stable after a baby is born, etc. You should always buy what you can afford.
yep , here are the resources you have already read or should read : http://www.livemint.com/2010/03/08230201/Make-the-most-of-the-womenonl.html
Women generally get more discount on charges and one can save 50k – 1lac based on whom name one takes the property .
That’s really informative article Manish! Thanks for your efforts
My comments are slightly different but on the same topic(some story I read) :
Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1. There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
2. B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
The net asset of the country now = 3 dollars.
3. Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
* A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
Thus, the net asset of the country = 4 dollars.
4. A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
1. B loaned 2 dollars to A. So his net asset is 2 dollars.
2. C now has the 2 coins. His net asset is also 2 dollars.
The net asset of the country = 5 dollars. A bubble is building up.
5. B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
1. As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
2. B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
3. C loaned 2 dollars to B, so his net asset is 2 dollars.
The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
Everybody has made money and everybody felt happy and prosperous.
6. One day an evil wind blew, and an evil thought came to C’s mind. “Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more.” A also thought the same way. Nobody wanted to buy land anymore.
1. So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
2. B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
3. C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
4. The net asset of the country = 3 dollars again.
7. So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B’s net asset is still 2 dollars, his heart is palpitating.
1. B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
2. A owns the 2 coins, his net asset is 2 dollars.
3. B is bankrupt, his net asset is 0 dollar. ( he lost everything )
4. C got no choice but end up with a land worth only 1 dollar
5. The net asset of the country = 3 dollars.
************ **End of the story; BUT ************ ********* ******
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting –
1. When a bubble is building up, the debt of individuals to one another in a country is also building up.
2. This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island’s own currency. Hence, there is no net loss.
3. An over-damped system is assumed when the bubble burst, meaning the land’s value did not go down to below 1 dollar.
4. When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
5. If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
6. When the bubble was in the growing phase, everybody made money.
7. If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
8. As in the case of land, the above phenomenon applies to stocks as well.
9. The actual worth of land or stocks depend largely on psychology
nice story , I remember that I have seen this somewhere 🙂 .
Regarding your points , i like your 6th point , which is true in today’s scenario that every body is making money 🙂
This is indeed informative. Thanks to all who contributed to this column. I do see that one of the recommendations is to scout for older properties ranging from 3 to 5 years. This is a valid point. And by this, I assume that the person means a secondary market purchase. However, this too is fraught with perils of its own. I wondered if you could put up another column detailing what a home buyer must watch out for such as legal issues, etc.
There will soon be ratings on projects and builders …
However, these ratings will be for under-construction projects and not helpful for secondary market purchases.
Thanks again for the article.
Interesting read Manish. Amazed at the effort you have put here. Where do you get the time !! Anyways, rummaging through the contents, it seems the gist is to :
Check on builder’s track record :
My thoughts are that however good a builder, the probability of default and late contruction is still there. A good builder can make sure he might not default, but it does not mean he WILL NOT default. When times are bad, anyone can go under the floor. If you go with a good builder, he will not negotiate.
Check if you get resale property :
I like this one. Resale properties are ready to move in. WYSIWYG.
Not to overstrect on EMIs :
I agree that the EMIs should not be more than 40% and if that is floating, it can only increase if interest rate rises. I also do not understand how this can be decreased – a 2 BHK in Pune costs Rs 50 lakh. With some downpayment, the EMI will still be around 40k Rs per month – which class of middle class groups can afford this ? IT folks going abroad !!!???
Nice location with good infrastructure :
Again, if you go for this, its going to come at a cost ?! If you buy at a place where infrastructure is weak and will possibly pick up, then you get the house cheap. I think its a subjective decision, depending on individuals.
Read all paperwork :
My experience is that when people read paperwork, they read their names and flat numbers and stop. An ordinary person cannot decipher what the contents in an agreement shoud look like. Its best go to a qualified real estate laywer. For example, would you buy a plot of land “AS IS” which is put in agreements?
Buy early :
Nice one and most important.
This had been demonstrated to work very well in pockets of Pune. However, the builders who have given group discounts are relatively smaller ones. Big reputed builders do not budge.
Buying a house is a challenge these days. While the demand is slipping/stagnant, builders are still jacking up the prices.We need a darn regulator and we need it now.
Thanks for the appreciation , all I did was follow up with people 🙂 .
You have summerized it very well 🙂
I have one query. Please answer if anyone has the info.
For repayment period, I see that it is 5, 10, 15 and 20 years.
Can we choose the period of say 13 years, if I can afford to pay that EMI? For 10 years period, EMI will be too much (for me) and if I choose for 15 years, I pay more interest. So I noticed that I can afford to choose 13 years.
But my question is: Do banks allow such repayment periods such as 9 years, 13 years or 17 years?
I think its possible ,there is no reason why a Bank should Insist on perfect numbers which are divisible by 5 .
If we take a home loan(or bulider has a tie-up) do we need to check for all the gov approval documents?
Definately , why do you even have that questions , its pretty obvious , if you are putting 30-50 lacs , dont you think that a small thing you should do .
No, I meant.. wont the bank auth will keep a check of all that while issuing a loan?
On a related note regarding loan prepayment, which is a wise decision, should we reduce the tenure or EMI or does it even matter. (Not sure if this was discussed before).
You should reduce your tenure always , reduction in EMI wont be significant enough : https://www.jagoinvestor.com/2008/01/how-home-loan-emi-is-calculated.html
Manish, & others,
Awesome post! Buying property is a serious issue and one can get cheated easily. This is some of the best advice I have had.
The point raised by Jayakrishna is valid.
As for me I live in an inherited 22-year old flat and I hope to buy a 3-5 year old property (as suggested Ankur Lakia) in the next 10 years only to make sure another 30 years down the line when the property becomes old I have alternative. I will never ‘invest’ in real estate as its too much of a headache. Direct equity is better!
Even I am realising this point of durability of real estate , no one has really given a serious thought to this point . I will discuss this more in coming posts.
In case of our own land and house , say after 70 yrs, if the building becomes very old we can fully demolish and rebuild.
What is in the case of Apartments? All the owners of the apartment has to agree on with each other demolish , and rebuild the apartments?
Yup , thats a complication actually which most of the people dont think about .
After 70 years you’ll not be alive , so why bother! On a serius note, let us not complicate things that much. If you are in a good job , your life style will change and you will chnage your accomodation. Thus if you buy a flat at age 30-35, in another 10-15 years you will probably upgrade the flat either to buy a bigger flat or a better flat ( location and or facilities). The important things for me is make sure you keep the flat in good condition to ensure a good resale value.
I think Jayakrishna is asking this because if thats the case then it does not make sense economically. He wants to pass one his legacy to children and wants to make sure that the house is there 🙂
Manish and JayaKrishna,
I wud like to add that re-development project do take place in our neighbourhoods (Mumbai suburbs). Infact, my own apartment building which is 34 years old is in negotiations of re-building it into a tower. I dont know the exact intricacies, but i think Maharashtra govt has allowed the re-development to take place if 75% ppl say yes.
Note: I reserve the right to be wrong. ;D
Thats a good point , have to explore more on that .
Hmmm. Looks like the mad rush for flat/RE is still on. Looking at the article/posts, people are of the opinion that one can buy by allocating 40% of the monthly income towards EMI. In my opinion this is on the higher side. On top of this, you will have other monthly expenses and the net saving will be very less. You will not have the money to enjoy life and/or invest elsewhere.
On an average the misalliances cost of an abatement itself is about 5 laks. (car parking,registration,water connection, electricity etc). This itself is almost the 5 years rent (If you were to rent some similar apartment). After 5 years there wont be too many takers for that apartment. (Dont expect the 2003 boom to happen again). And of course if you take bank interest into consideration, you will be effectively paying double the price of the apartment. Lets not forget the quality of construction of today’s apartments.
I would say buy only if the following two are met. (This is my personal opinion)
1)You like the house from all aspects. No compromise on anything.
2)You can buy from a bank loan. But your net worth should be such that, in the event of job loss/stop in cash flow you can pay off the entire loan and still have money left to live for at-least few years. (In other words, don’t listen to 40% take home EMI theory)
Exact point I try to tell people some times , The point of quality of construction is really important, Most of the people are going for newly built flats , in which case the older homes which are say 10 yrs old might loose its sheen among investors .
Whether it is with the builder of the property, or with contractors for woodwork, interior decoration, flooring, etc. I cannot stress enough the importance of two things –
1 – No oral agreements under any circumstances. Please always insist on written agreements with clear delivery milestones etc.
2 – Please also try to keep the payments to a schedule linked to the above delivery milestones. for example 20% after completion of stage 1, 30% after completion of stage 2 etc.
My sister in law paid 1.5 lakhs t an interior decorator for modular kitchen etc and is still waiting for the completion of work 4months after paying
Thanks for your contribution , Oral agreements should never be done, even if the close friends, relatives , we think that it can dilute the relationship , but if you dont have that easyness of asking things straight , the relations are already broken .
A quote i read somewhere. “When you buy a house there are three important considerations. 1. Location 2. Location 3.Location”. It should be related to your lifestyle.
Some tips from my experience. Go for EMI that is around 40% of your disposable income. You never know when some big ticket expense may arise. Keep some room for maneuvering .
Take a Home Loan Protection Insurance (HDFC has one) that will pay the balance Homeloan incase anything happens to you. Atleast your family will have the house.
Generally at the time of loan sanction the Bank/Company will quote higher rate because of our anxiousness to get the loan. After a year or so, you can renegotiate and get your HL rate reduced by paying a nominal fee.
If you are in Tier II or III town go for independant house than flats. Even if the house is old. You will have the option of converting it into flats when the land rates go up after some years.
Thanks for your contribution , I am very much in favour of going for own consturcted house atleast in smaller citites . Over time the prices of house increases because the price of land underneath is increasing .
“Location. Location. Location.” I completely agree.
1st Location is the “Area within city” e.g. which suburb of the city
2nd Location is “which part of the suburb”
3rd Location is ‘”location of house within society/flat within this building”
Any one of these Locations going wrong hampers the value of house.
Good point 🙂
In case of earthquake,fire undivided it our land How abt the divided.I think
it is also equally divided among people.Right ?
Is it possible to hold builder money?I don’t have any experience.Will they give possesion in such case?
Ready to occupy building’s insist on occupancy letter which is issued by the authorities .Which authority issue occupancy letter ?Ready to occupy here means New house or 3-5 yr old house?
Its not true that taking loan is wrong , you should take loan as it will help you save some tax , just make sure that the EMI does not become a big burden in your life if things go little but up and down
Its generally better to go for construction linked option , however it would depend from case to case , you have to do math to see which one makes sense, there cant be a hard rule on this .
I am not sure if 3-5 yrs old house will be of higher rate ? It might not be always true , People generally rush on “New” , “Brand New” words and fall in trap , I would say a little older home would make sense .
I am not sure about the dividing of land in case of earth quake
How do you hold builders money ? Not sure what you are asking .
Again no idea on occupancy letter ?
May be some other experts here want to try your last 2-3 questions .
I’ll try to ask answer your questions:
Undivided share of land – Yes, it’s equally owned by all the flat owners. The point is, if something goes wrong, you will still own the land jointly and will realize it’s benefit in some form or other. Be it by reconstructing a flat again or by means of selling proceeds. I have heard in places like Mumbai where old building’s have been demolished to construct new high rises, old owners have sometimes got 2 flats and money in lieu of their rights to the land 🙂
Holding builder’s money – Now this is just a matter of mentality change. Tell me, in what other places/shops do we pay money even if we have not received anything in return ? So, in case of building why should it be any different ? If you are not getting the amenities then why pay for it? pay for it when you get to see it.
Occupancy letter – It’s given by the plan sanctioning authorities. In case of Bangalore it’s BBMP/BDA depending on the area. Take a look at this link in which police commissioner is talking about the occupancy certificate and has issued some legal framework for that. It was issued in the wake of fire at some building on old airport road. I guess the building had flouted the plan. I expect such rules to get stricter going forward. Hence it’s advisable for people like us to ask for occupancy certificate.
‘Ready to occupy’ – just go by the words for meaning. It doesn’t matter if the building is new or 3-5 years old. When you are being sold a unit which is ready for you to move in, that’s when it’s ready to occupy.
When you say that all the people will share the land equally , i hope you are assuming that everyone has same kind of flat and same area . Other wise in a situation when one owns 2 BHK and other owns 3 BHK , will the share of land be same ?
Please clarify ?
Nope, it won’t be same. That’s where the calculation mentioned in the original post in point number 3 comes into picture. First a unit of undivided share of land is calculated. Then the unit is multiplied by the SBA (Super Built up Area) of each flat owner for arriving at the undivided land ownership for that particular flat. So, this takes care of the 2BHK, 3BHK purchase etc… as each of them will have different SBA.
Essentially the logic is to divide the available land proportionately among all the flat owner’s.
Thank you Raja for your detailed clarification. I have a few queries
1. Does this undivided share of mean the same thing as declared by the “deed of declaration”?
2. If a building has both commercial and residential areas, with different rates per square feet for each, does this reflect in the undivided share of land?
One good thing about taking a loan is that the banks insist on completing all formalities, availability of all documents. I had taken a loan from MSFC (Maharashtra State Finance Corp.)(It was for purchase of commercial area & instruments). They insisted on documents that I was not even aware of. It was a hassle at that time, but it was an education also. By the time the transation was complete, I had all the documents.
I have no idea on what is a deed of declaration.
on your second point too i have no experience, but it’s a interesting one and i would try to get some info.
My experience with bank’s and other finance institution is one can’t rely on them fully. They typically know what document is available for a particular sanctioned property. Depending on their own presumption might as/do no ask for certain documents.
For example how many of the financial institutions ask for occupancy certificate in case of a ready to occupy building ?
They don’t, because, they very well know if they ask, lot of their loan disbursements won’t happen and they would probably miss the targets set to them by their management.
Hi Manish & All,
Nice article.Well written .I am planning to purchase in coming 3-4 months .
I have started studing the things and this particular article will help a lot.
I will definately going to consider them and shd be consider by all.
Confused regarding the Down Payment thing.
Some people say if u have money should n’t go for loan as EMI will eat cost appreciation and some say should go for 50%-50% .What should be the ideal
ratio(If case some one has full money in hand).Let says I don’t want to take loan
advange in income tax .
If we don’t opt for 85% downpayment then what is best payment option
a)Construction link plan
b)Fixed Payment Plan.
If we opt for 3-5 old house then its cost will be higher(may be 30%-40% more) then the new flat.Even if we opt for new falt and it has some minor problem like
leakage,etc then it can be repair right .Reparing cost would be less than resale one.
Does builer don’t provide gurantee/warrant for some X period .If any problem then
they will recitify
Very good article and thanks everyone for sharing their experiences. As I am planning for a house in next 3-4 years. This article very well lists some of the important points.
For EMI and loan limit, I have two guidelines:
1. Down payment should not be less than 50% of the total property value you are buying
2. EMI should not exceed 35~45% of your net take home. (35-45% range depends on your expenses, dependents, How well you are prepared for emergency funds, unexpected expenses)
yep , I would say these numbers should not be that hard , only one has to see that he is comfortable with the situation and has a back plan .
Dont you think so ?
Very nice and detailed post.
Here are few points from me based on my experience but not covered above:
1. Check out the individual flat plan and match it with the actual size of the flat. Take extra care to match(measure) the size of balconies. This is where most of the builder do plan violation by increasing the size of balconies to get extra money. That’s because the expenditure on the balcony for construction is the least but the customer pays the price as part of the Super Built Up Area.
2. Again measure the exact size(carpet area) of the flat. Most of the customer take the word of builder as sacrosanct when it comes to stated size of flat, but on calculation one can many times find a 2-5% shortfall. Remember that can mean a difference of 80k to 2 lac rupee difference in a 40 lac flat. Now you get it! right ?
3. Check out your undivided share of land. Very simply put an unit of undivided share of land equals (total super built area of all flats in the complex)/(total size of land for the complex). So, to reach at the undivided share of land alloted for your flat it should be (your super built up area) * (the unit calculated above). Lot of times this is overstated by builder to attract customers. But remember, if there is a natural calamity like earthquake,fire etc and the building gets destroyed it’s only the undivided share of land which you really own. Don’t leave it for later. Builder which do not allot undivided share of land to buyers are a strict no-no (yes there are such builders).
4. For under construction flats it’s very common for the builder to give possession of the flat once it’s occupation ready. But the amenities (if any) are given after long gap and hassles. My suggestion would be simply hold the money for the amenities part until it’s really completed.
5. For ready to occupy building’s insist on occupancy letter which is issued by the authorities. This ensures the plan violations has been checked and regularized by authrities when the consturction got over and it’s really ready to occupy.
Super points . They really deserve to be part of the post , I have included them 🙂 . Wonderful contribution . Keep up good work .
I couldn’t able to infer much on undivided share of land . How it is different from divided share of land.
‘divided share of land’ ?? I guess we both r referring to the same point. But as far as i know there is nothing called ‘divided share of land’ in a apartment purchase. The reason for that is very simple. One can not claim any part of the land (in the apartment complex) as his own or personal. It’s shared by all, hence the name ‘undivided’. But like i said before, if anything were to go wrong, then the owner get’s a share of the benefit of the land cost. Check out my response in reply to yogesh below for more details.
As usual another eye opener article, thanks all who shared their views, excellent comments by Manish…Thank you very much.
Thanks for your comments , Have you bought the house ? What are your experiences ? what do you learn out of this ?
I forgot to add to my above comment that the property that I recently bought in June 2010 is a resale property and I am very happy with it.
This is a good compilation of people’s experience of buying a house. It will be really helpful for people planning to buy a house. For me though this post has come a little late as I bought my flat just some time back in June 2010. However I very much agree with Ankur’s view of going for a resale property (3-5 years old) rather than a new property. A 3-5 years old property does not make much of a difference considering the long life of the property. Going for a resale property which is 3-5 years old has its own advantages. Things like whether there is a leakage problem or not becomes very clear, which is a major problem for lot of people considering the quality of construction material used nowdays. During my property search, one of the properties that I saw, people were complaining about leakage problem even before all the flats were sold. The property was not even one year old.
Some builders give false promises about Municipal Corporation Water Supply will be made available in the society after 3-6 months of completion of constuction of society. Some builders never fulfill this problem once all the flats in the Society are sold. The builder’s objective of selling the flats is fulfilled and then he is not interested in the problems of people.
Society formation also happens at a later stage. In case of some places the society formation does happen at all and then the maintenance of the apartment and amenities like clubhouse, gym, garden etc goes for a complete toss. You can check all this in case of a society which is 3-5 years old. So again I reiterate going for a resale flat is anyday better than going for a new flat.
Thanks for your inputs . I agree totally with going for a older flat , It really brings out some of the issues which might be present with the property . Can you share the tricks using which one can reduce the costs in the process ?