FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Choices available for home buyers!
Home buyers are always looking for the best home they can buy with the resources and time available with them. Now, more than ever, real estate prices are subdued and buyers are again active in the market.
Buying a home is the most exciting and at the same time, tedious task for people. While the excitement of owning your own home pushes you harder to expedite the process, the tedious task of going through enormous amount of details frustrates you. Going through the process is a necessity. Though the process is tedious and demanding, any negligence on the due diligence can cost us big in the future.
In this article, we will take a look at some options that home buyers have and how they can choose the best one based on their requirement.
Buying an under-construction home
This is the most popular way of buying a home. A builder announces a new housing complex through newspapers, TV, or any other media. Agents start going around the market, companies, malls, and even homes of people to advertise the same. The goal of the builder is to sell as many as possible before the housing complex is built. In fact more than 75% of the flats of known builders are booked even before a brick is laid.
Cheaper – Buying an under-construction home is cheaper compared to buying the one that is already built or about to be built. The cost difference is significant. In the Delhi and NCR region, a ready to move flat with 2 bedrooms that costs home buyers about 40-50 lakhs can be bought anywhere in the range of 30-40 lakhs while under-construction, depending on the location. On an average, the difference is anywhere between 20% and 40%. This is a big difference for majority of the home buyers.
Low EMI – The EMI is paid as the work progresses hence the initial EMIs are low in the case of an under construction home.
Win-win situation for buyers and sellers – Buying an under construction home is a win-win situation for both buyer and seller. The seller gets a ready set of customers even before he starts laying the foundation while buyers get the cost benefit.
High returns – Since the prices are lower, you may get higher returns on the under-construction home. This kind of return is not possible in a ready to move home. However, high returns come with high risks. To give an example, people who invested in Noida authority plots earned high returns while people who invested in Samshabaad in Hyderabad are still waiting for the area to pick up.
Risk is high – All is not so well in under construction home buying though. There have been cases where builders could not complete the housing complex and buyers lost the money. Real estate sector is full of such stories where the builders could not complete the property because of cash crunch, high interest rate, and high raw material costs.
On the other hand, the market outlook may also change like how it happened in Samshabaad in Hyderabad. Samshabaad was supposed to host the largest Infosys campus, a chip factory, few engineering & medical colleges, banks etc. but none of it happened due to the 2008 crisis.
Many times, you don’t get what you are promised – This is another common complaint the home buyers have. They usually do not get what was promised in the documents. What is distressing is the carpet area that buyers get once the home is constructed. The carpet area is usually 70% of the super built area. The illusory swimming pool may never come up.
Important Points for buyers of under construction homes
Buyers should also check the past history of the builder. If the builder has done great in the past, chances are very high that he will repeat the same. However, if the past is checkered, rest assured history will repeat itself. Hence the track record of the builder is of paramount importance.
Buyers should clarify loan tenure and how the money will be released to the builder. Typically it is completion based.
Buying a ready to move home
A new trend is observed in home buying since the last couple of months. A good number of home buyers are slowly shifting towards moving to `ready to move’ homes than buy an under construction home and wait for a couple of years to get the possession. The reason is not hard to guess. Since the economic slowdown in 2008, there have been many cases where builders could not complete the housing complex and buyers had to wait helplessly. There have been many such cases.
Immediately Available – Investors do not have to wait to move to their new home as it is ready and all buyers have to do is to pay the money, sign necessary documents, get all titles and required documents and transport their baggage to the new home.
Either EMI or Rent but not both – In the case of ready to move, you just pay the EMI. In case of buying under construction home, you have to pay the EMI and live in rented apartment till you get the possession.
You get what you see – In the ready to move home, you get what you see. Since the housing complex is ready and there are people living there, getting feedback about the area, maintenance, locality, shopping centers, and utility centers become easy.
The biggest negative of ready to move home is that you will have no idea of what went on behind the scenes, i.e. in terms of materials used, in terms of strength of the foundation etc. If the maintenance is shabby, the house can start to look old in no time!
Also, the price of ready to move home is about 25% higher than the price of under-construction home.
Ready to move homes are generally more expensive but do not take this as gospel. Do your research; speak with a few people in the locality to find out the fair value of the home.
Since the last couple of months, many new companies such as www.groupbookings.in have encouraged home buyers to form a group and thus increase their bargaining power. Once the group is fairly big, the group buying companies will negotiate with builders on their behalf and get extra discounts. Essentially these companies act as a mediator between the builders and home buyers. For builders, giving extra discounts is not a problem because they are saving big in advertisement and sales force.
Group buying empowers home buyers to negotiate better with the builder. The group home buyers usually get a better discount than what they can get individually.
In group buying, an individual buyer doesn’t make much difference and hence group’s interest takes priority over individual’s choice.
The down payment usually is higher.
The buyers should study the documents carefully. Don’t assume that someone is reading these documents. You will be surprised to know that everyone has the same assumptions.
Group buying of homes take time and hence you have to be patient about it. The group buying company has to build the group, and negotiate the price with the builder for additional discounts. These activities take time.
Buying run-down homes
This option is not yet popular in India but slowly picking up. Essentially buyers choose to buy a rundown home at dirt cheap prices. Once the house is yours, you can fix it and spend some money to get it up to date. This can fetch a better value in the market and the investor can make a killing in profit.
The houses are much cheaper even when you add the cost of repairing the house. Run-down houses are generally row houses and hence you get the land with it too.
The look of run down houses can be deceptive. You may have thought how must it should cost to renew but when you start to repair it, it may exceed your cost estimation.
Unless you have experience about this field, do not venture into it. You may end up buying a worthless property in an area where people are migrating from.
What should you choose?
Your choice should depend upon your financial condition, timing, and your choice of location. Location is the most important factor in real estate.
If you are ready to wait, can take medium to high risk, and do not care much for location (in terms of being near to the market etc.), you can go for booking an under-construction home. You can even go for group booking if your requirement is to stay with people of your social standing.
If you cannot wait and cannot take high risks associated with under-construction homes and need to be near amenities of your choice, try to find a ready to move home or go for a group buy.