The Orange Paper » Real Estate

How To Identify The Right Reason Before Buying a House

Austin — Sun, 28 Mar 2010 10:45:31 +0000

photo by: Kavanjin Croatia Apartments

Imposition of service tax (from the next fiscal year) on under-developed housing complexes, as proposed in the Budget 2010-11, will lead to increase in property prices, according to real estate companies. Having said that, I’ve particularly noticed, after the budget, articles in newspapers / magazines refer to a similar line that reads — THE TIME IS RIGHT, BUY IT NOW..!

It is quite understandable that in the current scenario where property prices have risen drastically as much as 25 ~ 30% one of the main reasons of buying a house in an under-construction project was better rates, but with these extra add ons like Service Tax and VAT proposed to be levied — will only increase the cost of the property even further. Also, buying your first house has an emotional connection as well hence it is essential to be absolutely clear about why you are buying a home before starting the process.

Before starting any aspect of the process, ensure that you first get together with your family members and seriously consider this basic question — Why are you contemplating a property purchase?

Typically, there could be 5 reasons for wanting to buy a house:

1. Self Use

This is a need based decision and therefore requires a greater focus and clarity on aspects such as:

a. Budget [refer Are you Eligible for that Home Loan?]

b. Preferred locations

c. Total space and number of rooms required

d. Layout Specifications (e.g. enclosed balcony, open kitchen and dining area)

e. Connectivity (by road, rail, air and over water)

f. Project Amenities (garden, clubhouse, security, swimming pool)

g. Daily commuting to work

h. Proximity to educational institutions, shopping facilities, grocery stores)

i. Availability of leisure and entertainment options

j. Is the project approved by major financial institutions [Refer Document Checklist for loans]

Scheduled possession is another key factor that comes into play here, as does the scope for appreciation in value.

2. Investment

Given the very nature of real estate, it is considered one of the best investment avenues. With builders wooing buyers with lucrative options and interest rates already trimmed down realty is a smart investment decision. The factors your need to consider in this case are:

a. Project location (proximity to an office hub really helps)

b. Existing demand for lease rental options and rates prevailing

c. Apartment size and dimensions (2BHK and above are preferred)

d. Proximity to your home (gives you the ability to visit and monitor)

e. Scope for returns on capital invested, value appreciation.

The basic difference between real estate and the stock market — a home is a real tangible asset that will always have a practical utility, regardless of its market value at any given point in time. Moreover, a decent home in a good project at a great location will always find takers.

3. Inflation Hedge

Property always appreciates at a higher rate than bank fixed deposits or savings accounts. It is an ideal inflation hedge. Just keep in mind the following aspects:

a. Project rates vis-a-vis existing rates in the vicinity

b. Quantum of transactions happening in that area.

c. Pricing levels — realistic / above normal

4. Post Retirement Home

Here you can take a look at locations that are far from the maddening crown. You can consider under-construction projects with a length possession date. Factors to be considered are:

a. Peace and tranquility in the location

b. Availability of medical facilities

c. Gardens, Jogging tracks, Meditation Centre

5. Weekend Getaway

The concept of second homes has undergone a complete transformation in India. After working 24X7 there is a desire to get away from the hustle-bustle of the city and spend the weekend amidst tranquility and greenery. Since work pressures make it difficult to take a long break, most people have begun to prefer a second home that is a short distance away from the city, involving a drive or just a few hours. The basic criteria are:

a. A project with options having large spaces

b. Surrounded by lush foliage

c. A peaceful ambiance

d. Facilities to de-stress and unwind

e. Space to bond and spend some quality time together

6. Marital Home for children once they grow up.

This is a post from: The Orange Paper ~ A blog about Personal Finance, Indian Stock Market, Financial Planning, Investing, Wealth Building, Taxes and more.

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5 Points to Consider Before Buying Your Dream Home

Austin — Mon, 18 May 2009 08:30:17 +0000

photo by fotographix.ca

Have you been waiting for the right time to buy a house? If yes, then this is perhaps the right time if you can afford to buy and get a better deal as real estate prices have come down considerably from their all time high in 2006.

Though buying a house may prove to be a prudent decision during this time of slow down and economic recession, you will still need to be an extra careful while closing the deal; it may not turn out to be as prospective and advantageous as you might have expected.

Here are few points or factors one may consider before buying one’s dream home especially in the light of the current scenario:

Enquire about the builder

The first and the foremost thing one must do is, make enquiries about the builder from whom you shall be purchasing the property. Check whether he has any projects pending if any, and if yes, try to find out the reasons for the same. Inquire about his reputation in the market and also inspect one of his already built projects. In this way you will come to know, what you can expect from him for your house. These days due to economic slowdown, it is getting difficult for the builders to get adequate finance from banks, when they are facing a serious liquidity crunch. So there is a possibility you may not get your house at the promised date. Hence do not hesitate asking and obtaining in writing from your builder the date when he will be giving you the possession of your house.

Confirm your loan amount

If you are opting for a home loan, do inquire with your bank about your sanctioned loan amount before giving the booking amount to the builder. The scenario has changed now, as most of the banks have reduced the percentage amount of finance from 90 percent to 70-75 percent of the total value of the property to be acquired or purchased. In that case you will have to arrange for more cash, which if you are not able to do, you most likely will have to forgo your booking amount given to the builder.

Review your financial status

During this recession time, all of us run the risk of losing our jobs. What if you lose your job after closing the deal? You will be in a financial turmoil if you do not have the money to pay your Equated Monthly Installments (EMIs). So take the decision considering your job security and present cash reserves. Also during this period of recession it will not be wise to exhaust all your finances for buying a house. Make sure the purchase you are making is affordable to you, also ensure you don’t take further loans or borrow money to repay your first loan.

Risk cover

Go for the recent schemes announced by the insurance companies these days that incase if you loose your job, the insurance company will pay your home loan EMIs for 3 months. This will give you the flexibility to search for a new job or arrange for the finances.

Try to get the best deal

Due to lack of demand and liquidity crunch in the real estate market these days builders have started offering discounts and other incentives, so it’s the right time to bargain, and get the best deal for buying your house. Do not hesitate to press the property dealer or the builder to reduce the price in case he resists. If he is not agreeable to the reduction in price insist on a decorating allowance or free car parking.

So don’t take any decision in a hurry. Do the analysis carefully and keep in mind the above factors while closing the deal of your dream home this year. All the best!

Redevelopment of Property

Austin — Thu, 09 Oct 2008 08:10:38 +0000

photo by RedAgenda

In recent times builders have been offering residents of old buildings a handsome amount to get a refurbished flat with additional space.

Who will not grab such a tempting deal? The flat seller not only gets the cash, but also gets a monthly rent for his temporary accommodation. Once the new property is ready, he gets a refurbished, newly-constructed flat, in place of his old one.

Builders do so to redevelop the property and add additional floors to a particular building. They earn money by selling the additional flats. The money paid by the builder to the existing residents depends on whether he asks the resident to shift temporarily or permanently.

If temporary – the builder would give money for the alternate accommodation, until reconstruction is completed. Sometimes builders also issue post-dated cheques only if the money provided in advance is sufficient for a minimum of 18 months of the rent. Calculate whether the sum provided would suffice until you enter the refurbished home.

If permanent – the builder would provide a larger sum, which depends on the valuation of the property. Make sure the amount, minus the tax payable, is sufficient for you to buy another flat.

To avoid being cheated, ask for a bank guarantee. This is an amount deposited by the builder with the bank, which would be provided to the resident if the builder fails to complete the project within the time frame promised. No builder can, however, redevelop a building or a society unless 100% of the residents agree for the same.

But, before handing over your home keys to a builder, make sure your future needs are met. One should know how to cut a redevelopment contract according to one’s need. In redevelopment deals, the resident decides the terms and conditions.

But, to do so, the flat owners or the housing society need the professional guidance of a lawyer as well as an architect. The lawyer would ensure that legal issues – present and future – are dealt with in a transparent way. He would help formulate the deal papers in accordance with the law.

Also, an architect would help the residents determine how much the property is worth, popularly known as valuation of property.

The valuation would be an important criterion in bargaining the amount offered by the builder. The architect would act as a watchdog in the later reconstruction period. The architect would ensure that the builder doesn’t use sub-standard material for construction.

But, before handing over the project, check the track record of the builder. May be you can take the help of the architect appointed to know whether the selected builder has completed his earlier projects within the promised time and has paid the amount he assured in the contract.

US Housing Market – Drop in prices

Austin — Thu, 24 Apr 2008 21:18:13 +0000

Photo by Neopixx

This guest-post is by Jeff Miller. He is an Economist by training, a tech geek by inclination, and an IT Manager and a Real Estate Investor by experience. Jeff also knows a number of people who are smarter and better connected than he is and he hopes to share what he has learnt with you in a series of articles that will complement his somewhat lengthy comment to my post Black Money Saves Our Financial Sector.

As I mentioned in US Housing Market Crisis caused by Mortgage Backed Securities, the recasting of the minimum payment loans caused a lot of what we are seeing. Looking back on those loans will give us a clue as to what is going to happen in the housing market.

The minimum payment loans started being mass marketed in 2004. At that time, many of those loans were set to recast after a set interval. There were two intervals, 3 year and 5 year. The 3 year recasts hit in 2007. The 5 year recasts will hit in 2009. So, we know what will be coming in 2009. I don’t think that 2009 will hit us as bad as 2007. For one thing, the institutions will already be geared up to handle the loans (loss mitigation departments, REO departments, etc.). Also, the public will be use to it and is less likely to panic (unless the new media succeeds in its “the sky is falling” reporting).

I expect that the rest of the 2008 market will be pretty stable with a trend toward a slow, steady drop in prices (especially in California) followed by a slightly steeper drop in prices beginning in 2009. I think that prices will generally bottom out in late 2010 to mid 2011. After that point, I’m unclear as to what housing prices will do. My gut instinct is that they will start a slow rise. However, politics, new media and group psychology can all affect that outcome.

In the previous paragraph, I singled out California because, as is often the case, California reacted differently to the value drop. In this case, Californians refused to believe that the price was dropping and were still trying to get the old, higher price for their houses. You often heard “I’m waiting for the right buyer” or similar statements. It took a long time for prices to start falling even though the values were already going down. However, the laws of supply and demand could not be held off forever. As it is, I believe that prices are still lagging value. So expect prices to continue to drop in California after everyones else has flattened out.

BKC auction indicates realty slowdown

Austin — Fri, 21 Mar 2008 09:20:43 +0000

As per media reports, the Mumbai Metropolitan Region Development Authority (MMRDA) had recently put five plots on auctions in the G-Block of the Bandra-Kurla Complex, comprising two commercial, two residential and a clubhouse. Out of the these five plots, the authority only managed to sell three plots for Rs1,322 crore. Of these three plots, the authority sold one commercial plot, spanning 24,000 square metre, to Jet Airways for Rs826 crore. This implies a selling price of approximately Rs32,000 per square feet (Rs314,467 per square metre) for the commercial plot. This selling price is at a 31.7% discount to the Wadhwa Builders’ bid of Rs46,806 per square feet (or Rs503,636 per square metre). It is also interesting to note that Jet Airways was the sole bidder for the commercial plot in the recent auction.

With the stock markets experiencing a bear phase it will be interesting to see if prices of real estate also undergo a correction and to what extent.. 5%, 10% … 25%?