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Sunday, October 20, 2013

Nine things to keep in mind while buying your first house

Newly-weds Dipankar and Ashima Gupta have made up their minds to buy their own house. The first trigger came last year, when two of their close friends bought property. Then their landlord sounded the warning that he would raise the rent again. What sealed the decision was the salary hike that Dipankar got this year. "We might as well pay an EMI instead of paying rent every month," says Ashima.

The couple is not alone. Many young people are planning to buy their dream houses, but have been held back by high property prices and an uncertain job market. This is prudent because the decision to buy a house should be based not just on the need, but also on the individual's financial readiness.

As the festive season approaches, salesmen and agents are preparing to lure you with freebies and discounts. Here's how to see through some of their sales pitches and take a decision based on facts.

"You can never go wrong with property"

The first thing a builder or realtor is likely to tell you is that real estate prices never go down. However, real estate, like other asset classes, goes through periods of ups and downs. The only difference is that it is not as volatile as, say, stocks or gold.

For young people, buying their own house is too tempting a thought. However, staying on rent may not always be a bad idea. For instance, if you have just started your career, you may not be sure where you will settle down. So, instead of locking your funds in a house that you may not need immediately, you could invest to build a corpus for buying it later. Also, remember that buying a house in a far-flung area may be cheap, but will come with other costs, including long commutes to office, children's school, weekend shopping, social visits, etc. As a tenant, you can choose a better location from where it is easier to commute to office and other destinations.

If you are not planning to buy a house now, the best strategy is to be a pretend buyer and save for your dream house. If you keep putting away the EMI amount in a safe investment option, you will be able to save for a higher down payment when you eventually take the plunge.

"There may have been some correction in other areas, but we have not cut prices"

Recent media reports have talked about a correction in real estate prices, but if you mention this to the builder, he might laugh at you. A correction in the property market does not necessarily mean that the builder has brought down the prices. Even if there has been an increase in price in the past year or so, it effectively means a correction in real terms if one accounts for inflation. Likewise, steeper discounts than the previous year on the same property are a correction in real terms.

According to Yashwant Dalal, president of the Estate Agents Association of India, developers do not officially cut prices because it sends the message that they are desperate and the prices are on a downward spiral. Yet, they are offering freebies, which amounts to the same thing.

"This is the most affordable project in this area"

If a new project has 2-BHK flats priced at `42 lakh each, when the going price in the area is `50 lakh, isn't it a steal? Not really. The real estate ads miss out on an important detail—size of the flat. A recent report by Jones Lang La-Salle, a property consultant, reveals that the average apartment size has come down in top metros in the country. In Mumbai, for instance, the average unit has shrunk 31% in the past five years. So, don't compare the price tag, but the price per square foot, to know whether a project is cheaper than the others.

"These rates will be revised soon"

It's the favourite trick used by almost every builder to entice buyers. If you tell a builder that you need time to think it over, he will say that the project is almost sold out and prices will soon be revised upwards. The fact is that today developers are more desperate to sell than buyers are eager to buy. Money is not cheap for builders, even if it is available. The only cheap source of money for developers is the sale of projects. This is where the discounts come in.

Given that the situation is unlikely to get better anytime soon, builders will continue to offer discounts to attract buyers even if it means taking a hit on their profit margins.

"We will deliver on time since there's a penalty clause"

Project delays are a reality and few are completed on schedule. Some builders do offer compensation for delays in handing over possession, but it's not something you can bank upon. One, the amount offered will be nowhere close to the EMI you are paying. This is because you would be paying the instalment for the total cost of property, but the compensation offered will be linked to the base price, which does not include additional charges for parking, club membership, etc. Some builders slip in a clause in the agreement, which insulates them against any claim by the buyer. Most, however, have a clause in the agreement which states that if the project is delayed because of 'factors outside their control', they will not be liable.

"It is in the interest of the potential buyer that the purchase agreement include a clause which mentions the date on or before which the developer will hand over the possession of his property," says Ravi Goenka, advocate at Goenka Law Associates.

"What you see is what you get"

This is neither true for the price quoted by the builder, nor for the sample flat that you see at the cons truction site. The interior designers hired by the builders to do up the sample flats are experts at creating optical illusions. They know how to use lighting and place furniture in such a way that the house appears bigger.

Even the furniture is an accomplice in this charade. The customised beds and dining table sets are smaller than the normal size and the cupboards lack depth. The sample house itself may be much bigger. Such flats are made only for marketing and, therefore, the walls are much thinner than those in a normal structure.

However, there is no way you can compare the sample with the real. These flats are demolished after the units in the project are sold out and construction begins. There is also the issue of location. Sample flats are standalone units that offer a great view from every balcony and window.

It may not be so when it is a part of a cluster of flats. For a buyer, a better indicator of what he will get is the architectural drawing of the apartment, as well as the layout map of the project. These drawings will tell you the exact carpet area of the flat. Compare it with the super area promised by the builder to get a fair idea of the price being charged for common facilities.

"You can take your money back any time you want"

Getting a refund from a cash-strapped company is not easy. The salesperson who is hawking the property is focused sharply on the down payment. There is no norm that builders are required to follow while cancelling bookings. While some builders deduct 10% of the booking amount, others deduct up to 20%, whereas smaller developers may forfeit the entire booking amount. The only way to avoid getting into a situation like this is to do your homework before you book an apartment. Even after you have decided on a project, avoid paying the booking amount in cash because some developers don't give the receipt till you pay the full booking amount. If the rest of the amount is in the form of a cheque or demand draft, the builder may issue a receipt for this amount alone, claiming to adjust the cash in the balance payment.

"The freebies bring down the effective cost"

Freebies are the flavour of the season. From registration fee to modular kitchens, even cars, all are being offered when you book an apartment in a project. Remember that all freebies are already factored into the price of the apartment. The same goes for the attractive schemes on offer. The truth is that developers urgently need the cash and many of the projects have not even got approvals from the authorities. This puts a question mark on these projects. The bottom line is, don't look for freebies; try getting a cash discount instead. "Developers are doling out discounts and incentives, which is a direct result of the lack in demand. So, though they may not agree in open, the serious buyer would be able to get a decent discount on the deal," says Pankaj Kapoor, managing director of Liases Foras, a real estate rating agency.

"Don't worry about the loan. we have tie-ups with banks"

Builders do have tie-ups with banks, but this is no way an endorsement for the project. "Even if the project has been approved, it is advisable for the buyer to hire the services of a legal expert to verify the authenticity of all the documents associated with the project," says Goenka. A tie-up also does not promise the best home loan rate. What it means is that you are more likely to get a loan from those banks than with others. However, for the best rates, you may still need to go to the bank branch to negotiate, instead of relying on the representative at the bank site, a person who may not even be from the bank.

You may also be told not to worry about the high home loan interest rates as 'rates will come down soon'. Sure, home loans may get cheaper but they may also get costlier. Plan your purchase according to the current interest rate, not on the expectations of a future rate cut. The new RBI governor has done a lot to boost the market sentiment, but hasn't cut interest rates. The situation may continue. Also, banks are aggressive in offering competitive rates to new customers, but are not so charitable once you take the loan. This means that any subsequent drop in rates may not be passed on to you immediately. So, it is better not to stretch your finances and plan it on the basis of a higher interest rate than the one you are currently paying.

Source: TOI

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