Planning To Buy Property? Consider These 10 Points Before Striking A Deal. 1. Dont wait for prices to correct Barring cities in the South, which have witnessed a considerable price rise over the past 12 months , prices have been either stagnant or have risen marginally in the top cities. They have corrected in only a few pockets. Says Om Ahuja, CEO, residential services, Jones Lang LaSalle India: Prices have dropped in only a handful of projects in specific locations and extended suburbs. These are not relevant overall because either these locations or the specific products have inherent flaws. To wait for a correction in prices from now onwards would amount to living in a fools paradise. With a stable government coming to power, a Budget that had several positive provisions for the realty sector, and GDP growth reviving in the April-June quarter, the sentiment in the realty market may improve. So, buy property right away. Prices have already bottomed out. Since the pace of transaction remains slow, builders are still offering price discounts and other sops. Once the sales pick up, they may withdraw the offers. 2. Dont expect quick gains Those investing in real estate now should not expect prices to rise sharply over the next year or so, the primary reason being that they have already increased to a high level in most cities, especially in Mumbai and the National Capital Region (NCR). Says Anshuman Magazine, CMD, CB Richard Ellis South Asia: The sales volumes have gone down in Mumbai and the NCR because prices in these cities have risen very high. In places like Bangalore and Chennai, where prices are still at a level that can be absorbed by the market, sales are still happening. Another factor that will prevent prices from appreciating is the huge pile-up of inventory in most cities. Even though sales have slowed down, developers keep launching projects because they have invested huge sums in land and need to earn returns. According to Pankaj Kapoor, MD, Liases Foras, a real estate research firm, Prices in the top cities will be under pressure for the next year or two due to the accumulation of a huge inventory. Efficient markets maintain 8-10 months of inventory, but in most Indian cities the level is much higher. Owing to cost escalation, developers cant cut prices. So what we are likely to see is time correction. Sales wont pick up until peoples incomes rise to a level where current realty prices become affordable, says Kapoor. If you are investing in real estate now, have an investment horizon of five years or more. Also, expect more modest returns than in the past. Says Magazine: The time for quick and abnormal gains from real estate is over. He adds that Indians will have to get used to more normal gains from realty in the future, as is the case in the mature markets of the West. A normal rate of return implies one that exceeds the inflation rate by a few percentage points. 3. Factor in borrowing costs The interest rates on home loans are currently in double digits. A combination of factors, including high prices of apartments, high home loan rates, and slow growth in salaries in urban areas owing to the economic slowdown, has made it difficult for people to buy a house. Those buying property as an investment must live with the fact that while they will have to pay 10-11 per cent interest on the loan, the current slowdown in the realty market means that the value of their property may not appreciate at all, or may see a single-digit rise. So their net gain may be negative in the short to medium term. More people would buy property if home loan rates were to soften. However, it is hard to predict when interest rate cuts by the RBI, which allow banks to cut their loan rates, will happen. Much will depend on the trajectory of inflation. Another recent development that could prevent the RBI from cutting rates is the expected rate hikes in the US, which could begin some time next year. A Barclays report issued after the monetary policy review on 5 August said that they expect policy rates to be eased by 50 basis points by end-2014. However, what actually happens will depend on the flow of data. 4. Buybacks can be dicey Currently, developers are finding it difficult to get loans from banks. So they are using buyers as conduits to borrow from banks, and are offering them guaranteed rates of return. According to market sources, the annual returns are in the range of 20-24 per cent on buybacks and assured return plans. Whats the catch in these schemes? One, they indicate that the developer is in financial dire straits and is, hence, promising high rates of return. Two, builders usually make these offers on the premise that, in the future, prices will rise more than the rate promised by them. The customer will then prefer to sell in the market and the builder will not have to fulfill his commitment. But what if the prices rise slowly? The builder will then per force have to deliver on the promised rate of return. Warns Pradeep Mishra, head of Guragon-based Sainik Estates: If the developer lacks financial strength, he may renege on his promise. The buyer will be left with no option but to go to the courts, which is not a desirable course for most people. 5. Dont factor in tax gains beforehand You can avail of deductions on both interest and principal repayments on a home loan, subject to a few conditions. The deduction on interest is limited to Rs 2 lakh per year in case of a self-occupied property, but there is a catch. If this property is not acquired or constructed within three years of the end of the financial year in which the loan was taken, the benefit gets reduced from Rs 2 lakh to Rs 30,000 only, says Surabhi Marwah, tax partner, EY. In these times, when possession delays are rampant, this is a risk that all buyers run. The deduction is allowed in full in case of rented properties. The deduction on interest is available from the year in which the construction is completed. Any interest paid earlier can be deducted in five equal annual instalments beginning from the year of completion. Such claim is also subject to the limit of Rs 2 lakh or Rs 30,000 for a self-occupied property. Section 80C also allows a deduction of up to Rs 1.5 lakh per year on principal repayments. This is subject to the condition that the property is held for five years from the end of the year in which possession was obtained, says Marwah. So dont think of flipping properties bought on a loan. 6. Dont be lured by special offers Today, a range of price discounts and freebies are being offered by developers to expedite sales. Keep your primary focus on the apartment that you are getting in these special offers. How attractive is the location? Whats the area of the flat? Whats the per square foot rate at which the developer is offering the apartment? Is it at par with the rates prevailing in the market? Magazine of CBRE advises that the buyer should calculate the exact monetary value of the offer, deduct it from the basic price, and then compare it with other offers. Says Ahuja of JLL: Buyers should base their purchase decisions on the inherent value of the property rather than on freebies. Real estate is a significant investment, and it should not be influenced by smaller considerations. Steer clear of offers that are too good to be true, he says. To get an attractive discount, buy in groups. 7. Conduct due diligence The most important factor while buying a house is location. Check the quality of infrastructure: how many hours of power cuts does the area face during summer? Pay attention to connectivity: roads, proximity to airport, and the possibility of metro connectivity in the future, if it doesnt exist. Pay heed to the drivers of economic growth. The places that witness job creation see a higher price appreciation, says Magazine. Next, scrutinise the developer. In high-end properties, especially, the quality of maintenance affects the quality of life in the project. 8. Commercial property is a better proposition If you are investing in real estate chiefly for rental returns, commercial property may be a better proposition than the residential one. The rental yields in commercial property tend to be much higher. The exact rental yield that you earn from a commercial property is subject to factors like economic sentiment, business growth, demand-supply situation and location. Another advantage of investing in a commercial property is that the leases are usually for a longer period, typically 2-20 years. They are often secured by a bank guarantee, which offers a higher degree of certainty to the investor about his future income. Service tax applies only to commercial property, which leads to an extra 10 per cent on the propertys purchase price. As an investor, you can claim this service tax as input tax credit, which is charged on the propertys rental. 9. Choose your lender carefully Once you have decided on a property and are planning to take a home loan, you will have to zero in on a lender. The most important consideration here is the rate of interest. Many financial websites offer a comparison of interest rates. By entering your details on these sites, you can get a good estimate of the rate of return you could get. The interest rate you get from the market will also depend on factors like your credit score, employment status, income, and the profile of the developer and property. Next, decide whether you will take a floating or a fixed rate loan. 10. Opt for term loan rather than home loan insurance To cover your home loan liability, you will be better off opting for an online term plan rather than a home loan protection plan (HLPP). Source : m.economictimes/markets/real-estate/realty-trends/planning-to-buy-property-consider-these-10-points-before-striking-a-deal/articleshow/41857496.cms
Posted on: Mon, 08 Sep 2014 05:10:12 +0000