Economic growth, easy availability of finance coupled with high disposable income has made many young Indians look favorably towards real estate investment. At the budget 2013, Finance minister P Chidambaram raised tax deduction limit by Rs 1 lakh for the first time home buyers to promote the housing sector.
A recent study by Indian real estate industry has revealed that there is a strong trend of the average age of home buyers in India reducing from 39 in 2007 to 30 in 2010.
However while the profile, age, socio-economic status of the first time homeowner is changing, what is not changing is the hesitance and trepidation that comes with making much a major decision. First time home buyers in India need a lot of caution and due diligence before signing on the dotted lines of a home buyer’s agreement. The following tips are intended to guide first time homebuyers as they finalize one of the most crucial investment to be made.
1) Financial Planning
Its is essential to ensure proper financial planning before you make the decision to invest in a property. The first step would be to review your current financial obligations such as student loans, life insurance or any other commitments to get an essence of your true monthly income. Your budget for buying your home should be based on your household budget and how much money you can afford put aside for the EMI of a home loan. Besides the EMI you should have a healthy savings account that can pay for the additional incidentals such as stamp duty, registration, car parking, club house charges and other sundry charges by the builder. An important advise by financial experts is to set aside 4 to 5 EMIs as reserve funds to work in unforeseen circumstances such loss of employment or any situation that exerts pressure on financial resources available at your disposal.
2) Assess Your Future Needs and Goals
When deciding to invest in a property, its important to not only have a clear picture of your present needs but also take into account your future needs and goals. Some of us are just looking for a home for our family, some of us want capital appreciation through a long term investment. Some just want to be part of a new upcoming complex or some want to move closer to their workplace. When we invest we should be clear about our goals to ensure we make an informed choice.
For e.g. If you are planning on raising a family, investing in a bigger house, with good schools and parks in a vicinity would be an important consideration.
3) Learn About Different Interest Rate Options
A common dilemma for the first fine home investor is choosing between a fixed rate of interest and a floating rate of interest. A consumer has to choose between peace of mind by opting for fixed home loan where the interest rate remains constant during the entire loan tenure and does not change with market fluctuation or should they take a risk by going for floating loans. In this scenario the interest rate is dependent on the market and fluctuates according to economic situation in the country.
A new option that is growing in popularity is the fixed-floating home loans that come with a fixed interest rate in the initial years and floating rates thereafter. This option gives customers stability on their EMIs outflows for the first few years, thus helping them plan finances better and provides protection against future fluctuations in interest rates.
4) Improve Your CIBIL Score
CIBIL is India’s first Credit Information Company, also commonly referred as a Credit Bureau. The CIBIL TransUnion Score plays a critical role in the loan application process. After an applicant fills out the home loan application form and hands it over to the lender,the credit score and credit report of the applicant is immediately checked. If the credit score is low, the lender may not even consider the application further and reject it. However if the applicant has a good credit score, he is considered credit-worthy and this betters the chances of the loan being approved. A high CIBIL score also can make the loan available at a cheaper interest rate.
5) Go Loan Shopping
Shopping around for a home loan will give you a great market insight and help you select the best suited financing option. Comparing loans and negotiating with banks can save you a lot of money. Once you know what each bank has to offer in terms of rates and fees, negotiate for the best deal. These days, banks also offer home loan insurance as a bundled product along with your home loan that protects your family from loan liabilities in case of your unfortunate demise within the policy term.
When selecting for a lender, it is also advisable to check the the prepayment penalty and foreclosure charges. You can also consider co-ownership between tow family members to get a bigger loan amount.
6) Get A Pre Loan
A pre approved home loan means that the bank or financial institution has carried out their due diligence checks on buyers credit report and have made a virtual confirmation of the loan and loan amount.
This pre-approved home loan boosts the confidence level of the purchaser and gives him a clear adea of the budget within which he will be able to buy a house. He also has clarity EMIs that will need to be paid and can accordingly plan his finances better
However the buyer must be aware that once he gets the pre-approval for a loan, he has only a limited timeframe within which to finalize the property, failing which the pre-approval can be cancelled
7) Research Locations
Location is another key factor to consider before making an investment. It is always prudent to buy in a high-growth area where there is potential for growth and subsequent capital gains. Keep things like connectivity to business areas, proximity to educational institutions, malls and hospitals in mind. It is also important to be aware of future planned developments in the area that could have a positive or detrimental effect on the future value of the property.
At the same time, the location should be suited to your personal requirements and budget.
A healthy mix of the two above considerations will guide you towards your ideal location
8 ) Property Search Route
Newspapers today are cluttered with property ads, realty brokers have offices in every site and there is no death of property information online. But with today’s busy schedules, sieving through the market and gathering information can be a daunting task.
Understanding this challenge, Indiaproperty.com has designed a special tool to guide you as you navigate the property markets. Assisted Property, is a unique service that assigns a dedicated property search manager to research, review and shortlist properties suited to your requirements.To know more call Assisted Property on (+91) 928 100 111
Not only will this service help you save valuable time in short listing properties, but it will also book site visits for you, evaluate your selected property and help you source home loan and legal assistance if needed.
9) Credibility of the Builder:
Before purchasing a property one should look into the credibility of the builder. This essentially means checking on the developers past projects, their previous projects, quality of construction, rate of appreciation in value, current demand in the market and number of future projects that are bring undertaken. It is also an added advantage if the developer is affiliated with a governing body like CREDAI
10) Understand your Payment Plan
For a new property it is also advisable to check with the builder on a construction-linked payment plan or a time-linked payment plan and the cash versus cheque component. This will have an effect on your cash flow and other aspects of your personal finance.
a) Construction linked Payment Plan: Under this plan you are paying an initial booking amount upfront while the rest is linked to construction milestones, say 10% with each floor constructed.
b) Time linked: You pay according to a set timetable, whether the construction is on time or not. Under this plan you are contractually bound to pay your installments, even though the property has been delayed.
However, the RBI recently issued a circular asking banks to desist from upfront disbursal of sanctioned housing loans to builders and instead link housing loans to stages of construction of a project to protect the home buyer and the lender from additional risks.
This is primarily to protect the homebuyers against endless delays in the construction of new projects
11) Legal Due Diligence On The Property
One must also check all the sanctions, plan approvals and agreements to ensure that the builder has completed regulatory and legislative obligations before investing in a property. Any deficiency on this front can lead to serious consequences for the buyer.
12) Learn the difference between sq. feet, built up and super built up
During purchase of a flat/property, there should be no ambiguity related to carpet area, super built-up area and super built up area. The carpet area is the space available for flooring a carpet,the super built-up area is the carpet area including the wall, balcony space and other areas. The super built up area is the super built area plus the corridor space. It also including the area for common use like lobby, lifts, staircase etc, garage and alley. This difference between the super-built up and carpet area is called loading.
When you are buying it is important to ensure that you are paying for the carpet area and not for the super built up area that sometimes has a loading of nearly 30-40 per cent.
Do not heistate to negotiate better rates, Sometimes builders might be willing to offer promotional discounts during festive seasons or if their sales are slow. Also when buying a new property is the initial stages of construction, do enquire about special pre-launch and launch prices.
14) Allotment Letter
Once you have selected a property and made the initial payment, you will receive an allotment letter from the builder. This allotment letter includes the details of the flat that has been allotted to you such as the like flat number, area, price the payment details, any extra charges levied to you amenities such as car parking, club membership, and maintenance charges to be levied at time of occupancy.
If you have a preference for a certain floor or view, then you must request this from the builder at the time of the initial application with the builder. Once the allotment letter is given to you, your flexibility to change your unit might be limited.
15) Site Visits
Making regular site visits to your property when it is under construction is important so that you can check of the status of construction, quality of materials. If you want to make minor non structural changes such as layout of kitchen, change the plumbing fixtures, this would be be best time to get it done.
16) The Sale Deed
A sale deed is one of the most valuable legal documents in a purchase or sale of a property. It is governed by the Registration Act and is an important document for both the buyer and the seller. The purchase or sale of property is not legally complete until a sale deed is signed between the buyer and the seller. Usually a sale deed is signed only after both the parties are satisfied and comply with the terms and conditions as said in the agreement.
17) Verify All Legal Documents
There are a lot of important legal documents without which the sale of a property is not complete. It is the duty of the buyers to verify all these documents and ensure that they are duly signed. Some of these legal documents include- share certificate, sale agreement, society documents, sanction plans, encumbrance certificate, etc.
18) Possession And Registration
The final step in that will complete the purchasing process is the Possession And Registration
Possession is the physical transfer of the property, but is not sufficient to establish legal transfer of ownership. For this you will have to get the property registered in your name with the local authority, with the seller documenting that the property is being transferred to you. At the time of registration you will also have to pay a stamp duty which is a government tax levied on property transactions.
19) Maintenance By The Builder
When the construction is complete the developer receives an Occupancy Certificate (O.C) by the local body that confirms the hand over of the property to the buyers. From the date of receiving this certificate to the next 18 months the developer is responsible for the maintenance of the building. This includes general cleaning, security, payment of electric charges for the common areas, property tax, running costs of DG sets and any repair or maintenance works.
20) Formation Of The Housing Society
The developer initiates the formation of a housing society. The builder normally creates a bank account in the name of the society and transfers the unspent money on the project. The society elects it representatives and takes the responsibility of the maintenance of the building and collection of maintenance charges.
Lakshmi Datta for pbytes.indiaproperty.com