8 Tips for New Home Buyers
With six or seven digit monthly pay-package and loads of perks which generate an envious amount of surplus cash, one has to be inclined towards investing in property market in India today. There are a lot of attractive schemes floating around and it is difficult to avoid noticing their advertisements all around. To enhance the interest of the buyer in you, if the sales guy at the builder’s office is good at his presentation & persuasive enough, you land up buying a property.
Since you always want the best, there is high probability that you would have opted for a higher floor, garden-view, an extra-spacious bedroom, a patio, planter-box on the deck, big club-house in the complex etc.
But, does that really make a good buy, especially if you are buying flat in a new project for an investment?
To help you you understand that, here are a few basic questions-
Q1: What other investments do you have & what is an average return you are getting from them?
Q2: Why did you choose to buy an under-construction apartment which will take three years to be ready, for an ‘investment’?
Q3: Why did you buy a 4 crore worth home when at the moment you have only about a crore to invest?
If you now think that the purchase you made wasn’t really a well-thought one, let us try to make the best out of it without being sorry.
DO #1. Negotiate a deal with the builder on the floor-rise and premium facing rates. Though these are some of the features all building has, it really doesn’t cost the developer. If you try, you may strike a bargain there. If it doesn’t work, try to come 4/5 floors lower to save a few lacs. It will matter when you sell/rent out. Generally receiving higher amount while selling/renting out a 15th floor as against the 10th floor, is a distant chance.
DO #2. Restructure your payment schedule instead of agreeing to the standard one. While taking the booking, the builder is interested in the sale & if you are not asking for something which they really can not accommodate, they will. We must remember that any amount paid at a later date and in smaller tranches is cost-saving for you. You may also avoid interest-bearing borrowings like loan from banks, relatives, parents etc.
DO #3. Check if CC(Commencement Certificate) has already been received on the particular phase, tower & floor. Banks will not disburse loan without CC in place, however, you might have agreed to a strict schedule of payment.
DO #4. Check which lenders which have already approved the property (your specific block, floor etc.). You must double check with your Mortgage Adviser / banker directly too. Sometimes, the builder wouldn’t know the exact status so well. And without this, your payment plan could really get stuck.
DON’T #1. Borrow immediately unless you are opting for an overdraft kind of loan which enables you to pay nil interest too.
DON’T #2. Opt for a Pre-EMI(interest payment only) option as the project may get delayed and your cost of acquisition will keep jumping leaps & bounds every month towards the possession. Say, you have taken a sanction of 2 crores and drawing down a 15 lac tranche’ from the bank in April. If you opt for Pre-EMI, then your simple interest will be levied on 15 Lacs till you draw down next. When you draw again in say, June, of 15 Lacs more, your interest payment will now be on principal of 15+15=30 lacs. This means you have drawn (30/200)*100=15% of your loan amount. Like this, once the project is about to be ready and you have already drawn down 95% of the loan, i.e., 1.90 crores and your simple interest(Pre-EMI) is around 1.90 Lacs a month, this isn’t going towards principal repayment at all. So, for every month’s delay in the project, your acquisition goes up by approximately 2 lacs. If the project gets delayed by 6 months, you shell out 12 Lacs extra! You are bound to lose a lot of profit margin through this. Hence, you are advised to opt for an EMI option, if you can afford.
DON’T #3. Delay your payments unnecessarily to the builder. The penal charges once accrued, will make your wallet lighter when you take the possession. No amount of being surprised or defiance will help. Please understand that the sole reason the builder sells it to you at a cheaper price during inception is to get the money from you quickly to avoid external borrowing. So, he will be just, if asking for delay penalty.
DON’T #4. Panic if the prices have really not appreciated as much you expected. If the property price appreciates by 60% in 4 years, i.e., 15% p.a. you should exit. This has actually given you the same return on your MF/Bonds etc. So, this wasn’t really a greater investment, but you saved yourself any regret. If it is lesser than that, then you may have to keep biting it for longer & hold on for a couple of more years. In the scenario when the same project is having further phases & new towers still upcoming, you can look at it in two ways-(A) Bad way–‘How will I sell when my builder still has so much of stock left?’ & (B) Good way–‘Since the builder has already pegged his price for the new blocks and that is considered the ‘market rate’, I can safely sell at a 100-200/- per Sq. ft. cheaper than the builder’s quote and exit. I don’t have to justify the cost.’
So, final formula is simple. If : Y1 or Y2 > X, then your investment was just.
Acquisition Cost(X)=Cost of the apartment+Bank interest & processing cost+Time cost(as against the other investments)+Your worry-time
Benefit(Y1)=Tax benefit+Future security+Rental income
Benefit(Y2)=ROI(Return on Investment) via Sale proceed
At the end, it is advised that we should not make a property purchase decision in a haste. There are multiple concerns to be addressed before you want it to be called an ‘Investment’.
Till then, happy investing !