When to Buy?
The common dilemma that the consumer at our Open House forum poses is what is the right time to buy? The ‘right’ time to buy your house is when you feel that you are ready for the responsibility that comes along with buying a house. It is important to consider the objectives of buying a house. Ask yourself why you want that house? What really is the motivating factor when it comes to your decision to buy that house? Do you want to buy it because you want to live in it with your family or do you look for an extra income that the house will bring in the form of rent? Or, are you simply buying it for long-term value leverage? The more you know about why you should buy a home, the more focused your search will be and the better you will be able to select one that meets your requirements.
What makes more sense – Rent or Buy?
There is a simple way of judging whether to buy a property or whether you should lease one now. If you find a house that you would like to stay in, that is close to your workplace or easily accessible from there, then buy it. But remember that the Equated Monthly Instalments (EMI) on your property should not be over 40 per cent of your monthly salary. That way you would be comfortable paying it back. You need 10-15 per cent of the cost as your personal contribution to the purchase, as banks do not lend 100 per cent.
If you are paying a monthly rent that would constitute over 75 per cent of your EMI please think in terms of buying. (Check out the MB Buy Vs Sell Calculator which can serve as a broad indicator on whether you should lease or buy).
What to buy?
There are many residential formats to choose from – Residential plot, apartments, single floors, independent houses and multi-storey flats. Given below is a representation of how each type of property is represented city-wise on the MagicBricks.com portal. This is a representation of property in the top six cities.
Each type of property has its own advantages and disadvantages. Given below are some comparisons made by experts on Open House, the consumers’ forum on MagicBricks.com.
Plot Vs Multi-storey?
In India, plots are much in demand. Even today most small cities are witnessing more demand for plots than for apartments. Multi-storey apartments are becoming the norm in established urban areas where cost of land and the convenience and security that apartments offer have pushed demand from the younger generation. Also, as family sizes become smaller, many are selling large plotted developments in established city areas for smaller more compact apartments with centrally managed facilities, normally in gated communities in the suburbs.
Independent plot or apartment within a gated community?
Gated Community is a form of residential complex, sometimes characterised by high walls and fences. It boasts of controlled entrances, surveillance of those entering the premises, clean surroundings and amenities. These communities offer freedom from the hassles of everyday civic problems, ranging from water cuts and pebble-strewn streets to living with the stench of unpicked garbage cans. An apartment in a gated community by a reputed developer is normally a safe bet.
All figures in percentage
An independent house, on the other hand, is normally customised to the buyer’s requirements. The advantage of having an independent house is that it provides ample open space and clutter-free living. Whatever the choice, make sure you pre-determine who is to look after the common facilities such as roads, water and power supply and back-ups etc. There are some developments where villas or townhouses are provided within the gated complex with all the advantages that normally come with apartments. These are more expensive but a safer and hassle free bet. You should however, be prepared to pay enhanced maintenance charges for these facilities.
Single-floor Unit Vs Multi-storey Apartments
A single floor apartment is one where the builder buys a piece of land, often old plots which are up for redevelopment, constructs flats on each floor according to the permissible Floor Area Ratio (FAR) and building byelaws and sells them as independent units within the same building. The land belongs proportionately to all the buyers of single floors. Since there are smaller numbers of units than in a multistorey apartment, these lack economies of scale and so have fewer common facilities such as maintenance and back-ups compared to larger multi-storey apartments. But these are newer apartment units in downtown or preferred areas and come at a price lower than multi-storey units.
A multi-storey remains the most preferred housing units in metros and large cities today. It is a cluster of apartments in a high-rise building developed in a plot with all amenities available within a gated community. These units can be aggregated and constructed by developers or in the cooperative mode as Cooperative Group Housing Societies (CGHS). These need good common facilities management to take care of aggregating services and providing them to individual units for a fee. This fee is levied as monthly maintenance charges. They cover water and power supply, including back-ups, lift and common area maintenance and landscaping. Many developments also provide plumbing and electrical services for a fee.
Where to buy?
Generally, there is a price differential between different locations which will always be proportionate to its strategic placement which could be linked to accessibility to highways, markets, business districts and overall livability. It is quite possible that a particular area has good infrastructure, access to markets and entertainment means but if it is loaded with existing and upcoming projects, the price rise in that area may not be dramatic, but a gradual one. One may make an estimate of the number of available and proposed flats in an area through good brokers and ascertain the past price movement in the short term. Things to be kept in mind while finalizing the location for your house:
- The location should be within approved/sanctioned master plan.
- The location should have good connectivity.
- Infrastructure services such as power, water supply, drainage and sewerage should be present.
- Location should be within an active business activity such as educational institutions, hospitals, IT parks, entertainment hubs, etc.
- Location should be accessible easily from your workplace.
When is the best stage to buy?
If you have the required finances, ready-to-move-in is the ideal option for an enduser. This property would be significantly more expensive than at the launch stage but the buyer is protected against time and cost over-runs and also the EMI payment during the period when the house is under construction.
For an investor who wants regular rental returns from his property investment, a readyto- move-in property brings in immediate rental income which even helps pay back the loan secured to buy the property.
If you are a new investor with limited finances, look for an under-construction property with a suitable payment plan and keep a horizon of 2-3 years for possession. But make sure you go for a reputed builder.
When you purchase a house at the pre-launch or launch stage, the buyer pays small sums linked to the progress of construction but also has a longer wait period before the asset is liveable or starts paying for itself. This option is good in new and evolving growth areas on the peripheries of cities where infrastructure itself is under development and there is a wait period before it is liveable. Since, both infrastructure and housing are being developed at the same time, the user gets the advantage of moving in when both are ready. It also comes cheaper as property values are always lower when the infrastructure in the area is under development. The downside of this type of property is that possession will happen only after a minimum of 24-36 months. During this period you would have to shell out a monthly rental for the place of stay and the EMIs for the new property.
What to rent?
When you buy a property, the choice of locality is limited to those where properties are available within your budget. But when you are looking at renting a property, your canvas is much wider. Since a lessee has the option of seeking property that matches all his/her requirements, it is always good to make a checklist.
Budget is always a prime consideration. Check your finances and see how much you can allocate to rent. This should be an amount that you will be able to pay monthon- month at the same time. Accommodate it within your house rent allowance package or just a tad over for best results.
Now assess how big your accommodation should be. Remember that you have not only to take up lodging, but also service it monthly, including the maintenance and municipal charges which have to be paid by the lessee. The annual property taxes and asset maintenance are the responsibility of the landlord.
Look that facilities such as public transport, security and daily grocery needs are easily accessible. They make your stay more comfortable. Transport connectivity with minimum traffic pressure points makes the daily commute to work less stressful. Look for a neighbourhood where you have like-minded community so that there is minimum clash of interests.
How to buy?
Once you decide upon the locality, the next step is to check the developers who are building there. The best way to do this is to do your own research. Find out who the developers are and what they have to offer. Check out the floor plans and the types of property that they are constructing. Many of these are available online so this can be done at your convenience. Once you have shortlisted some properties, do your own footwork. Check out the projects on-site. Get an expert such as a broker to show you around. Sometimes what looks good on paper may not feel right when you see it on the ground.
If the project is new, the choice of builder is a big decision. Check the builder’s track record, his financial strength, his ability to deliver on time, construction quality and the payment terms, especially in case of a local builder. Do a background check on developers and make your assessment about where you would feel safe to make your investment. One should always check with local real estate brokers the last transaction price or the price of similar property in that location.
Negotiating Ability: After considering all the above, your negotiating ability is crucial which means, leveraging the available information and a fair understanding of the points discussed to strike a good deal.
The ‘area’ concept is very vaguely used in the housing industry. Some builders and sellers take advantage of this ambiguity.
Carpet area is defined as the precise area within the walls of your home. If you had to lay out a wall-to-wall carpet in your entire home, the area covered would be the carpet area. Built-up area is inclusive of not just the carpet area but also the area being occupied by the walls of your home. Super built-up area takes into account all the area under the common spaces which is the apartments’ proportionate share of the lobby, staircase, elevator and the corridor outside the apartment. The confusion over super built-up area arises over what all is exactly included under this definition according to the judgment of the builder. Some may even include the terrace, security room, electrical room and/or pump room. The cumulative total of these ‘extras’ is taken into account and divided by the number of apartments in proportion to their size.
- If you get a quote for 1,000 sq ft, immediately find out if it is the carpet area or super built-up area.
- There is no fixed ratio of super built-up to built-up or carpet area. Generally, the ratios in multi-storey apartments are 75:35 (super built-up area to carpet area). In a single floor there is very little loading of common areas to the tune of 5-10 per cent.
Tips to Customers who wish to buy property:
- Check for proper conveyance of title in favour of the Builder
- Check the License/Development right/approvals of the Builder
- Check clear and marketable title of the project
- Ensure execution of proper Allotment Letter/Sale Agreements on your payments
- Ensure whether reputed financial companies approve the project. This will help you in getting financial loans
- See the tentative Layout/Building Plan
- Verify plinth area of the Apartment
- Check carpet area of the apartment and find out if the difference between plinth area and carpet area is reasonable
- Ask for Occupation/Completion Certificate.
- Ensure the Conveyance Deed is registered after entire payment has been made.
Thanks for contribution for this chapter are:
- Niranjan Hiranandani, MD, Hiranandani Group
- Paras Gundecha, President, MCHI-CREDAI (Mumbai)
- Getamber Anand, Vice President, CREDAI
- Mohit Arora, Director, Supertech Ltd
- Partho Mukherjee, Principal Advisor, MagicBricks.com
- Ananta Raghuvanshi, Director-Sales and Marketing, DLF India