Smart moves for home buyers
An ET Wealth survey shows a lot of people plan to buy property in the next one year
After a hibernation lasting nearly five years, home buyers are planning to go shopping again. More than 60% of 1,181 respondents to an online survey say they are likely to buy property in the next 12 months. The survey, was conducted after the RBI cut rates. More than 16% of the respondents say they plan to `definitely buy' real estate in the next one year (see graphic). “Many fence-sitters have realized that it makes sense to buy a home now, when prices have not risen too much,“ says Anuj Puri, Chairman & Country Head, JLL India.
The bullishness is more pronounced in cities such as Hyderabad and Pune, while buyers are not so keen in NCR and Bangalore, where high prices and huge inventory have dampened demand. However, buyers are not rushing in with eyes wide shut. They are acutely aware that in the coming years, returns from real estate may not be able to match those from other asset classes. “Over the next one year, the appreciation of real estate prices will, at best, be inflation-linked,“ says Samir Jasuja, Managing Director and CEO of realty portal PropEquity .
Returns from real estate also tend to be jerky. Therefore, investors should not go for property if their investment horizon is less than five years. Our survey shows that more than half (53%) of the respondents will buy property only for their own use, and 19% will buy it as investment. There is another 18% who will buy for both own use and investment.
Buyers are also mindful of project delays. This is why a significant majority (66%) want to buy ready-to-move-in properties, and only 22% are willing to consider under-construction flats or prelaunch offers. Even though the Real Estate Regulation Act, 2016 has been passed, not many people are aware of how it will make a difference. Barely 35% of the respondents feel that the Act will protect the interests of buyers.
Seeing the surge in buyer interest, we reached out to experts to find out what people should keep in mind when they purchase property. We list out smart moves that can help buyers get the maximum bang out of their bucks.
RENT OR BUY
Before you embark on your plans, do a thorough rent versus buy analysis. In many cities, property prices are very high but rentals are affordable. “You may not be able to find `80,000-90,000 for the EMI of a `1.5 crore house, but you can afford to pay `25,000-30,000 a month as rent for the same property,“ says financial trainer P.V. Subramanyam.
Younger people will find renting a better option because it gives them the freedom to relocate. As the job market becomes more competitive, a person who is tied down to a property by a mortgage may end up sacrificing emerging opportunities elsewhere. However, in some cities, property prices have not run up too much. “If the EMI is not significantly higher than the rent one is paying, the person should buy the house,“ says Rishi Mehra, Founder of Deal4loans. He points out that while rent is paid to the landlord, the EMI payment also helps create an asset for the borrower.
CONSOLIDATE YOUR FINANCES
If you have decided to buy, figure out how much you can raise for the down payment. The bigger the down payment, the smaller your EMI and the lower the stress on your monthly budget. However, in attempting to enhance the down payment, don't dip into investments meant for critical goals. You also need to assess the loan amount you are eligible for. Lenders typically keep the EMI at 30-40% of your net take-home pay . You should also obtain a credit rert. The RBI has mandated that a per port. The RBI has mandated that a person should get at least one base-level credit report free in a year. “Check your credit score so that you don't get a surprise when you apply for the loan,“ says Ranjit Punja, CEO and Co-founder of Credit Mantri. If there is something amiss in your credit history, it may take time to repair it. “If your credit history is not clear, your choices shrink,“ says Manavjeet Singh, CEO and Founder of loan aggregator portal Rubique. It is a good idea to not revolve credit card dues and keep expenses low for 10-12 months before applying for a loan.
Some people even say that one should take a pre-approved loan so that there is little paperwork to do after you find a suitable property. But Adhil Shetty, CEO and Co-founder of Bankbazaar, says pre-approved loans are valid only for 6-8 months. “If you are not able to finalise the deal within that period, you will have to apply afresh and pay the loan processing fees all over again. As a rule, banks will not extend the validity of the pre-approved loan, “he says.
START RESEARCHING OPTIONS
Experts say bargains are everywhere, because investors are desperate to get out of real estate. “Some investors are exiting at a 0% gain while some are even willing to take a haircut, “says Jasuja. But buyers will have to do a lot of research to find the bargains.
Don't be tempted to buy outside your city because rates are lower. In many cases, buyers who are unfamiliar with the reputation of builders in another town, get stuck in the wrong project. On the other hand, it may be a good idea to buy in the suburbs to avoid the bustle of the city yet live not too far from work.
An expert agent can help identify properties that suit your requirements. He will be able to locate properties, have a preliminary talk with the owners, and even bargain on your behalf. A fee of 1% of the value of the property is not too much to pay for these services.
GET READY FOR EMIS
You also need to zero in on the best loan provider. Loan aggregator portals act as matchmakers between lenders and borrowers. Take a loan you can comfortably service. One way to assess if you will be able to afford the EMI is by putting away an amount equal to the EMI in a recurring deposit or a short-term debt fund. This will get you into the habit of saving that amount every month.
CONSIDER COMMERCIAL REALTY
If the purpose of buying real estate is purely investment, a better alternative could be commercial properties where things are looking up. But here too, one should go for Grade A assets, not B or C. The rentals should be in line with prevailing market rates.