The Indian real estate market after facing a sluggish growth since last few years is again rising up with full energy and vigor. The hibernation period that lasted for almost five years, has come to an end and a lot of hustle and bustle is expected in the Indian property market. The potential home buyers who had adopted a wait and watch approach are expected to make investments in the coming next year. The cut in the RBI repo rates, announced few days ago, has resulted in many people saying a “yes” for property investments.
This scenario is more prominent in cities like Pune and Hyderabad whereas places like Bangalore, Delhi- NCR which already has high price levels and huge piled-up stocks are witnessing a dampened demand. However, in spite of this bullishness, the buyers are well-aware that in the next few years, the real estate returns will be inflation linked and will not be able to match the returns from other investments.
The real estate returns are supposed to be quiet unstable as there won’t be much of price appreciation for some years but once some infrastructure development projects are announced, there will be a sudden shoot up. Hence, the investors should be prepared to make an investment for not less than 5 years.
Growth of property prices in the coming 12 months
It is not wise to pay for a property @9.5% when the price appreciation will not be more than 4-5% per year. Also, the buyers are very cautious regarding the project delays which are mainly due to the financial crunch suffered by the developers. These delays can be up to 1-2 years or can even extend to 5-6 years at times, leading a majority of population to opt for possession-ready apartments rather than under-construction properties.
Since real estate is the biggest investment of a person’s life, here are some tips that the buyers should keep in mind before making an investment, so that they can reap maximum benefits.
Options to utilize the property
Buy or Rent:
Before making any kind of decision, it is important that the buyer does a thorough analysis of renting a property Vs buying one. In many big cities, the rent amounts are affordable as compared to the high property prices due to which many people feel that they can afford to live on rent rather than owning a property. One can afford to pay a monthly rent of Rs 25,000-30,000 rather than paying an installment of Rs 75,000-80,000 for the same property.
Renting is a preferable option amongst the younger generation as it gives them the freedom to move to another city for better job opportunities rather than sticking to a place for a property mortgaged and might end up sacrificing good job opportunities somewhere else. However, in cities like Pune and Hyderabad, the prices are comparatively lower and people find it better to pay the EMI and create an asset instead of paying it as rent to the landlord.
Consolidate the Funds
Once you decide to buy a property, get your finances right and understand the fact that how much money you can afford to pay as the down payment. The bigger the down payment, lower the monthly installment and lesser is the monthly burden. But in order to increase the down payment, you should not use your entire investment portfolio reserved for other important purposes like child’s education, etc. Lenders normally allow a monthly EMI of 30-40% of the net take home salary.
An individual should get his credit-report checked at least once a year in order to remain well- informed about his credit history. In case it’s not clear, the necessary repairs can be done well-in-time before applying for a loan.
Research Well
It is the buyer’s market and they need to research well to get the best deals. The investors are eager to exit out of real estate so they are just offloading the property bought years ago. Some are even giving away at 0% gains so it is for the buyers to bargain a lot in order to get maximum profits.
One must be careful not to buy outside the city from some unknown developer even for lower rates, in order to avoid getting into the risk of being stuck up into wrong hands. Investing in the suburban areas in a peaceful location is nice but it should not be too far from the work place in order to save on the commuting time.
Take the help of some expert agent to identify the properties that match your budget and requirements, talk to the owners and if possible bargain to get the best deal. Paying 1% commission for these expert services is not a costly affair.
Loan Calculation
Your net monthly income based on your salary, income from other sources minus any other loan repayments decides how much loan amount you can afford.
Interest rate: 9.5%
Loan tenure: 20 yrs
Loan amount: 70% of house cost
Income from other sources: Nil
Buyers need to be cautious not to fully utilize all their finances and rather settle for a smaller place or arrange for a bigger down payment. He should avoid taking any other loan in order not to overburden himself because in case the ROI increases , the EMI will also go up, leaving him in a crunch.
Paying the EMI’s
Like you research well for the properties, try finding out the best loan provider also. There are many loan portals available that act as match maker between lenders and borrowers. Assess the comfortable EMI you will able to pay every month without neglecting your other important family goals. One way to do this is to save a fixed amount of money every month in a recurring deposit or short-term debt fund. This will help you to get into the habit of saving plus will keep collecting funds for a bigger down payment.
Commercial Realty
If you are buying a property for investment purposes, it is better to invest in commercial spaces as the returns are comparatively higher. But don’t go in for Grade B or C assets and invest in Grade A spaces only. Go for assured rental property if the lease term signed with the tenant is 6-9 years. Avoid higher rentals for 1-2 years because once the lease term expires there will be a drastic drop in the rental amount and you might or might not be able to rent it out again on high amount. The rent should be accordance to the current marker rates.
Net Income
Your ability to pay is always calculated on your net income basis which depends upon your take-home income, after tax and other financial obligations like a car or any other loan repayment.
Repayment capacity
Realty experts feel that debt repayments should not exceed 30% of the borrower’s net income in order to ensure comfortable repayments.
Increasing rates
In case of increase in rates, the lenders automatically stretch the tenure. In case of long tenures say 20-25 years, the lender might ask you to deposit some amount upfront or to increase the monthly installment. This can be disastrous if you are already running on the upper edge of your repayment capacity.
