Content
Page No.
The Need To Buy Property
Chapter 1
01
Shortlisting Your Property
Chapter 2
06
Choosing The Right Location
Chapter 3
09
How To Choose An Agent
Chapter 4
13
Tax Implication
Chapter 5
16
Legal Perspective
Chapter 6
19
Home Loan
Chapter 7
22
Managing Finance
Chapter 8
26
Return on Investment (ROI)
Chapter 9
28
Exiting the market
Chapter 10
30
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Introduction
Searching/Short listing a house
Buying a house can be tedious or pleasurable according to how you go about it. Here are a few tips to make it
a pleasurable activity. To make sure you find the right property at the right price in the right location, there is no
getting away from the fact that you need lots of information at your fingertips and a lot of options to choose from
as well.
Firstly, make sure you know why you are buying. Normally property buyers fall into two major categories:
1 End Users
2 Investors
Being sure why you are buying also influences various choices you make. This includes choosing:
lThe
location
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The stage of construction
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The developer
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The price bracket
There are no right and wrong decisions – whatever your reason for buying a house, it is the right one. But there
can be right and wrong ways of going about it.
End Users:
Investors:
Locality profile: If you are buying for self use, it has to be
where you would like to stay in the long term. The profile
of other buyers and the neighbourhood, facilities and
amenities that come with it, future infrastructure projects
in the area, transport connectivity and state of roads are
all issues you would want to find out before you buy.
Each of these affect the quality of your stay and also
determines the price that you have to pay. If you are
buying for future use, you will be able to compute the
profile of the neighbourhood into the future.
Check out MagicBricks Neighbourhoods.
This category of buyer purchases property primarily as a
means to grow money. Here too, there are multiple
options:
Stage of construction: A new property can be
purchased at three stages – At launch, mid-way through
construction and at the possession stage. Old properties
can be purchased either in as-is condition, requiring
maintenance and repair before use or renovated or redeveloped and ready-to-use.
If you are currently staying in a rented accommodation,
you may want to invest in a property that is ready for
possession soon or you will have the burden of the rental
outflow as well as the EMI on your housing loan.Buying
closer to possession entails a higher value than at launch
but being an end user balance the pros and cons.
Developer: You need to check out the past track record
of the developer. If he has been giving possession on
time, whether the past users are happy with the quality of
construction and services, who will manage the property
in the long term and whether the developer is part of a
network such as CREDAI which brings in a little more
accountability to his profile.
Price Bracket: Your monthly EMI should not exceed
40 per cent of your monthly pay packet or you will find
it difficult to meet the EMIs. (Check out our chapter
on Managing Finance).
At launch: You get the best values and even an
inaugural discount in many cases. You are investing in a
property that is 24-36 months away from possession but
you get the best rates for this. Going by the track record
of the past few years, the risk is that your project may be
delayed and possession comes after another year or
two. This makes a difference to those who wish to remain
invested to the end and exit the project only once
possession is taken and property values have
correspondingly risen.
There are some investors who purchase by paying a 10
per cent value and then pay a subsequent second and
third instalment and then encash the differential. This
money can then be invested in another project that has
been launched and so on. This type of investor books
short-term profits. This is a high-risk-high-return game and
the buyer needs to be very aware of the progress of the
project and the market values. Currently, there are no
formal sources of monitoring the value of property on a
weekly basis. Local brokers are the best source.
Semi-Constructed: Buy a semi-constructed property in a
locality that you want to stay in. This will shorten the
lifecycle of twin payments (rental and EMI). You have to
pay a slightly higher value than if you pick up at launch
but the flip side is that you will be sure when you get
possession.
At Possession: Alternatively, you may want to opt for one
that has already reached the possession stage. Here, the
values are at least 25 per cent higher than while it is
under construction but there is no risk as the property is
ready-to-move-into or for fit-outs.
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Looking for the right property
There are many ways of looking for a property. This
includes:
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Checking out the options available online in property
portals such as MagicBricks.com.
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Check out print ads that appear in newspapers and
magazines.
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Use brokers in the neighbourhood who will be able to
advise you on various options.
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Choose a developer and see what he has to offer.
Online Options: Statistics show that over 80 per cent of
property searches today begin online even if actual
transactions conclude offline. The advantage of looking
online is that property portals such as MagicBricks.com
aggregate the range of properties in the market and
allow you to search for options on the basis of city,
location, developer or even price brackets. Use the
search box to fill in the details of your requirements. You
get a drop-down of the properties that are actively
available in your range. It also gives you contact details
of those who have posted the properties.
Online searches also allow you to compare different
properties on different parameters. This makes it easier to
shortlist the properties. Also, check out floor plans,
building schedules as well as walkthroughs so that you
only need to physically visit those properties that meet
your criteria.
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are able to suggest options across different corridors.
They also offer 1-4 per cent discount which they
aggregate from developers as part of the agent activity.
They are also able to suggest second-sale options in
areas of your choice and your budget. However, India
does not have a system of registration and rating of
brokers and it is best to use a broker who has earlier
given good service to someone known to you. You can
also use online services of portals to find the brokers
operating in that locality or neighbourhood.
Developers: If you have strong preference for which
developer you would like to go with, track the projects he
has come up with in different locations and choose the
one best for you.
The first steps
What are the things to actually look for
when zeroing-in on a house?
Budget, location, type of property, objective of buying
and choice of property are the determining factors for
purchase of property from an end user’s perspective.
Real estate values are governed by demand and
supply. This may vary on a project to project basis. The
projects which see good demand normally do not see a
price correction.
MagicBricks.com also allows you to post queries on
Open House and get them answered by experts. This
gives you access to experts that you would otherwise not
have. Check out the property advice section which
offers advice on various issues from a number of experts.
While buying a house the top questions to
keep in mind are:
Newspaper Supplements: These give property related
information and also carry advertisements of property
launches. Once you have made up your mind to buy
property, it is useful to regularly check out
advertisements. This helps you understand which
locations offer new properties, what are the amenities
offered and also future infrastructure such as metro links,
new transport corridors etc.
Brokers: Many cities are broker dominated. They work as
agents for specific developers or projects or both and
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When to Buy?
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What to Buy?
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Where to Buy?
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How to Buy?
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How much to pay for it?
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Which locality to buy in?
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What type of property to buy?
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How to extract maximum return from your property
investment?
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CHAPTER-1
Realty Check
The Need To Buy Property
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.
01
Own A Home
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. 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 Instalment (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
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All figures in percentage
Cities
Should I take a
home on rent or
should I buy?
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There is no harm in
renting a property
till you are ready
with enough
finances to buy. If
you find a place
where you want to
stay and can
manage to get
enough formal
finance, look at
buying as your
monthly outflow will
lead to creating an
asset. But make
sure your EMI is not
more than 35-40
per cent of your
monthly salary.
Delhi
Mumbai
Chennai
Hyderabad
Pune
Bangalore
Multi-storey Apartment
37
88
30
54
85
51
Single Floor
50
NA
23
4
2
11
Indpendent House
9
11
8
10
5
9
Residential Plot
2
1
34
23
4
23
Villa
2
NA
5
9
4
6
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.
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 safer
and hassle free. You should however, be prepared
to pay enhanced maintenance charges for these
facilities.
Single-floor Units 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 unit 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.
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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:
What is the
difference
between plinth,
carpet and
covered area in a
flat/apartment?
‘
Plinth area is the
total land on which
the flat is built.
Covered area is
the covered
portion over the
plinth and carpet
area is the actual
usage area or the
area within the
walls.
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The location should be within approved/sanctioned master plan.
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The location should have good connectivity.
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Infrastructure services such as power, water supply, drainage and sewerage should
be present.
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Location should be within an active business activity such as educational
institutions, hospitals, IT parks, entertainment hubs, etc.
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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.
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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?
Does investment in
Tier II & III cities
make sense?
Yes capital
investment in Ter II
and III cities makes
sense considering
that maintenance
is not high,
provided it's a loan
free investment
because if the
property rates don't
go up, interest per
month will still be a
regular outflow.
‘
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.
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If you get a quote for 1,000 sq ft, immediately find out if it is the carpet area or
super built-up area.
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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.
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The Need To Buy Property
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Tips to Customers who wish to buy property:
Being an investor
should I keep
invested in one
project or should I
keep re-investing?
There is no scientific
method to
calculate, whether
it is a right time to
exit a property or
not. But one should
exit a property
based on its
holding period,
return on
investment
achieved, cost of
funds, etc.
‘
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Check for proper conveyance of title in favour of the Builder
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Check the license/development right/approvals of the Builder
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Check clear and marketable title of the project
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Ensure execution of proper Allotment Letter/Sale Agreements on your payments
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Ensure whether reputed financial companies approve the project. This will help you
in getting financial loans
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See the tentative layout/building plan
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Verify plinth area of the apartment
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Check carpet area of the apartment and find out if the difference between plinth
area and carpet area is reasonable
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Ask for Occupation/Completion Certificate.
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Ensure the Conveyance Deed is registered after entire payment has been made.
Our panel of contributors for this chapter are:
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Niranjan Hiranandani, MD, Hiranandani Group
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Paras Gundecha, President, MCHI-CREDAI (Mumbai)
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Getamber Anand, Vice President, CREDAI
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Mohit Arora, Director, Supertech Ltd
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Partho Mukherjee, Principal Advisor, MagicBricks.com
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Ananta Raghuvanshi, Director-Sales and Marketing, DLF India
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CHAPTER-2
Selection
Shortlisting Your Property
How to choose the right property?
One should buy property in an area which has adequate basic amenities such as
power, water, sewerage, etc. It is important to do your checks and balances while
deciding on a project. Infrastructure in the area, connectivity, builder’s goodwill and
price of the property are key components a buyer needs to take into consideration.
A buyer should also carefully check points such as the builder’s experience, number
of projects completed and delivered, banking institutions involved and present buy
options available to suit your requirements. It is better you conduct a field survey
before identifying a suitable property meeting your budget and location preference.
06
Search Drivers
What do you think is the best way to buy property?
You can choose options from websites. These days all information, including model
apartments, is available on the internet. After this it is important that you or your
relatives visit the sites of shortlisted properties and experience the brand before
booking.
What is the market checklist before buying a re-sale property?
Some important tips one should keep in mind before buying a re-sale property are:
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Locality: Generally, the price difference prevails for different locations but when it
comes to price rise, it will always be proportionate to its strategic placement which
could be linked to accessibility to highways, markets, business districts and overall
living conditions.
There is a price differential between different properties within the same complex or
even the same building. In India vastu compliant units have a premium on them.
Similarly, East or South facing properties fetch better values than North and West
facing properties. Users pay more for a view in urban settings. In Mumbai, for
instance the price per unit rises as you go higher. If the property is sea-facing, there
is a hefty extra that the buyer has to shell out. In other cities, that are not quite used
to high-rises yet, the premium is for the ground to sixth floor. Higher floors do not
command a premium vis-a-vis lower floors. Pool or park facing properties have a
higher value.
The concept of Preferred Location Charges (PLC) for new properties was based
on these principles. Currently, PLC is arbitrary and there are no fixed norms for it.
There are developers who charge a PLC on every unit in the complex, which
defeats logic.
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Area-wise Demand and Supply: Price of properties within a certain area is also
dependent on the volume of supply. Qualities such as good infrastructure, access
to markets and office and entertainment hubs are common to a locality. However,
the volume of units available for sale in the market also determines the prevailing
price. If it is a new growth corridor, the first project to get off the ground normally
comes at a reasonable price. As more developers launch projects, it becomes an
area in demand and the values keep rising steadily, normally by about 8-10 per
cent per year. A developer may break the norm in an existing locality by launching
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a project that is richer in features and therefore commands a higher value. Once
there are a couple of projects in a locality that command a higher value, it pushes
the base value up.
Developers too, allow investors to make money by periodically revising values of
projects that are still under construction. Once this new value is released, brokers
and underwriters, small and big investors offload their properties at a value higher
than the original sale price but lower than the new sale price. They thus, book shortterm profits. This cycle happens at least two to three times during the
development cycle. End users enter towards the end of the cycle and purchase at
values that are at least 50 per cent higher than the original sale price. However,
with very little holding time, they get to buy very close to possession.
Where can I find
authentic
information about
properties?
‘
You can choose
options from
property websites
such as
MagicBricks.com
which post property
details, including
model apartments.
It is important that
you or your relatives
visit the site and
experience the
brand before
booking.
If you are buying on a corridor where there are several projects, check on price
and specifications of multiple projects to get the best deal. If there is more stock
than demand, you have a better chance of negotiating a better value in the
secondary market.
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Builder/Developer: Check the builder’s track record, his financial strength, his ability
to deliver on time, construction quality and the payment terms, especially in the
case of a local builder.
When is the best stage to buy?
If you have the required finances, ready-to-move-in is the ideal option for a home
buyer. For an investor, a ready-to-move-in property is feasible for business as he can
buy and put it up for lease without any waiting period. Whereas, a house under
construction eases the financial burden wherein you can finance your property
through bank loans and pay less cash upfront. The downside of this type of property is
that possession will happen only after a certain time period. 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.
How do you choose the right type of property?
Depending on the chosen budget, one can decide the type of property. If you are
an end-user, the size of your family, along with the budget can be a determining
factor while choosing the type of house you need. There is a wide range to choose
from today as the market abounds in various housing formats – from 1, 2, 3 and 4BHK
apartments, to studios, villas and row houses, to builder floors and independent
houses. Multi-storey projects and townships with all amenities in one project –
clubhouse, swimming pool, meditation center, health clubs, departmental stores,
schools, cinemas, sports facilities, banquet/party halls are what most end-users are
looking at today.
What are the documents you need to check before buying?
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Check for proper conveyance of title in favour of the builder.
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Check the licence/development right/approvals of the builder.
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Check clear and marketable title of the project.
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Ensure execution of proper Allotment Letter/Sale Agreements on your payments.
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Ensure whether reputed financial companies approve the project. This will help you
in getting financial loans.
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Shortlisting Your Property
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What are the
documents
required for
registering a flat?
‘
Chain of original
conveyance, sale
deeds/agreement
from the seller,
share certificate
issued by the
society in favour of
the seller indicating
membership to the
society, NOC from
the society to the
transfer of the share
in favour of the
purchaser, identity
proof, and address
proof.
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Check the tentative layout/building plan and verify the plinth area of the
apartment. It is advisable to check the carpet area of the apartment and find out
if the difference between plinth area and carpet area is reasonable.
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Ask for Occupation/Completion Certificate.
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Ensure the Conveyance Deed is registered after the entire payment has been
made.
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For buying a property you need to check Deed of Conveyance, Mutation
Certificate (for complete property), Land Registration Status, Sanction Plan, Search
Report and Payment Schedule (for under construction). It is a must that you go
through all the documents relating to the origin of the property, chain of Title,
Occupancy Certificate, sanctions from various authorities dealing with building
plans, fire safety and Completion Certificate.
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For re-sale property, check demand notice relating to renovation, tax dues and
latest receipts of payments made towards various out-goings such as water,
electricity and ground rent.
Which is good for investment – plot or flat?
If you are a long-term investor, say 5-10 years, a plot is the best option. If you want
annual returns to manage a part of EMIs, flats are better.
What is a better investment – city or suburb?
Ideally, it is always better to invest when land cost as a percentage to sale price is 15
to 20 per cent, so that it grows. With land cost being very high within cities, hovering at
approximately Rs 7,000-14,000 per sq m, it is always better to invest in growing
corridors depending on whether you want for pure investment or want to move in.
Our panel of contributors for this chapter are:
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Niranjan Hiranandani, MD, Hiranandani Group
l
Hafeez Contractor, Founder & Principal Architect, Architect Hafeez Contractor
l
Ananta Raghuvanshi, Director-Sales & Marketing, DLF Homes
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Partho Mukherjee, Principal Advisor, MagicBricks.com
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Bopanna Madayya, VP Sales & Marketing, QVC Realty
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S Padmanabhan, VP, Maangalya Developers
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S Ramakrishnan, CEO, MARG ProperTies
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CHAPTER-3
Spot On
Choosing The Right Location
INVESTING IN CITIES
Location Is Key
Should one look at investing in big cities?
When it comes to choosing a location, the consumer looks at connectivity and
availability of basic urban and social infrastructure in that area. Big cities have that
advantage. Land values are very high in many big cities. When investing in a big city,
keep a few things in mind. If you are purchasing for self use, buy in a neighbourhood
that has all the conveniences that you require and also has good accessibility to the
rest of the city. Even in premium localities, if you keep searching, you will find
properties that suit your budget. If you cannot afford the premium rates, look for a
locality on the fringes of your area of choice. This will have all the advantages of
proximity to the main locality but sport lower price tags. Also, look for property that is
being re-developed in city areas. They will be new and come with a maintenancefree period. Older houses come cheaper but make sure you invest in refitting and
refurbishing the old plumbing and electrical lines before moving in if you want a
hassle-free stay.
If you are looking at more open spaces with modern complexes, move to growth
corridors on the suburbs and peripheries of cities. Since, they are built to suit modern
lifestyles and social facilities benchmarks are raised, you will get more add-ons such
as landscaping, cycling and jogging tracks, club houses and swimming pools and
other sports facilities. As they are at a distance from the city centre, they come with
cheaper price tags and construction linked instalment plans.
How much appreciation can be expected by investing in big
cities?
Typically there is a 10 per cent escalation in prices annually across city areas.
If you are investing in a new property in a virgin corridor where development work is
yet to begin, before infrastructure comes into the new corridor, prices are very low.
Once infrastructure work begins prices rise by about 25 per cent. When the property
development reaches mid-way point, there is another 25 per cent escalation in
prices. Six months from completion there is another 25 per cent escalation. Once
possession is handed over there is another 25 per cent increase in rates. This is true for
places where Greenfield development is taking place.
The mid-end and affordable housing segments will record healthy appreciation in
capital values in the short term from a low base. High-value property yields lower rates
of appreciation.
In new growth corridors where development work precedes real estate, the growth in
values is normally about 50-70 per cent. However, these are broad estimates.
There is another return that has not been factored in which is the rental yield. Property
value attains its true potential when the neighbourhood is fully populated. If you are a
long-term investor and want to wait for the property to attain full potential, lease out
the property and capitalise on the regular rental returns. The annual yield is computed
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as a ratio of capital to rental values. Normally residential property gives a simple yield
of 2-4 per cent.
Appreciation largely depends on industrial, commercial and infrastructure
development in the area. Project-specific price increases can be expected across
these markets. This pertains specifically to projects that are being delivered or are
nearing completion.
What could be the possible downside of investing in big cities?
What makes an
area a preferred
location for home
buyers?
‘
Focus on residential
properties that
have potential for
assured rental
yields and capital
appreciation.
Projects close to
workplace
catchments,
industrial hubs and
locations with high
appreciation value
should be
considered.
Land is extremely expensive in big cities. Therefore, the land component in property
prices in big cities is very high. As downtown areas of the city become more
expensive, buyers have to move further and further away to the suburbs and
peripheries to buy property that fits their budget.
Moreover, population in cities is increasing at an alarming rate and demand for
housing is directly proportional to the increase in population. This is a reason for
properties becoming expensive in big cities.
Should one invest in small cities?
In small cities, the appreciation is usually less but so is the initial investment compared
to the metros. However, with major infrastructural developments, cities like Indore,
Coimbatore, Bhubaneshwar and a few others are witnessing growth in prices as well
as returns. Always choose a city that has good economic drivers such as IT, ITeS or
manufacturing hubs. This ensures continued user interest for re-sale when you want to
exit an investment or for rental returns while you hold the property till it is wellleveraged and gives good returns.
Is it good to invest near airports?
Yes, presence of an airport nearby brings appreciation of values to residential
property. For instance, with the new international airport coming up in Navi Mumbai,
Panvel’s future seems very promising. Therefore, the area is attracting lot of
developers and real estate investors. Similarly, Bandlaguda, located in South
Hyderabad, is witnessing immense interest from buyers and investors, especially for
plots. Located close to the airport, Hi-Tech City and Outer Ring Road are the major
advantages of this locality. North Bangalore’s property values rose and buyer interest
peaked after the new airport was commissioned.
‘
Is it preferable to buy in commercial hubs?
The growth prospects of residential real estate is promising in fast growth corridors
driven by manufacturing, IT and ITeS sectors, supported by social infrastructure such
as educational institutions, hospitality and healthcare. These industries drive demand
for houses.
INVESTING IN PERIPHERY AND SUBURBS
What are the advantages of investing in suburbs of big cities?
Proximity to the metro city, affordable property prices, quality infrastructure and
availability of spacious and well managed residential spaces are the key factors
driving the growth of suburbs.
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What are the drivers that make suburbs the preferred
investment hubs?
As city centres become tediously expensive in commercial real estate, secondary
business districts have been evolving close to the suburbs. In Mumbai, Nariman Point
gave way to the Bandra Kurla Complex and also the Andheri stretch. Thane is
expected to become a Commercial Business District in a few years. In Delhi, the
business district has moved from New Delhi to Secondary Business Districts such as
Nehru Place and Bhikaji Cama Place and now to suburban business districts such as
Gurgaon, Noida and Ghaziabad.
Which will give
better returns small town or big
cities?
‘
‘
When it comes to
choosing a
location, look at
connectivity and
availability of basic
civic and social
infrastructure. Areas
that come under
new infrastructure
and industrial
gowth plans are
those that will grow
in the years to
come.
Suburbs are chosen because of proximity to the work place, accommodation that is
within user budgets and good connectivity, schools and hospitals in the vicinity and
therefore a better lifestyle. There is good potential if the developers keep the real
demand in mind. For instance, Noida and Ghaziabad being suburbs of Delhi have
picked up pace when it comes to being the preferred location for home buyers. This
is basically because of availability of affordable homes for the middle and uppermiddle class in these two areas.
What are the advantages of investing in peripheral areas?
Peripheral areas are further from the core city than the suburbs. They form the fringes
of suburban areas and are chosen by buyers because they are cheaper than city
centres and even suburbs.
You can get bigger spaces at affordable prices with modern facilities which are not
available in age old properties within city limits. Rate of return on investment is more
in peripheral areas, depending on the location. You also get more greenery and
open space in the peripheral areas.
What are the disadvantages of investing in peripheral areas?
Lack of accessibility to public transport and connectivity to city centres, underdeveloped infrastructure and sometimes even lack of basic amenities such as water,
electricity, etc as compared to the main city could be some disadvantages.
What should one check for before buying property in
peripheral areas?
Infrastructure in the area, connectivity, builder’s reputation and potential to deliver
and price of comparable properties are key components a buyer needs to take into
consideration. A buyer should also carefully check points like builder’s experience,
number of projects completed and delivered, banking institutions involved and
present buying options available to suit your requirements. It is better to buy at the
beginning of a development cycle in peripheral areas as it will take at least 4-5 years
to become liveable.
Are suburbs and peripheries of large cities witnessing an
escalation in prices?
As expansion of commercial districts into suburbs takes place, it fuels demand for
rental accommodation. Most IT/ITeS/manufacturing facilities demand rental
accommodation and that drives up prices.
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Is it good to invest near Highways and Expressways?
Today, the Expressways and National Highways are where all the property
development is taking place. People look for affordable housing and these can only
be provided along these high-speed transport corridors that offer good connectivity
and affordable options. Highways provide good connectivity to far-off as well as
nearby places thus, bringing appreciation in prices due to increased demand. In
metros, highways and expressways open up new avenues or development zones
which always form a part of a larger master plan. You should keep a horizon of four to
five years while investing around new expressways.
Do infrastructure,
transport and
connectivity drive
real estate prices?
‘
What really opens
up new avenues is
connectivity. If you
look at Delhi-NCR,
Gurgaon is one
area where new
axis corridors are
opening – whether
it is the Northern
Peripheral Road,
KMP Highway, or
the Southern
Peripheral Road.
These bring the
area under
development
zone.
What are the long term benefits of investing in Tier-3 cities?
The benefit of investing in Tier-3 cities is that with very little investment you can
become a part of the growth bandwagon. Lucknow and Hyderabad are two cities
which are worth looking at.
Our panel of contributors for this chapter are:
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Satish Magar, President, CREDAI, Pune
l
Paras Gundecha, President, MCHI-CREDAI, Mumbai
l
Getambar Anand, Vice President, CREDAI
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T Chitty Babu, President, CREDAI, Chennai
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Manoj Gaur, President, CREDAI, Western UP
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Harsh Vardhan Patodia, President, CREDAI, West Bengal
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Kunal Banerjee, President, M3M Ltd
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Sushant Muttreja, Earth Infrastructure
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Sanjay Chawla, CEO, ERA Landmarks
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Ish Anand, CEO, Phoenix Hodu Developers Pvt Ltd
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Bopanna Madayya, VP Sales & Marketing, QVC Realty
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Ananta Raghuvanshi, Director-Sales and Marketing, DLF India Ltd
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CHAPTER-4
Transactor
How To Choose An Agent
What do you suggest is the best medium to buy a property –
through a realtor, a developer or an individual?
It depends on the property you are buying and who offers it to you. In case the seller
is a realtor, it is best to buy through him after doing a background check on his
reputation because he would know what legal checks must be made by you before
putting the money on the table. In case a seller is an individual he must hire the
services of a good lawyer to do a due diligence on title, etc before you write that
cheque. This money spent on due diligence may pinch today and seem
unnecessary but in the long run you will realize that this is a wise decision.
Where to search for a broker?
Numerous real estate agencies are listed in the phonebook and on the Internet. Do
not pick one randomly. Look for an agent in the area where you are planning to
invest.
Broker Tips
How to choose a broker?
Besides simplifying your home search, your real estate agent will help market your
property. Therefore, evaluate the proposals that you get and choose the most
profitable one. Also, use caution while you choose.
l
Find out as much as possible about the agent before hiring his services. Ask for
references. Also, ask family and friends to recommend real estate agents they
have worked with.
l
Check if the agent is licensed and can work full-time on your real estate needs.
l
Ensure that all agreements between your agent and you are in writing.
l
Do not pay money upfront to your real estate agent. This could be a loss to you if
you don’t buy or sell a property with this agent.
How much brokerage should an authentic broker charge?
If you are planning to buy property from a broker, then you have to pay 0.5 to 2 per
cent of the deal value. In lease transactions, the brokerage value is one month’s
rental or 8.33 per cent of the deal.
DEVELOPERS
Can any builders’ association curb errant developers?
There are currently two associations that developers are aligned to – The
Confederation of Real Estate Developers Associations of India (CREDAI) and National
Real Estate Development Council (NAREDCO). Credai has been doing a lot of good
work in terms of making developers sign the pledge for good ethics and evolving a
model code for them to follow. However, in the event of a developer not being a
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member of either association or even not adhering to the rules there is no mandatory
code that can be enforced. In such cases, consumers have to resort to consumer
courts and the legal machinery.
What are the advantages of choosing a reputed developer?
If a builder delays
possession of the
flat, what legal
recourse do
consumers have?
‘
You have an option
either to cancel the
booking and to
take the refund with
interest or you can
move to the court.
Brochure should
have these
provisions.
It is always advisable to go for a reputed agent and developer, especially for
property which is under construction because it covers a great part of the risk. For
built-up property, a bigger area in a reasonably good complex with a good clear title
would definitely be a good buy. With a builder having market standing you can be
assured of the title and delivery. You may end up paying slightly higher, but it is worth
the peace of mind.
How to choose a builder?
Mental notes while buying property:
l
Check for all the legal pre-qualifications and due diligence mentioned earlier.
l
Choose a builder who has a previous track record
l
Ask how many million sq ft he has already constructed and how many projects are
underway
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Check out his past track record for timely delivery
l
If public listed, check out balance sheet and quarterly reports to see how the
company has been faring financially
l
Check if the project you are interested in is a Joint Venture (JV). If so, check out JV
partner as well and the details of the JV.
l
Also, check the neighbourhood market and features and rates in the vicinity of
other re-sale properties. Once you benchmark a property on the corridor, you will
be able to decide if the price asked for is justified or not.
‘
Is there a public website where people can check the
legitimacy of a property?
Every state government has sites for registered documents and you can understand
what all you have to check. Currently, there is no public portal where all approvals are
displayed.
Also, banks and financial institutions that finance your loans would have done due
diligence and can provide you with correct information.
How to safeguard yourself from being cheated?
Registering your property agreement gives you protection. You can even register the
agreement to sell as a provisional document to protect your transaction. However,
once you get the possession, the Stamp Paper is valid for four months only and it is a
good idea to register within four months. An agreement with a blank date is really no
agreement and cannot also be implemented. Read the agreement carefully.
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Besides the per sq feet charges, what are the other charges in
a multi-storey apartment?
The other charges are maintenance, security, registration charges, preferred location
charges, external development charges, internal development charges, service tax,
etc. You must read the fine print to plan your budget properly.
How to find out the built-up area and actual carpet area?
Should one buy
property with
lesser area from a
well-known
developer or go
for a larger area
by a lesser-known
developer?
Definitely the first
option is better. This
is only true for
property which is
under construction
because it covers
a great part of your
risk. For built-up
property a bigger
area in a
reasonably good
complex with a
clear title would
definitely be a
good buy.
‘
The application form and the buyer’s agreement is available at the time of launch in
the builder's office and the clause explaining the super area loading is also a part of
this document.
How can a buyer be protected if the project is delayed?
As far as delay in completion of the project is concerned, it is important to check if
there is a clause for damages provided in the agreement for sale/allotment letter. On
the approvals, you have to ask the developer to furnish copies of the approvals
received from the statutory authorities like the municipal authorities, development
authorities and other statutory bodies.
Can the developer impose 10 per cent payment before
showing documents related to registration, title, ownership &
approvals while booking a flat?
You should agree to such a clause only if your own risks are covered. Ask the
developer if the money is refundable under any circumstances. That means that if
you are not satisfied with the authenticity of the documents or approvals and you
decide not to purchase the property at all, you should get your money back without
going through the formality of a notice and tedous procedural formalities.
Our panel of contributors for this chapter are:
l
Getambar Anand, Vice President, CREDAI
l
Asha N Basu, S Jalan & Co., Solicitor on MagicBricks.com
l
Ananta Singh Raghuvanshi, Director-Sales and Marketing, DLF India
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Ravindra Pai, MD, Century Real Estate Holding
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Sudhir Vohra, Architect & Urban Planner, Sudhir Vohra Consultants
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Rohtas Goel, MD, Omaxe
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CHAPTER-5
Money Matters
Tax Implication
What are the taxes you have to pay while purchasing property?
If you are buying a new property, you have to pay Service Tax, VAT and Stamp Duty
on the total amount of purchase. If you buy re-sale property, then you do not have to
pay any of these taxes.
When is the transaction of sale considered complete?
The transaction of sale is considered complete when either the possession is given or
Conveyance Deed is registered.
When are capital gains applicable and how can capital gain
tax be saved/reduced?
Tax Matters
Capital Gain is applicable when:
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The sold property has been withheld by a person for a period of more than three
years from the date of purchase/possession.
l
The sale proceeds are invested in a residential property which is bought one year
before the sale of property or two years after the sale of first property.
l
The new property is bought after the sale of the first property.
l
Capital Gains Tax can also be saved by investing the sale proceeds in Capital
Gain Bonds.
What is the difference between long-term capital gain and
short-term capital gain?
When a property is withheld by a person for more than three years, it results in Long
Term Capital Gain (LTCG) on sale of that property, on which Capital Gain Tax can be
saved by investing that money in a residential property.
When a property is withheld by a person for less than 36 months, it results in Short Term
Capital Gain (STCG) on which tax cannot be saved. STCG is added to the income of
a person and tax is calculated according to the slab rates of the Income Tax.
How much tax has to be paid in case of LTCG and STCG?
In case of LTCG, 20 per cent of capital gain has to be paid as tax if the money is not
invested in residential property or Capital Gain Bonds.
In case of STCG, the sale proceeds are added to the income of the property owner
and tax is calculated according to the slab rates of Income Tax.
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For the purpose of capital gain, what is considered the date of
purchase - date of stamp duty paid, date of registration or
date of possession?
To save your Capital Gain Tax, the Sale Deed or the Purchase Deed would be the
valid document to determine the date of purchase or the date of sale. However,
when the property is purchased in
instalments, the letter of possession will
be the date for such purpose. Finally,
the answer will depend on the facts
and circumstances of each case.
How much tax will
be paid in case of
short- and longterm capital gain?
‘
In case the
property is held for
more than 36
months and then it
is sold, the resultant
capital gain would
be long term
capital gain on
which the capital
gain tax @ 20%
would be payable.
The short term
capital gain is to
be added with the
other income of
the assessees and
tax will be
calculated at the
slab rates of
Income-tax.
Can the capital gain
amount be used for clearing
loans?
Yes, the amount can be used to clear
loans but in that case the tax on Long
Term Capital Gain cannot be saved.
If a person invests a part of
his capital gain amount in
residential property, then is
the remaining amount
exempted from Income Tax?
No, Income Tax is payable on the
remaining amount unless it is invested
in Capital Gain Bonds.
Can Capital Gain Tax be saved if the amount is invested in a
commercial property, agricultural land or plot?
No, Capital Gain Tax cannot be saved if the sale proceeds are invested in a
commercial property, agricultural land or plot. However, tax could be saved in a plot
if a residential building is constructed within three years of selling the property.
If one sells a commercial property, can tax be saved by
investing in a residential property?
Yes. One can buy a residential property from sale proceeds of a commercial
property to save capital gain taxes.
Can two properties be bought from sale proceeds of one
property to save Capital Gain Tax?
No, one has to invest in one property to save taxes. In case two properties are sold,
one can either buy a single or two properties to save taxes.
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What is the last date for depositing capital gain amount as per
the Capital Gain Account scheme?
The last date to deposit the capital gain amount in the Capital Gain Account is the
last day by which one has to file the Income Tax return.
What are the capital gains and other taxation rules pertaining
to selling and buying land by a Non-Resident Indian?
I am planning to
buy a commercial
shop from my sale
proceeds of a
residential plot.
How much capital
gain tax do I have
to pay?
‘
As you are
planning to buy a
commercial
property, there is
no way to save
capital gain tax.
You will have to pay
the required tax.
Capital gains tax
can be saved only
by investing the
sale proceeds of
any property in a
residential property
- plot or
apartment.
The rules and laws are same for both Indians and Non Resident Indians (NRI). In fact,
the sale proceeds of an NRI from a property in India can be invested in a residential
property outside India to save Capital Gain Tax.
In whose name should a new property be registered to save
taxes?
Taxes will be saved only if the new property is registered in the name of the person
who receives the capital gain, ie. the owner of the previous property. In case the sold
property was owned in a joint name, the new property should also be in the joint
name of the same two people.
How many properties can one own?
One can own unlimited properties.
What are the charges deductible from the capital gain for the
purpose of Income Tax?
If stamp duty and registration charges are paid by you, the same will be allowed to
be deducted from the capital gain amount. Likewise, if you have taken any loan for
purchase of the property for which you have not taken any tax deduction under any
of the provisions of the law, then such interest on loan can also be deducted from
the capital gain amount. Finally, if you have spent any amount to renovate the flat,
the same would also constitute as a deductible amount. Thereafter, whatever is the
net amount of gain, the same will be added to your income and income tax would
be payable thereon, as per the slab system.
Are retired pensioners exempted from paying STCG Tax?
You will be called upon to make payment of Income Tax on the STCG amount
irrespective of the fact that you are a retired personnel. Investing in property too, will
not save any Income Tax for you.
Our panel of contributors for this chapter are:
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CHAPTER-6
Advisors
Legal Perspective
What documents and formalities are required while buying
property?
Documents required while buying property are Identity Proof like Voters’ ID Card,
Passport, Driving License, Ration Card and Pan Card. Be careful of the Sale
Deed/Agreement and also check that the complete property chain is mentioned in
the Deed.
Things you should check at the time of signing the agreement?
Legally right
Here are the important things to check before you sign the agreement with the
developer:
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Specific apartment allotted, tower number and size
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Details of area including super area, covered area and carpet area
l
Costing
l
Date of possession, penalty in case of delay
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Exit option
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Specifications committed
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Payment plan
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Details of Land on which project is constructed and the project approval details
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Possession related charges
How do you know that a project has legal approvals from
authorities?
The best way to check is if the banks are funding the project. Generally, banks
approve projects and start disbursement only after all the approvals are in place.
l
Ensure that the documents of Title of the property you intend to purchase are
clear. A defective Title will create problems.
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Ensure that the building has been constructed as per the sanctioned plan and
deviation, if any, is in the allowed limits. It should not be in a low-lying area or in a
filled-up water body.
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Ensure that the developer has clearance certificates from the Electricity Board,
Water and Sewage Board and other concerned departments.
l
Commencement Certificate and Occupancy Certificate are other important
documents that are necessary while buying property. Check out the genuineness
of the documents with the concerned authorities.
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Ensure Agreement for Sale and Sale Deed, duly stamped, executed and
registered are in your possession. Both should contain fair clauses for both the
parties.
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Is there any difference in the rights of primary and coapplicant of a property?
Firstly, though the term co-applicant and co-owner are often used interchangeably,
there is a thin line that distinguishes a co-applicant from a co-owner. All co-applicants
of property need not necessarily be co-owners.
Can primary applicant sell property without the consent of the
co-applicant?
Legal aspects one
should keep in
mind while
purchasing a
resale property?
‘
For a resale
property, check if
the property is
registered, the
construction date,
is the property free
from debts or
disputes, is the title
clear, check also
for NOCs from
various authorities.
No insurance
premiums are
available for
insuring plots.
If the co-applicant is also the co-owner, then under the Transfer of Property Act every
co-owner has propriety right on the entire property unless there are specific conditions
given in the contract regarding the rights of the primary and the co-owner of the
property. Hence, in the absence of any specific terms, any sale of the property has to
be done with the consent of the co-owner.
Can you buy property without appointing a power of attorney?
You can always buy property without appointing a power of attorney (POA). You can
go about it yourself. You just need to check that all the required papers are in order.
For this, you can also seek legal advice and guidance from a lawyer.
Can you sell property without the original registery?
First, you need to file a police complaint about the lost paper. Then you can apply for
a Certified Copy from the sub-registerar’s office. Also, give a public notice in
newspapers.
Is a daughter eligible for equal share in her parent’s property?
Yes, as per the prevalent law, son and daughter are eligible for equal share in their
parent’s property.
Can a son sell property on his father’s behalf if the latter is
elsewhere and bed-ridden?
Yes, a son can sell a father’s property on his behalf if the father appoints him and
grants him the power of attorney to do so.
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Can a property which has been transferred through Gift Deed
be sold by the person after getting it registered in his/her
name?
Note that an occasion is not required for making a gift of property. The person
receiving the gift can sell the property from day one after receiving the same as a
gift. There is no Income Tax on the gift amount of the property, especially if it is from a
blood relative. Generally, the gift made is irrevocable.
Can a builder be made to pay compensation if he faults on
delivery?
What is important and considered by authorities is your agreement with the builder
and not the brochure that the latter floats. Check your payment terms with
construction stage/s. If you have delayed payment or not fulfilled the agreed terms as
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Legal Perspective
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per your agreement, getting any relief from any judicial agency would be very
difficult. If you are ready to accept the penalties awarded to you for your defaults,
you can demand specific performance on the part of the builder from the consumer
grievances forum.
Can you make a Gift Deed for a property in an unauthorised
colony?
What is a
certificate of Title
and how to
procure it?
Title deed is the
chain of
documents
through which the
vendor acquires
the right, title and
interest in the
property. There are
cases where the
seller mortgages
the property but
does not inform the
buyer, so you must
inspect the originals
before buying
property. For
certificate of Title,
you have to hire
services of a legal
practitioner who
does due diligence
work.
‘
Any self-acquired property having a clear Title can be gifted by the owner to anyone
as per his/her wish. So, if they have any legal evidence of ownership about the
property (not ancestral), they have a right to gift it, if he/she wishes so.
Why do people prefer an 11 month lease agreement for
renting out a residential flat?
An 11-month lease license is preferred by owners as it gives the right to stay only. But,
in an agreement which goes beyond 11 months, the Lease Right Title and interest is
transferred, wherein eviction becomes difficult.
Is it possible to build the third floor above the second floor
without a No Objection Certificate?
You need a No Objection Certificate (NOC) to get your plan sanctioned. You can
build the third floor only if it is approved.
Can a residential property without any ‘Will’ be divided or
sold?
Children will have to mutate their names and sell the property.
Can registery be done by the builder without your presence?
If you have given him the Power of Attorney, the registery can be done by your
builder in your absence.
What are the formalities to be observed by a foreigner
interested in buying property in India?
Formalities would differ based on what you mean by a foreigner. There are different
rules for NRIs, foreigners of Indian origin and foreigners of Non-Indian origin. Also, it
would depend upon the residential status and the kind of property such a person
would wish to buy. Depending on the category of foreigners, there are different
protocols to be followed.
Our panel of contributors for this chapter are:
l
Asha N Basu, S Jalan & Co., Solicitor on MagicBricks.com
l
Subhash Lakhotia, Tax Consultant, MagicBricks.com
l
Dhirajlal Rambhia, Chief Advisor, MagicBricks.com
l
Gaurav Gupta, Director, SG Estates Ltd
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CHAPTER-7
Borrowing Funds
Home Loan
What are the factors you should keep in mind before getting a
home loan?
Smart Credit
The main criteria are:
22
l
Your income and your track record of repaying previous loans – this is obtained
from the Credit Bureau.
l
Your current expenses including other loans you are servicing. The amount of loan
related to the property value.
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Ownership of the property – this means that the lending bank should be
comfortable that the seller has full and complete ownership of the property.
l
Getting a loan depends on the report of the local bank surveyor who will inspect
the property and give his recommendation.
l
Home loan eligibility depends on your ability to pay (ie. based on your salary) and
not on the age of the building. However, the quantum of loan depends on the
age and undivided share too, in addition to your repayment ability.
What are the advantages and disadvantages of getting a
home loan insured? Is it necessary to get property loan
insured?
It is always better to get the property loan insured. I would rather recommend a big
term plan of Insurance Policy to safeguard future problems.
Why does home loan interest rate differ?
The banker’s home loan interest rate differs from bank to bank because of the cost of
funding.
Do you get tax benefits on loan?
Yes, tax benefit on repayment of housing loan is available as per section 80C of the
Income Tax Act, within the overall limit of Rs 1 lakh.
What is pre-EMI interest?
The pre-EMI interest is the interest charged by the bank in respect to the loan
provided by the bank for the period of disbursement of the actual loan to you and
the effective starting of the EMI.
What is the meaning of moratorium on home loan and
capitalisation of interest?
Moratorium: A period from the date of disbursement of loan, during which the
borrower is not required to pay EMI but the outstanding amount continues to incur
interest.
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Capitalisation: It is nothing but compound interest. The interest is added to the
borrowed amount and further interest accrues on that amount. This is done
every month.
How does tenure affect cost of loan?
The tenure of loan may affect the cost of loan depending upon the product profile
and other connected matters. Also, banks currently offer floating rates for a small
period which are then revised according to market conditions. The older loans do not
get the benefit that is offered to new borrowers. Also, if loan rates rise, either the EMI
amount or the tenure of the loan also rises.
With a monthly
salary of Rs 30,000
- 40,000, what is
the amount of
home loan I am
eligible for?
The amount of the
loan you are
eligible to, will vary
on the existing
debts and your
past record of
repayment. You
can get a loan of
Rs 20-25 lakh,
assuming you have
no other debt still
pending.
‘
Can there be flexibility in the EMI to be paid?
Generally, there will be no flexibility in the payment of an EMI. In case the EMIs are not
paid on time, you might have to incur heavy penalty.
Can I pay back the loan amount before schedule?
You can pre-pay the loan amount, though some banks will levy penalty on prepayment. But there are exceptions. For example, the State Bank of India does not
charge any penalty for pre-payment of loan. One should always ask the bank about
the pre-payment rules so that they do not face problems at a later date. Today, it is
wise to go with a bank that allows periodic part pre-payment of loans. This allows you
to keep paying back the principle amount when you get increments or sales
incentives or any other lump sum amount.
What are the documents a bank asks for while approving a
home loan?
The documents required for approval of home loan will vary from bank to bank.
However, the bank would require details of the property as also the details of your pay
slip and copy of two years’ income-tax returns.
Is there any difference in the rights of primary and
co-applicant of property?
An additional person seeking to obtain a loan with a primary applicant is a coapplicant. One reason a potential borrower might want a co-applicant is to increase
his odds of qualifying for a loan or to qualify for a larger loan. A co-applicant is also
desirable if the loan is for purchase of property that will be owned equally by both
borrowers, such as business partners or spouses. If the loan is granted, the applicants
will become co-borrowers, and each will be equally responsible for its repayment.
Can you sell property even when your home loan is
outstanding?
You can sell property even when the home loan is outstanding. In such a case, the
buyer purchasing your home will have to repay your bank. Alternatively, the buyer’s
bank might pay your bank directly through a loan transfer.
What is a reverse mortgage and how does it work?
In a typical mortgage, you borrow money in lump sum right at the beginning and
23
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then pay it back over a period of time using EMIs. Reverse mortgage is a type of
mortgage in which a home owner can borrow money against the value of his home.
Reverse mortgage is the loan given to senior citizens for their monthly expenditures
against their own property. The loan is given till the death of the owners and the
amount is recovered against the property after their death. The National Housing
Bank in India promotes a scheme in which the tenure is 15 years and the owner of
the house and his/her spouse continue to live in it till their death – which can occur
later than the tenure of the reverse mortgage.
What is the eligibility for reverse mortgage loan?
Can I sell my
property with the
home loan
outstanding?
You can sell your
property with the
home loan
outstanding. In
such a case, the
buyer purchasing
your home will
have to repay your
bank. Alternatively,
the buyer's bank
might pay your
bank directly
through a loan
transfer.
‘
Generally, the reverse mortgage loan would be available for senior citizens. The
Reserve Bank of India has prepared draft guidelines for reverse mortgage loan. A
house owner over 60 years of age is eligible for a reverse mortgage. The maximum
loan is up to 60 per cent of the value of the residential property. The maximum
period is 15 years. The borrower can opt for a monthly, quarterly, annual or lump
sum loan.
What should a senior citizen do to get a home loan which is
usually difficult to procure?
With age, the buying as well as repaying capacity goes down. For this reason, banks
do not approve loans for senior citizens. In case a senior citizen needs loan, they
should consider having a co-applicant who has the capacity to take up the
responsibility of the loan payment. You can also take loan with the property as
collateral.
How does an individual investor raise money to invest in
commercial property?
We all know that there are funding issues for commercial property. Housing is
encouraged under all government and bank policies, so commercial investment is
primarily through self-funding or instalment plan with the developer.
How can I raise a loan against a property owned by someone
else?
‘
You can mortgage a property owned by someone else, if the owner of the property
becomes a co-borrower and guarantor for the same. The procedure requires mutual
consent from both the parties.
What is the loan procedure an NRI property buyer has to
follow?
The basics - such as income, financial obligations and repayment track record
remain the same, though the mechanics may be slightly different. Some banks may
insist on having a resident Power of Attorney in India.
Can multiple people get a collective loan on one property?
Usually, this is possible when all applicants are members of the same family. In
certain cases, when non-familial members are willing to get home loan, it is possible
to get it from public as well private banks subject to the individual eligibility. However,
for this the property should be jointly owned.
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In the current economic scenario, is it better to opt for fixed or
floating interest rate?
Experts would advice floating rate. Housing loans have lowest rates of interest.
Floating rates are supposed to come down as and when the cash flow increases. The
correct and the current fixed and floating interest rate on housing property loan can
be known from your banker. Enquire from your bank and make it a point to visit two to
three banks to get the best rates.
What are the
documents
required to get a
home loan
approved?
The documents
required for
approval of home
loan will vary from
bank to bank.
However, the bank
would require
details of the
property as also the
details of your pay
slip and copy of
two years incometax returns.
‘
How long does it take to get the application processed and
the loan sanctioned?
The time line depends a lot on the nature of the property and applicant. You should
wait for two weeks at least.
Can I take a home loan for construction in one city while
working in another city?
Yes, it is possible that you are working in a particular city while procuring home loan for
construction of your house in another city. It is legally allowed for you to purchase
property in another city. Domicile is not a pre-condition to buying property
any more.
Our panel of contributors for this chapter are:
l
Ish Anand, CEO, Phoenix Hudo
l
R Murugesan, CEO, Shriram Properties
l
Manish Sinha, Consumer Assets, HSBC India
l
Kaustuv Roy, ED, Cushman & Wakefield
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Dhrirajlal Rambhia, Chief Advisor, MagicBricks.com
l
Subhash Lakhotia, Tax Consultant, MagicBricks.com
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CHAPTER-8
Handle your Finance
Managing Finance
Is real estate a better investment as compared to the stock
market?
Money matters
The real estate market is similar to the stock market, with its peaks and troughs always
seeming to make perfect sense in retrospect. Also, both markets reflect the economy
of the country and offer good investment opportunities. However, the risks must be
understood along with the opportunities. Realty index will appreciate five times, but
not the stock market.
26
Investing in stocks:
The profit margin inherent in stock investment has always been higher when
compared to other asset classes. Stock market investments offer advantages such as
liquidity and flexibility, which real estate does not. Stocks also offer growth rates that
the real estate market can rarely match.
Investing in real estate:
Home ownership is the most primary form of real estate investment. Unlike stocks, real
estate is a tangible asset that provides for greater psychological comfort, security
and satisfaction. Also, the return on investment for real estate is reasonably consistent
because of the phenomenon of property appreciation. Stock markets are far less
predictable.
What per cent of total income should a person in the age
group of 25-39 years invest in real estate?
At a young age, you can invest 300 per cent of your total assets by borrowing for your
first house. Experts believe that your total monthly instalments should not exceed 3035 per cent of your gross monthly income. This is a good starting point and you
should work towards reducing that number over a period of time.
What per cent of total income should a person in the age
group of 40-60 years invest in real estate?
As you retire, the capacity to earn as well as pay back reduces to some extent. By the
age of 40-45, you should bring your investment down to 30 per cent of your total
assets so that the going gets easy and you enjoy your sunset years as much as you
enjoyed your youth.
What is the best way for a first-time buyer to set a budget to
purchase a home?
Many new home buyers get excited and forget to consider the amount of cost they
need to pay to acquire a home. Over-expectation from your income can put you in
a financial stress. Your EMI should not be more that 30-40 per cent of your take-home
salary.
If the property markets in your city are very expensive and you cannot afford the
property that you want to stay in, invest in whatever is affordable even in the periphery
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of the city. It should be from a good developer and fit your budget. Also, consider
that at the launch stage and when you exit, you get some value appreciation. That
becomes your seed money. Most banks allow you to exit one loan and take another.
So, you can sell off the smaller priced property in a peripheral location and use that
as seed money to buy where you would like to stay. Else, you will always be behind
the market in terms of finance.
When is the stamp duty supposed to be paid?
Is there a formula
to calculate how
much loan I
should take to buy
a house?
‘
There is no set
formula but
statistics show that
if your home loan
Equated Monthly
Instalments (EMIs)
are more than 40
per cent of your
income, you may
find it difficult to
pay back the
loan.
In general, Stamp Duty is to be paid every time there is a transfer of ownership. It is
calculated on the basis of the total value of your property. The amount to be paid
varies from city to city.
What are the factors that one should consider while
calculating the home loan instalment per month?
For calculating the monthly home loan instalment, consider your monthly family
income – now and expected in the future. Family income includes yours as well as
your parent’s or spouse’s income. Secondly, your family’s current expenses, including
all other loans you are servicing, are very important to be considered.
Do not spend more than 50 per cent of the total income on a monthly EMI.
Why do banker’s home loan interest rates differ?
Most often your own bank (e.g. where you have your salary account and most
banking relationships) will give you the best interest rate. Also, banks have preferred or
invitation pricing and you can benefit from these special schemes.
Can I enter into a sale agreement with any buyer without
clearing the mortgage? What will be the modality of the
transaction?
Remember to value the said property which is mortgaged to a bank. In the first
place, you will be required to clear the loan of the bank and then proceed to register
the property in the name of the buyer. It is also possible that you, the new buyer, as
well as the bank execute the agreement simultaneously.
Our panel of contributors for this chapter are:
l
Niranjan Hiranandani, MD, Hiranandani Group of Companies
l
Getambar Anand, MD, ATS Infrastructure Ltd
l
Kaustuv Roy, ED, Cushman & Wakefield
l
Dhrirajlal Rambhia, Chief Advisor, MagicBricks.com
l
Subhash Lakhotia, Tax Consultant, MagicBricks.com
l
Ish Anand, CEO - Phoenix Hudo
l
Rohtas Goel, CMD, Omaxe Ltd.
l
Amit Grover, National Director, DLF Offices Business
l
Manish Sinha, Consumer Assets, HSBC India
l
R Murugesan, CEO, Shriram Properties
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CHAPTER-9
Profit on property
Return on Investment (ROI)
What would be a safe and sound approach to buy property?
Do your complete research on the Web and physical survey of the projects. Invest in
projects which are at least 25-30 per cent complete as this will be comfortable in
terms of approvals. Brokers may sometime offer better rates than the developer’s
sales team. Bank approved projects are preferred since they give comfort in terms of
the approvals.
Price it right
What kind of return should you expect from your purchase after
two years?
28
It is impossible to predict a return in two years. Property buying as an investment must
be looked at in terms of long-term holding capacity. While in the last two years,
certain properties in metros have gone up by 20-80 per cent, in some cases that
cannot be an indication of what the future holds. An exit after four years usually yields
good returns.
Is a pre-launch project with a good discount better than a
newly-launched one in terms of investment?
Pre-launch is a great time to invest but is fraught with risk. It is purchased on the
assumption that while the developer has not received all his approvals, it is expected
that these will come through. The problem arises if the approvals are delayed
inordinately. If you have an appetite for risk, you can go for pre-launched property.
There is high risk but the return even in the short term can be very rewarding if the
approvals come soon. If you have missed the opportunity, a newly launched project
by a reputed builder in a good location can also be considered. There is lower risk in
this property.
How to estimate growth in the value of land in future?
Infrastructure development has to keep pace with the swanky townships being
planned in most cities. If water supply, electricity, safety or security, law and order,
road infrastructure, etc are progressive, we can only expect appreciation in the land
value.
Which location – city, suburb or periphery – ensures best return
on investment?
Identifying a suitable location is one of the most important tasks of buying a property.
Users normally question about choosing best location to reap good returns on their
investment. Connectivity of the property with city and other location plays a vital role
in boosting the re-sale value. Buyers should ensure that the property is located in an
ideal area with good connectivity to the bus station, railway station, airport and super
market etc.
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Is it advisable to sell an apartment and buy a plot instead?
There are a few points that you will have to keep in consideration before selling your
apartment. The advantage of a plot is that it will appreciate more. However, if you
are looking for a rental yield, an apartment is better. The rental values of independent
houses are generally less than apartments.
Is a 1BHK apartment good for investment and rental returns?
What is a better
investment —
residential or
commercial
property?
‘
If you are planning
to buy for self use in
the future, then you
should buy
residential property
and if it is for
business go for
commercial
property. If you are
going for residential
property, it is better
to invest around IT,
ITeS, manufacturing
hubs that generate
good rental
demand.
Buying a 1BHK unit in any project is an investment which gives reasonable returns on a
small investment along with an opportunity of an increase in the capital value of
these properties. Investment in such property near any commercial space is likely to
give good returns. A 1BHK property is always rented out easily. In many cases, the
developer arranges a tie-up with an agency, which maintains the property and also
leases such property with corporate companies. This type of arrangement gives good
and assured returns.
What is the best investment in the Rs 50 lakh bracket that will
ensure good rental returns?
Invest in commercial property to get good rental returns, especially those with ready
infrastructure and connectivity.
Is it wise to invest in Panchayat-approved land or is
government approval mandatory?
There is a risk of not having access to civic amenities like roads, sewage, street lights,
etc with Panchayat approved lands. If the projects are not approved by the
municipal government, one may not get a bank loan.
Considering high profit margins of developers, is there any
scope to gain from real estate investments?
High profit margin is only possible if land has been purchased historically at a very
good price. Presently, in competitive markets, the buyers are getting fantastic deals
and the developers are competing for market shares.
Our panel of contributors for this chapter are:
l
Niranjan Hiranandani, MD, Hiranandani Group of Companies
l
Kunal Banerji, President, M3M Group
l
Ananta Singh Raghuvanshi, Director-Sales and Marketing, DLF India
l
R Murugesan CEO, Shriram Properties
l
Shishir Gupta, Expert on Open House, Magicbricks.com
l
Ashwani Prakash, ED, Paramount Group of Companies
l
Bopanna Madayya, VP-Sales & Marketing, QVC Realty
l
Anuj M Bhandari Director, BU Bhandari Landmarks
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Gaurav Gupta, Director, SG Estates Ltd
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CHAPTER-10
Reap the benefits
Exiting the market
On what basis should I decide to sell my property?
Your decision to sell your property depends on the following factors:
Property market in your city/locality: The residential property market is locationspecific and the prices will vary for different areas.
How soon do you need the money? Do not sell your property in a hurry if you do not
need the money urgently. Getting the best deal may require patience or even spend
some money to add value to your house. You also need to consider the rental return
from the property as it will be a source of steady income.
Winding up
Price it right: The biggest mistake sellers make is in pricing their property too high. The
best way to determine the ideal price for your property is to check with brokers in the
locality or by listing it on property portals online.
30
Consider the taxes: How much you actually get after you sell the property will
depend on how long you held the investment. If you sell your house within three years
of buying it, you will lose the tax benefits.
In case of a mortgaged property: Selling a house that has an outstanding loan
requires a lot of documentation. So, try to pay the loan and then sell the house.
How do I sell my property?
Selling property is much more difficult than buying one. Unless you know of people
who are willing to give a good price for your house, a property broker may be your
best bet. Brokers usually have a wider reach and are more clued-in to the local
property market than an individual seller. You can also list your property online.
Property portals such as MagicBricks.com allow individual sellers to list one property for
free. It is also worth listing as a nominally paid service as the portal offers additional
services for the fee.
What is considered as the right time to exit a real estate
investment?
Real estate is not a ‘get rich quick’ investment route. It pays off only when one invests
in a property for at least 3-4 years. Even with a long-term investment horizon, one
needs to have a clear exit strategy in mind before one buys real estate as an
investment.
How to make a safe exit from real estate?
Selling the property as fast as possible in challenging market conditions is a wrong
investment strategy. The only safe and consistently profitable route is long-term
investment. This is why it is extremely important to know what will happen a few years
down the line – to the property market in general, the location and property in
particular and one’s own finances. A savvy real estate investor must know unrealised
gains are meaningless and when to take money off the table.
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What all things should be kept in mind before exiting the
market?
The property investor must decide on the investment horizon (period between
purchase and re-sale). A detailed analysis has to be done on the tax impact of
exiting a property investment. Expenses such as legal fees and brokerage expenses
need to be factored in pre-payment penalties for early loan closure and stamp duty
impact for the buyer must be considered. Irrespective of the timing, a property
investor must always focus on having the highest-quality asset base. This means the
quality and specifications of the building, the specific location, the depth of the
infrastructure and accessibility.
What is considered
the right time to
exit a real estate
investment?
‘
Real estate pays off
only when one
invests in a property
for at least 3-4
years. There is no
scientific method
to calculate but
one should exit a
property based on
its return on
investment
achieved and cost
of funds.
Is the commercial market bleak as compared to the
residential market?
Commercial property market has been hit more than residential property due to
slowdown in industrial growth. Surplus commercial realty space has also put pressure
on lease rental values. Commercial projects in Tier-2 cities have been negatively
impacted by escalation in construction cost and weak demand for commercial real
estate.
What documents are necessary if one wishes to sell off his
property?
The main documents required to sell a residential property are the housing society
share certificate and the sale/purchase deed of the property. The Sale Deed confirms
that the land is in the name of the seller and that he has the right to dispose it off. If
the property has changed hands more than once, the buyer may also ask for a copy
of the previous deeds, in order to confirm the authenticity of the deal and property.
What are the documents I need, to sell a property in a housing
society?
The housing society share certificate and the sale/purchase deed of the property are
the main documents required to sell a residential property. If the property has been
sold and bought multiple times, a copy of previous deeds may be required to prove
the authenticity of the deal. Other than these, copies of Stamp Duty and registered
house documents will also be needed. In case of property being mortgaged, these
papers will be held by the bank and you can use a photocopy of the required
documents to initiate a deal. Depending on the kind of property and ownership,
some more documents, such as a No-Objection Certificate from the housing society
and a documented consent in case of jointly owned property, may be required.
Can a Non-Resident Indian sell his property in India? Who can
he sell his property to?
Yes, an NRI can sell residential or commercial property in India. He can sell to:
l
A person resident in India – the definition of resident in this case will be as per
Foreign Exchange Management Act (FEMA)
l
An NRI
l
A Person of Indian Origin (PIO)
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However, an NRI can sell agricultural or plantation land or a farm house only to a
person who is resident in India and a citizen.
Can an NRI sell and repatriate proceeds of property received
as a gift?
Yes, an NRI can sell property received as a gift. The sale proceeds of such property
should be credited to NRO account only. From the balance in the NRO account,
NRI/PIO may remit up to USD 1 million per financial year, subject to the satisfaction of
authorized dealer and payment of applicable taxes.
Can an NRI/PIO/
Foreign National
buy property in
India?
Yes an NRI/PIO/
Foreign National
can buy Property
in India.
• NRIs can own
non-agricultural
NA land only.
• If you have
agriculturist
relatives you can
buy agricultural
land, in the name
of your blood
relatives.
‘
Our panel of contributors for this chapter are:
l
Anuj Puri, Chairman & Country Head, Jones Lang LaSalle, India
l
Kunal Banerji, President, M3M Group
l
Vikas Vasal, Executive Director, KPMG India
l
Niranjan Hiranandani, MD, Hiranandani Group of Companies
l
Kaustuv Roy, ED, Cushman & Wakefield
l
Sunil Mantri, CMD, Sunil Mantri Realty
l
Ramesh Bhojwani, a Mumbai-based financial expert
‘
32
Exiting the market
A C K N O W L E D G E M E N T S
CONTACT US
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l
l
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OPEN HOUSE EBOOK TEAM
Content & Research: l E Jayashree Kurup l Indrani Rajkhowa Banerjee l Shradha Goyal
Proofing: l Renu Arya
Layout Design: l Harsha Khattar
Cover Page Design: l Rahul Nair
Marketing: l Raghav Krishnan