Several routes to owning a home

Home purchase is essentially a choice between ready to move in property or under construction.

Written by Adhil Shetty | Published:September 10, 2011 3:31 am

Home buyers are always on the lookout for the best deal they can find with the resources at their disposal. Real estate prices are seeing a downward trend and buyer interest is gaining momentum.

For most prospective home owners,the process of buying is,leaving the excitement apart,a tedious task. While the excitement of owning a house pushes them harder to expedite the process,the task of going through an enormous amount of details is quite frustrating.

It is,however,necessary to undergo the process,for any negligence on the crucial issue of due diligence can cost one dear.

In this article,we will evaluate some of the options that home buyers have and how they can choose the best one based on their requirement.

Property Under construction

This is the most popular way of buying a home. A builder announces a new housing complex and advertises. All of us have,at least once in a day,received pesky text messages advertising some or the other project. The goal of the builder is to sell as many flats as possible before the housing complex is built. It is a fact that more than 75 per cent of the flats of known builders are booked even before a brick is laid.

The advantage

Cost: Buying an under-construction home is cheaper compared to buying the one that is already built or about to be completed. The cost difference is significant. In the Delhi-NCR area,a ready to move in flat with 2 bedrooms that costs home buyers about Rs 40-50 lakh can be bought anywhere in the range of Rs 30-40 lakh while under-construction,depending on the location. On an average,the difference is anywhere between 20-40 per cent. This is a big difference for the majority of home buyers.

Low EMI: The EMI is paid as the work progresses. The initial EMIs are low in the case of an under construction home.

Win-win situation: Buying an under construction home is a win-win situation for both buyer and seller. The seller gets a ready set of customers even before he starts laying the foundation while buyers get the cost benefit.

High returns: Since the prices are lower,you may get higher returns on the under-construction home. This kind of return is not possible in a ready to move home. However,high returns come with high risks. To give an example,people who invested in Noida authority plots earned high returns while people who invested in Samshabaad in Hyderabad are still waiting for the area to pick up.

Caution Points

High risk: All is not so well with buying into projects underway. There have been cases where builders could not complete the housing complex and buyers lost money. Real estate sector is full of such stories where the builders could not complete the property because of cash crunch,high interest rate,and high raw material costs.

The market outlook may also change like how it happened in Samshabaad in Hyderabad. Samshabaad was supposed to host the largest Infosys campus,a chip factory,few engineering & medical colleges,banks etc. but none of it happened due to the 2008 crisis.

Promises not kept: This is another common complaint the home buyers have. They usually do not get what was promised in the documents. What is distressing is the carpet area that buyers get once the home is constructed. The carpet area is usually 70 per cent of the super built area. The illusory swimming pool may never come up.

Buyers should also check the past history of the builder. If the builder has done great in the past,chances are very high that he will repeat the performance. However,if the past is chequered,rest assured history will repeat itself. Hence the track record of the builder is of paramount importance. Buyers should clarify loan tenure and how the money will be released to the builder. Typically it is completion based.

Ready-to-move property

This is a new trend observed in home buying since the last couple of months. A good number of home buyers are slowly shifting towards ‘ready to move’ homes than buying an under construction project and waiting for a couple of years to get possession. The reason is not hard to guess. Since the economic slowdown in 2008,there have been many cases where builders could not complete the housing complex and buyers had to wait helplessly.

The advantage

Immediate Availability: The new home is ready and all that buyers have to do is to pay the money,complete the necessary formalities and move in.

EMI or Rent,not both: In the case of ready to move home,you pay just the EMI. In case of buying under construction home,you have to pay the EMI and live in a rented apartment till you get possession.

You get what you see: Since the housing complex is ready and there are people living there,getting feedback about the area,maintenance,locality,shopping centers,and utility centres become easy.

Caution Points

The price of a ready to move home is about 25 per cent higher than that of one under-construction.

Ready to move homes are generally more expensive but do not take this as gospel. Do your research; speak to a few people in the locality to find out the fair value of the home.

Group Buying

Since the last couple of months,many companies such as http://www.groupbookings.in have encouraged home buyers to form a group and thus increase their bargaining power. Once the group is fairly big,the group buying companies will negotiate with builders on their behalf and get extra discounts. Essentially these companies act as a mediator between the builders and home buyers. For builders,giving extra discounts is not a problem because they are saving big on advertising.

The Advantage

Group buying empowers home buyers to negotiate better with the builder. The group home buyers usually get a better discount than what they can get individually.

Caution Points

In group buying,an individual buyer does not make much difference and hence the interest of the group takes priority over the interest of the individual.

The down payment usually is higher. The buyers should study the documents carefully. Don’t assume that someone is reading these documents. You will be surprised to know that everyone has the same assumptions.

You need to be patient. The group buying company has to build the group,and negotiate the price with the builder for additional discounts. These activities take time.

Buying run-down homes

This option is not yet popular in India but slowly picking up. Essentially buyers choose to buy a rundown home at dirt cheap prices. Once the house is yours,you can fix it and spend some money to get it up and running. This can fetch a better value in the market and the investor can make a killing.

The Advantage

The houses are much cheaper even when you add the cost of repairing the house. Run-down houses are generally row houses and you get the land with it too.

Caution Points

The look of run down houses can be deceptive. You may have thought how much it would cost to renovate but when you start to repair it,it may exceed your estimates. Unless you have experience in this field,do not venture into it. Also,it is better to enlist the help of a competent advisor before venturing out in this domain.

Now coming to the actual choice. If you are ready to wait,can take medium to high risk,and do not care much for location,you can go for booking an under-construction home. You can even go for group booking if you wish to stay with people of your social standing.

If you cannot wait and do not want risks in projects under way,try to find a ready to move home or go for a group buy.

— Author is CEO,Bankbazaar.com

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