This article has been written by Anshuman Magazine, chairman and managing director of CBRE South Asia Pvt. Ltd.
This is a good time for home buyers in the country to consider investing in property, since price points are competitive and a host of payment schemes and discounts are on offer from development firms. While it is always prudent to take property purchase decisions on the basis of one’s financial readiness, it is also important to consider that currently the residential market is best suited for home buyers.
Although the yield on residential property may be low, in terms of capital appreciation residential properties appreciate at a far better rate over other realty asset categories. The other advantage of investing in a housing property is that one can avail of mortgages at a relatively low interest rate.
Of dream homes and home loans
The standard age for considering a home purchase in recent times has come down to the late 20s–early 30s bracket, since it becomes easier to get home loans at a young age. To begin with, it becomes easier to identify a property that you may be interested to purchase, once you receive an in-principle approval for a home loan from the bank. This is typically assessed by the bank on the basis of your income and your ability to repay the loan.
In addition, this is a usual list of key documents required for a standard home loan application:
- Completed loan application
- Passport-size photographs
- Proof of identify
- Proof of residence
- Proof of business address for non-salaried individuals
- Statement of Bank Account for last six months
- Signature identification from present bankers
- Personal Assets and Liabilities statement
Ideally, a home loan should be applied for only after having taken into account all associated costs, such as legal charges, pre-payment charges or payment penalties. The home buyer also needs to ensure that the property has been valuated properly, as there is a valuation fee levied by the bank in case that has not been done.
Typical costs associated with buying a home include:
- Cost of the saleable area in square feet
- Basic price per square feet; and floor rise charges, if any
- Car parking charges
- Legal charges
- Piped gas charges, if any
- Electricity board charges (EBC) charges and sewage treatment plant (STP)
- Infrastructure fees (Rs.25/sq. ft.)
- Club house membership fee, if any
- Maintenance charges
- Corpus fund chart
- Service Tax and VAT
- Undivided share of land (UDS) Registration charges (guideline value)
An ideal or ‘good’ candidate for a home loan would be someone with a good credit rating in terms of having duly filed all income tax returns (ITR), and having paid all credit card and other relevant bills, without any defaults. These practices go into creating a good credit rating for a home buyer, when applying for loans.
While applying for a home loan, you also need to have clarity on aspects such as lock-in clauses, exit penalties, and processing fees, apart from the interest rate on the home loan sought. Processing fees are an area for which banks can generally be negotiated with. Ideally, a home loan should be applied for only after having taken into account all associated costs of purchasing property. Most non-banking financial companies (NBFCs) and banks typically require you to make a 20% down payment, while a home loan for the remaining 80% is provided to you.
Necessary documentation
There is a fair amount of documentation required when purchasing a home. Here are documents that need to be scrutinised before buying any property:
- Legal right of the holder of the land in government records (freehold);
- Title deed of the land (the original document must needs be verified)
- Property Tax receipt and bills (particularly the latest receipts)
- Encumbrance Certificate (for a maximum of 30 years)
- Survey sketch of property, land records, chitta copy, adangal copy, patta, etc., as applicable.
Engaging a property consultant
In many cases, it might be a good idea to engage a property consultant, who should be able to help you zero in on the home best suited to your needs. You should be able to assess whether you’re being pushed into buying a property that does not meet your requirements. What a property consultant does, however, is offer you with an extra line of checks, while buying a property. They have a better insight of the property market, including housing projects and development firms. In case of red flags, they are probably better placed to spot them first. They are also an asset in terms of the slew of documentation and legal procedures required in the entire property purchase process.
Thereafter, it will be time to price it right. With the help of your property consultant, you should typically arrive at an average price of the current going rates of similar properties in the vicinity. You may consider offering the lowest price thereafter, to begin with. Keeping your larger social and financial commitments in mind, your equated monthly installments (EMIs) should not spill beyond approximately 45% of your monthly earnings.
Finally buying your dream home
Once you’ve identified your dream home, and your loan is likely to come through, you should physically inspect the property. It is very important to carry out a home inspection to ascertain the actual physical condition of the project and/or property. It is necessary to understand the quality of construction, and your window of opportunity to spot related issues, such as leakages, damages and other discrepancies.
