FAQ

It might sound a no-brainer, but many home buyers get this wrong and bite off more than they can chew. The home loan EMI should be around 40% of your net household income. But that is if you don’t have other loans. A high EMI outgo can put your household budget under pressure. If the home loan EMI accounts for more than 50% of the net household income, other goals will have to be downsized or junked altogether. Banks have their own methods of calculating your affordability.

Like many other products, a house also has ancillary costs that need to be paid for. The price advertised in the media is usually the base price of the property. The add-ons are usually kept hidden till you sit down with your cheque book. Many builders will slip in charges for facilities that you thought were free with the property.

- It might sound a no-brainer, but many home buyers get this wrong and bite off more than they can chew. The home loan EMI should be around 40% of your net household income. But that is if you don’t have other loans. A high EMI outgo can put your household budget under pressure. If the home loan EMI accounts for more than 50% of the net household income, other goals will have to be downsized or junked altogether. Banks have their own methods of calculating your affordability.

Like many other products, a house also has ancillary costs that need to be paid for. The price advertised in the media is usually the base price of the property. The add-ons are usually kept hidden till you sit down with your cheque book. Many builders will slip in charges for facilities that you thought were free with the property.

The old saying that “fools build houses and wise men live in them” has been proved incorrect several times in the past. But the high property prices across cities mean that renting is certainly a better option now (see graphic). Let us look at a hypothetical family planning to buy a house in Mumbai. A 2-BHK house will cost them close to Rs 1.2 crore.

Planning to buy a house but feeling unsure? Before you take the plunge, just calculate the home loan EMI you will have to pay every month. If you take a loan of Rs 50 lakh at 10% for 20 years, the EMI works out to Rs 48,250. Now start putting away that amount in a short-term debt fund or recurring deposit. In 10-12 months you will figure out whether you can really afford the EMI. If you find it difficult to put away that amount every month, imagine your situation if you had actually bought the house.

In the early 2000s, when home loans were available at 6-7% and property prices were galloping at 20-25%, it made eminent sense to invest in an upcoming apartment project. You could book two properties and sell one of them after a few years for a profit big enough to repay the entire loan taken for the first property. Those days are now history. Property prices are now appreciating at a slower pace. In some markets, such as Noida and Greater Noida in the National Capital Region, prices have even come down in the past 12-18 months.

Stagnant property prices and high EMIs are not the only problems that potential home buyers should be wary of. Their home buying plans can have serious implications on other financial goals, such as saving for their children’s education and marriage and their retirement.

Real estate is not a liquid investment. You can’t sell it at short notice, nor break it up into parts. Invest in it only if you do not need that money at short notice. This also means one must have an emergency fund to take care of 3-6 months’ expenses. If you plan to use your emergency funds to pay the downpayment, you could be making a big mistake. A financial emergency can put you in a terrible spot, with the home loan EMI exacerbating the problem.

We live in a society that assigns great importance to physical assets. Owning a home is seen as a sign of achievement and stability. However, buying a house too early in your career can hamper your prospects. You tie yourself down to a location at a time when job opportunities are mushrooming across the country and even overseas. The prohousing lobby will argue that you can always move to another location and live in a rented house.

Many investors in property are looking for two streams of income: capital gains from the rise in its value and rental income from the property. But don’t get carried away when you calculate the potential rental income from your property. Many investors think that the future rental income will be enough to pay their EMIs. However, the rental yields (the annual rent received from the property as a percentage of the value) are very low in Indian cities.

We have covered this aspect earlier but this is different from a short-term contingency plan. The Job Security index of ZyFin Research has steadily climbed in the past 12 months. But have you factored in the possibility of something untoward happening to you? Is your family prepared for the worst?

Delayed projects are no longer news. According to PropEquity, the average delay in the Mumbai Metropolitan Region is 25 months. In the worst hit Delhi NCR region, it is 33 months. Delays can be particularly debilitating if the buyer had expected EMIs to replace the monthly rent payment. If the project gets delayed, they have to fork out money for both. Even those who buy property purely as an investment are hit. They are paying EMIs but there is no sign of rental income.

PAY ONLY 20% NOW: The builder offers to pay your EMIs for the remaining 80%. Actually he makes you take a loan on his behalf at 10%. PRICES GOING UP: An old trick, this is used to make you sign up in a panic. Prices may come down further as debtridden builders begin to sell. ASSURED RENTALS: Builder pays rent to you till the project is ready. Actually, he is paying you 12% interest on the money you gave him. SAMPLE FLATS: Sample flats look very big and spacious but that’s because the walls are thinner and the furniture used is smaller. FREEBIES WITH FLAT: A free AC or a modular kitchen is worth only Rs 30,000-50,000. Don’t let that influence you to invest Rs 60-70 lakh in the flat.

Check if the property is free from any litigation stated by third party. Ask the builder for the proof and other details if the property is completely free from litigation. This is because many residential and commercial project construction comes to standstill.

When the project is under-construction, do a random tour to know the quality of the product used for the apartment. You can have a word with the developer regarding the products and brands used on the work site. Arm yourself with much information about construction products.

The builder may have printed the final cost of the flat, but what about additional cost that levied due to tax. With the introduction of GST, real estate market has also changed and has affected the cost of the project. So sit with the developer, check out the price added for registration fees and other costs. Make sure you're armed with right calculation to ask legit questions to the seller.

If you're considering buying a property in Gated Community or a villa, then asking about the built up area is important. The builder charges on a rate per square-foot. So you should know the cost of per square foot you'll be paying. The built-up area is the carpet area of the home. Builder cannot charge on super area as per RERA.

This is the major question to ask by the buyer to the developer. There have been many cases where the project gets delayed indefinitely, which brings a big loss to the buyer in terms of paying EMI. However, with the introduction of RERA, the developer has to handover the project on the given deadline to avoid any kind of action later.

As the project is under construction, you can demand for a look of sample flat that matches to your flat requirement. The living room area, bedroom, WC, Kitchen and other areas are important to consider. You can check the quality of construction, material used and is the area same as mentioned in the booklet.

Occupancy Certificate and Completion Certificate both play an important role. OC is issued to ensure that the property is handed without any problems pertaining to bank loans, whereas completion certificate is offered once the project is complete and is issued by Municipal authorities.

Every developer has different payment plans which are important to consider. Builders generally have tie-ups with bank and financial institutes to offer loan under low interest. So you can compare the interest rates of banks.