guide to buying a house

7/18/2019 Guide to Buying a House

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The Need To Buy Property Chapter 1 01

Shortlisting Your Property Chapter 2 08

Choosing The Right Location Chapter 3 12

How To Choose An Agent Chapter 4 18

Tax Implication Chapter 5 22

Legal Perspective Chapter 6 26

Home Loan Chapter 7 30

Managing Finance Chapter 8 36

Return on Investment (ROI) Chapter 9 38

Exiting the market Chapter 10 40

ContentPage No.



Introduction

Searching/Short listing a house

g u i d e t o b u y i n g a h o u s e

End Users: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 alsodetermines 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.

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 re-

developed 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

Pricing).

Investors:This category of buyer purchases property primarily as a

means to grow money. Here too, there are multiple

options:

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 booksshort-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.

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 l The stage of construction l The developer l The price bracketThere 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.




Looking for the right property There are many ways of looking for a property. This

includes:

l Checking out the options available online in property portals such as MagicBricks.com.

l Check out print ads that appear in newspapers and

magazines.

l Use brokers in the neighbourhood who will be able to

advise you on various options.

l 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 andallow 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.

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.

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

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 theone best for you.




Budget, location, type of property, objective ofbuying 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.

While buying a house the topquestions to keep in mind are:

l When to Buy?l What to Buy?

l Where to Buy?

l How to Buy?

l How much to pay for it?

l Which locality to buy in?

l What type of property to buy?

l How to extract maximum return from your

property investment?

The first steps

What are the things to actually look for when zeroing in on a house?



O

w n A

H o m

e

Realt! 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.

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 now. 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 Instalments (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 onMagicBricks.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

01

CHAPTER-1




Should I take a

home on rent or

should I buy?

There is no harm inrenting 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 yourmonthly salary.

‘

‘

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’srequirements. 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 a

safer and hassle free bet. You should however, be

prepared to pay enhanced maintenance charges

for these facilities.Single-floor Unit 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 re-

development, 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 multi-

storey apartment, these lack economies of scale

and so have fewer common facilities such as

maintenance and back-ups compared to largermulti-storey apartments. But these are newer

apartment units in downtown or preferred

areas and come at a price lower than multi-storey units.

02


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The Need To Buy Property



A multi-storey remains the most preferred housing units 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.

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 ofavailable 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:

l The location should be within approved/sanctioned master plan.

l The location should have good connectivity.

l Infrastructure services such as power, water supply, drainage and sewerage should

be present.


‘

Why is it necessary

to own property?

In a country like

India, where thereis no social

security, a house

means a shelter

from all sorts of

storms. Beyond the

comfort and

security that owing

a home offers, it

has more tangible

benefits too. It

forms an asset

that is likely to

bring in return on

‘

03




‘

How can I be sure

of the property

selection?

The best way is toensure that you do

your own research.

Use the data that is

available in

property portals

such as

Magicbricks.com

and in print

supplements but

after finalising a few

choices do visit the

sites and check

them out.

‘


l Location should be within an active business activity such as educational

institutions, hospitals, IT parks, entertainment hubs, etc.

l 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 end-

user. 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 ready-

to-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 smallsums 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.

04




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 month-

on-month at the same time. Accommodate it within your house rent allowance

package or just a tad over for best results.

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?

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 andsellers take advantage of this ambiguity.

Carpet area is defined as the precise area within the walls of your home. If you had


Being an investor

should I keep

invested in oneproject 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

base on its holding

period, return on

investment

achieved, cost of

funds, etc.

‘

‘

05





‘

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 theplinth and carpet

area is the actual

usage area or the

area within the

walls.

‘

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.

l If you get a quote for 1,000 sq ft, immediately find out if it is the carpet area or

super built-up area.

l There is no fixed ratio of super built-up to built-up or carpet area. Generally, theratios 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.

Tips to Customers who wish to buy property:

l Check for proper conveyance of title in favour of the Builder

l Check the License/Development right/approvals of the Builder

06




l Niranjan Hiranandani, MD, Hiranandani Group

l Paras Gundecha, President, MCHI-CREDAI (Mumbai)

l Getamber Anand, Vice President, CREDAI

l Mohit Arora, Director, Supertech Ltd

l Partho Mukherjee, Principal Advisor, MagicBricks.com

l Ananta Raghuvanshi, Director-Sales and Marketing, DLF India

Our panel of contributors for this chapter are:


l Check clear and marketable title of the project

l Ensure execution of proper Allotment Letter/Sale Agreements on your payments

l Ensure whether reputed financial companies approve the project. This will help you

in getting financial loansl See the tentative Layout/Building Plan

l Verify plinth area of the Apartment

l Check carpet area of the apartment and find out if the difference between plinth

area and carpet area is reasonable

l Ask for Occupation/Completion Certificate.

l Ensure the Conveyance Deed is registered after entire payment has been made.

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 theproperty rates don't

go up, interest per

month will still be a

regular outflow.

‘

‘

07




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.

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 re-sale property?

Some important tips one should keep in mind before buying re-sale property are:

l Locality: Generally, the price difference prevails for different locations but when itcomes 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.

l 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 percent per year. A developer may break the norm in an existing locality

S e a r c h

D r i v e

r s

Selection

Shortlisting Your Property

CHAPTER-2


08



by launching 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, brokersand 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 short-

term 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.

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 at negotiating a better value in the

secondary market

l

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

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.

‘

‘


09




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 township 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?

l Check for proper conveyance of Title in favour of the builder.

l Check the licence/development right/approvals of the builder.

l Check clear and marketable title of the project.

l Ensure execution of proper Allotment Letter/Sale Agreements on your payments.

l Ensure whether reputed financial companies approve the project. This will help you

in getting financial loans.

Is the property

boom for real or is

it a bubble ready

to burst any time?The trick lies in

investing wisely with

known developers;

you can’t go wrong

with property

investments if you

do diligent

homework before

purchasing.

‘

‘

g u i d e t o b u y i n g p r o p e r t yg u i d e t o b u y i n g a h o u s e

10




l 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.

l Ask for Occupation/Completion Certificate.

l Ensure the Conveyance Deed is registered after the entire payment has been

made.

l 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.

l 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.

l Niranjan Hiranandani, MD, Hiranandani Group

l Hafeez Contractor, Founder & Principal Architect, Architect Hafeez Contractor

l Ananta Raghuvanshi, Director-Sales & Marketing, DLF Homes

l Partho Mukherjee, Principal Advisor, MagicBricks.com

l Bopanna Madayya, VP Sales & Marketing, QVC Realty

l S Padmanabhan, VP, Maangalya Developers

l S Ramakrishnan, CEO, MARG ProperTies


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.

‘

‘


11




L o c a t i o n I s

K e y

Spot On

Choosing The Right LocationINVESTING IN CITIES

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 findproperties 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 maintenance-

free 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 withcheaper price tags and construction linked instalment plans.

How much appreciation can be expected by investing in bigcities?

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. Oncepossession 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

g u i d e t o b u y i n g p r o p e r t y

CHAPTER-3


12



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 arenearing completion.

What could be the possible downside of investing in big cities?

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 well-

leveraged and gives good returns.

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.

‘

‘


13

Choosing the Right Location



Is it good to invest near airports?

Yes, presence of an airport nearby brings appreciation of values to residential

property. Take 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 SouthHyderabad, 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.

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 in that

area. Areas that

come under new

infrastructure and

industrial gowth

plans are those that

will grow in the

years to come.

‘

‘

g u i d e t o b u y i n g p r o p e r t yg u i d e t o b u y i n g a h o u s e

14




What are the drivers that make suburbs the preferredinvestment 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 isexpected 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.

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 upper-

middle 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, under-

developed 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.

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.

‘

‘


15





Are suburbs and peripheries of large cities witnessing anescalation 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.

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.

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.

l Satish Magar, President, CREDAI, Pune

l Paras Gundecha, President, MCHI-CREDAI, Mumbai

l Getambar Anand, Vice President, CREDAI

l T Chitty Babu, President, CREDAI, Chennai

l Manoj Gaur, President, CREDAI, Western UP

l Harsh Vardhan Patodia, President, CREDAI, West Bengal

l Kunal Banerjee, President, M3M Ltd

l Sushant Muttreja, Earth Infrastructure

l Sanjay Chawla, CEO, ERA Landmarks

l

Ish Anand, CEO, Phoenix Hodu Developers Pvt Ltdl Bopanna Madayya, VP Sales & Marketing, QVC Realty

l Ananta Raghuvanshi, Director-Sales and Marketing, DLF India Ltd

Should I invest in

suburbs and

peripheral regions

for higher returns?Decide on the time

horizon i.e. long

term (5-7 years) or

short term (2-4

years). Over a

longer period

suburbs offer very

good returns as the

price arbitrage with

Central Business

Districts reduces.

Over 3-5 years one

can expect to

make 20-30 per

cent per annum in

a suburb

depending on themicro location and

the developer.

‘

‘


16




B

r o k e r T i p s

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.

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

CHAPTER-4


18



model code for them to follow. However, in the event of a developer not being a

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?

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

l Check out his past track record for time delivery

l If public listed, check out balance sheet and quarterly reports to see how the

company has been faring financially

Where should I

search for an

authentic broker?

Numerous realestate agencies

are listed in

property websites,

the phonebook

and on the

Internet. Don’t pick

one randomly.

Look for an agent

in the area where

you are planning to

invest.

‘

‘


19

How to Choose an Agent



l Check if the project you are interested in is a Joint Venture. 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 property. Once you benchmark a property on the corridor you will be

able to decide if the price asked for is justified

Is there a public website where people can check thelegitimacy 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.

Besides the per sq feet charges, what are the other charges ina 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?

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 approvalsreceived from the statutory authorities like the municipal authorities, development

authorities and other statutory bodies.

Should one buy

property with

lesser area from a

well-knowndeveloper 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 woulddefinitely be a

good buy.

‘

‘


20




If a builder delays

possession of the

flat, what legal

recourse doconsumers 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.

‘

‘


Can the developer impose 10 per cent payment beforeshowing 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 teh 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.

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

l Ravindra Pai, MD, Century Real Estate Holding

l Sudhir Vohra, Architect & Urban Planner, Sudhir Vohra Consultants

l Rohtas Goel, MD, Omaxe


21




T a x M

a t t e

r s

Mone! 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 gaintax be saved/reduced?

Capital Gain is applicable when:

l 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 andshort-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.

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?

CHAPTER-5


22



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.

Can the capital gainamount be used for clearingloans?

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 inresidential property, then isthe remaining amountexempted from Income Tax?

No. Income Tax is payable on the

remaining amount unless it is invested

in Capital Gain Bonds.

Can Capital Gain Tax besaved if the amount is

invested in a commercialproperty, 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 oneproperty 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.

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.

How much tax will

be paid in case of

short- and long-

term capital gain?

In case the

property is held for

more than 36

months and then itis 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 assesses and

tax will be

calculated at the

slab rates of

Income-tax.

‘

‘


23

Tax Implication



What are the capital gains and other taxation rules pertainingto selling and buying land by a Non-Resident Indian?

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 savetaxes?

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 thepurpose 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 retired personnel. Investing in property too will not

save any Income Tax for you.

l Subhash Lakhotia, Tax Consultant, MagicBricks.com

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. Our panel of contributors for this chapter are:

‘

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24

Tax Implication



L e g a l l y r i g

h t

dvisors

Legal Perspective What documents and formalities are required while buyingproperty?

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?Here are the important things to check before you sign the agreement with the

developer:

l Specific apartment allotted, tower number and size

l Details of area including super area, covered area and carpet area

l Costing

l Date of possession, penalty in case of delay

l Exit option

l Specifications committed

l Payment plan

l Details of Land on which project is constructed and the project approval details

l Possession related charges

How do you know that a project has legal approvals fromauthorities?

The best way is to check 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.

l 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.

l 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.

l 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.

CHAPTER-6


25



Is there any difference in the rights of primary and co-applicant 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 theco-applicant?

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 a 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 registry?

First, you need to file a police complaint about the lost paper. Then you can apply for

a Certified Copy from the sub-register’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 iselsewhere and bed-ridden?

Yes, a son can sell a father’s plot on his behalf if the father appoints him and grants

him the power of attorney to do so.

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

Legal aspects one

should keep in

mind while

purchasing aresale 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.

‘

‘


26

Legal Perspective



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 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 unauthorisedcolony?

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 to you, 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 registry be done by the builder without your presence?If you have given him the Power of Attorney, the registry can be done by your builder

in your absence.

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.

‘

‘


27

Legal Perspective




What are the formalities to be observedby a foreigner interested in buyingproperty 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.

l Asha N Basu, S Jalan & Co., Solicitor on

MagicBricks.coml Subhash Lakhotia, Tax Consultant, MagicBricks.com

l Dhirajlal Rambhia, Chief Advisor, MagicBricks.com

l Gaurav Gupta, Director, SG Estates Ltd

Panel of Contributors

28

Legal Perspective



S

m a r t C r e

d i t

Borroing Funds

Home Loan What are the factors you should keep in mind before getting ahome loan?

The main criteria are:

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.

l 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 age

and undivided share too, in addition to your repayment ability.

What are the advantages and disadvantages of getting ahome loan insured? Is it necessary to get property loaninsured?

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 theIncome 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 andcapitalisation of interest?

Moratorium: A period from the date of disbursement of loan, during which theborrower is not required to pay EMI but the outstanding amount continue to incur

interest.

CHAPTER-7


30



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.

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 pre-

payment. 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 problem 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.

With a monthly

salary of Rs 30,000

- 40,000, what is

the amount ofhome loan I am

eligible for?

The amount of the

loan you are

eligible to, will vary

on the e xisting

debts and your

past record of

repayment. Youcan get a loan of

Rs 20-25 lakh,

assuming you ha v e

no other debt still

pending.

‘

‘


31

Home Loans



What are the documents a bank asks for while approving ahome 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 co-

applicant. 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 the 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 isoutstanding?

You can sell property even when the home loan is outstanding. In such a case, the

buyer purchasing your home will have to re-pay 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

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.

‘

‘


32

Home Loans



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?

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 isusually difficult to procure?

With age, the buying as well as re-paying 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 incommercial property?

We all know that there are funding issues on commercial property. Housing isencouraged 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 someoneelse?

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 tofollow?

The basics - such as income, financial obligations and re-payment track record

W hat are thedocuments

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 income-

tax returns.

‘

‘


33

Home Loans




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.

In the current economic scenario, is it better to opt for fixedover 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.

How long does it take to get the application processed andthe 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 loanfor 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.

l Ish Anand, CEO, Phoenix Hudo

l R Murugesan, CEO, Shriram Properties

l Manish Sinha, Consumer Assets, HSBC India

l

Kaustuv Roy, ED, Cushman & Wakefieldl Dhrirajlal Rambhia, Chief Advisor, MagicBricks.com



In the currenteconomic

scenario, is it

better to opt for

fixed or floating

interest rate?

Floating rates are

advisable. Housing

loans have lowest

rates of interest.Floating rates are

supposed to come

down as and w hen

the cash flow

increases. The

correct and the

current fixed and

floating interest rate

on housing

property loan can

be ascertained

from your banker.

‘

‘

34

Home Loans



M

o n e y m a t t e r s

Handle !our Finance

Managing FinanceIs real estate a better investment as compared to the stock market?

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.

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 agegroup 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 30-

35 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 agegroup 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 totalassets 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 topurchase 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

CHAPTER-8


36



of the city, if it is from a good developer and fits your budget, but 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?

In general, there is Stamp Duty 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 whilecalculating 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 withoutclearing the mortgage? What will be the modality of thetransaction?

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.

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 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 Indial R Murugesan, CEO, Shriram Properties

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 y our 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.

‘

‘



37

Managing Finance



P

r i c e

i t r i g

h t

Profit on propert!

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.

What kind of return should you expect from your purchase after two years?

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

great returns.

Is a pre-launch project with a good discount better than anewly-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 expectedthat 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 returnon 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. Buyer 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.

CHAPTER-9


38



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?

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

lease 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 willensure 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 isgovernment 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.


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

l Gaurav Gupta, Director, SG Estates Ltd

What is a better

inv estment —

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’s better

to invest around IT,

ITeS, manufacturing

hubs that generate

good rental

demand.

‘

‘



39

39

Return on Investment (ROI)



W

i n d i n g u

p

Reap the benefits

Exiting the marketOn 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 location-

specific 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.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.

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 estateinvestment?

Real estate is not a ‘get rich quick’ investment route. It pays off only when one investsin 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.

CHAPTER-10


40



What all things should be kept in mind before exiting themarket?

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 expensesneed 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.

Is the commercial market bleak as compared to theresidential 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 hisproperty?

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

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.

‘

‘


41

Exiting the Market



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 canhe 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)


Can an NRI/PIO/

Foreign National

buy property in

India? Yes a NRI/PIO/

Foreign National

can buy Property

in India.

• NRIs can own

non-agricultural

NA land only.

• If you haveagriculturist

relatives you can

buy agricultural

land, in the name

of your blood

relatives.

‘

‘

42

Exiting the Market



What are the

benefits of

investing in

commercial realestate compared

to residential for a

salaried person?

It is better to invest

in a residential

market where

demand is fairly

predictable.

Commercial real

estate is influenced

by multiple factors

including corporate

requirements.

‘

‘

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.

l Anuj Puri, Chairman & Country Head, Jones Lang LaSalle, India

l Kunal Banerji, President, M3M Group

l Vikas Vasal, Executive Director, KPMG India (The Times of India)


l Kaustuv Roy, ED, Cushman & Wakefield

l Sunil Mantri, CMD, Sunil Mantri Realty (The Economic Times)

l Ramesh Bhojwani, a Mumbai-based financial expert (The Economic Times)



43

Exiting the Market



A C K N O W L E D G E M E N T S

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