Home Insurance: A boon to home-owners

In India, Home Insurance is rarely mentioned in any discussion around protection or investment. This is surprising considering that India is highly prone to natural disasters. 60% of its land area is prone to earthquake and 9% to cyclones, hurricanes and floods. One sees everyday in the press and Media, news about accidents that have hurt the structure of a home. And, unfortunately in the last decade or so, India has consistently been on the radar of terrorist strikes.

The resulting damage can have varying levels of impact. While fires can damage the insurancefurniture and carpentry, water seepage from pipe-bursts can hurt the ceiling and walls. Earthquakes, bomb – and gas cylinder – explosions can cause cracks in beams and columns necessitating a reconstruction.

Yet, home insurance is given very little importance in India considering the extent of construction that exists, or is happening everywhere. One of the wrong perceptions is that it’s expensive. On the contrary, it’s actually the cheapest among all forms of insurance. The cost roughly comes up to Rs. 50 per 1 lakh of the cost of reconstruction of the property, or roughly between Rs. 1500 to Rs. 3500 of premium every year depending on the area of the property. For damage to contents of the home worth Rs. 10 lakhs, the annual premium costs Rs.250.

Yet, both these are quite comprehensive and cover: fire, lightning, storm, flood, landslide, earthquake, vehicle impact, rioting, arson, pipe bursts, tank bursts, burglary and breakage. One can also enlarge the cover to include terrorist acts and damage from appliance use.

Remember, the resale value of your home can fall drastically if it has incurred damage any time. In contrast, the premium to be paid to insure oneself aganst such an eventuality is a pittance!

Buying Pre-owned properties: Reward or Risk?

Realty investors who are not able to hold onto their property during a bust phase of the market tend to sell them off for a good discount. Such pre-owned properties are a good option for the salaried class which is forever striving to buy a home. However, there is always an element of risk and buyers must do due diligence in the following areas:

  • Upfront cash payments: The original buyer must pay capital gains tax on the appreciation in this duration. To prevent this, be/she often demands cash payments. This can be a steep amount for the new buyer if original buyer has paid say 60-70% of the cost already.preowned
  • Transfer Fee: To prevent such sales of pre-owned properties, some builders levy a transfer fee of either 10% of the total current value of the property, or a fixed amount per sft. This may be added on to the new buyer’s cost unless clarified upfront.
  • Bank Loan: If both – original and new buyers have a bank loan against this property, the banks concerned allow for a transfer of the documents, ownership and loan. However, one must be clear about the process, the timelines and charges involved. This includes penalties for late payment of the EMIs.
  • Validity of Titles: Builders provide original documents of the property only upon payment of a small fee. However, a few unscrupulous builders even show forged documents to pass off properties in projects that have a problem. It’s good to hire a property lawyer and pre-empt such situations and study the documents thoroughly.

Pre-owned properties may be a good option for people with tight finances. However, not doing a due diligence can turn out to be messy and a costly affair in the long run.

Investing abroad in Realty

Real Estate being a popular instrument of investment for Indians, it’s little wonder that Indians are investing in realty outside the country. For one, it gives better returns when the sale is made during a low rupee, for another, it can make way for citizenship in that country.

The RBI has also been relaxing restrictions for Indians investing in realty abroad. One can invest a maximum of USD 200,000 in a year on any instrument abroad, out of which, as much as USD 125,000 can be invested in realty.

That Indians are making the most of this, is no surprise. In 2013-2014, Indians invested a whopping USD 5.8 billion on realty in the US, with the most popular destinations beinginvesting New York, Chicago, Dallas, Los Angeles and Las Vegas. After US, UK, Singapore and Malaysia are equally popular with realty investors. SAARC countries like Mauritius, Bhutan and SriLanka which are popular tourist destinations are also on the radar.

However, before one plunges into any realty deal abroad, it’s good to know a few things:

  • Suburbs are surely more cost-effective, but one must investigate its appreciation potential.
  • Neighborhoods make a big difference to rent and sale values. Ensure that the neighborhood within in a radius of 3 miles from your desired property is fairly good.
  • Needless to say, the property must not be too old, must be free of litigation and have clear titles.
  • It’s also better to invest in property owned by institutional investors rather than individual property owners.
  • It’s better to have joint ventures with local citizens, as against going solo.

Buying realty in a foreign country is a great option. But one must be aware of legal loopholes, regulatory controls, and procedural hassles in any destination, before investing there.