Due Diligence for Affordable Homes

Affordable Housing is the current buzzword in Indian Realty. Homes costing anywhere from 7 lakhs to 35 lakhs INR depending on the city, and number of BHK, are springing up in every metro, city and town of India. Intended to serve the Economically Weaker Sections (EWS) and Low Income Groups (LIG) in the society, affordable homes are being strongly promoted by the Indian Govt. and builders alike.

However, herein lies the risk, and as a buyer of an affordable home, you must do your own due diligence. While the below factors apply equally to mainstream projects, they are even more important in an affordable home project for various reasons, as explained.

  • Reputation: Is the builder a reputed Realty house? Are they into both mainstream homes and affordable homes? How many affordable home projects have they created before this? If the builder is relatively new and unknown, who are the affordablepromoters? In small-sized affordable projects, margins are lower, so it can attract the wrong kind of people as promoters and investors.
  • Titles & Bank Loan: Is the project being conceived on a disputed land? Ensure titles are clean and clear. Consult the local sub-registrar office or a property lawyer to thoroughly examine the papers. Are banks providing loans for the project?
  • Location: Most of these projects are located on the outskirts to keep the costs low, so it is important to check quality of the neighborhood, as well as distance from the city centre.
  • Road Network: As a direct consequence of the above, are the roads leading to the project, and surrounding areas, motorable? Have they been provided by the municipal body, or is it a temporary provision from the builder? This has an impact on quality of the road.
  • Transport: Does the city municipal body provide bus transport to the locality? If no, how far is the nearest bus stop? This has a direct bearing on the safety and convenience of residents.
  • Common Areas: In order to keep the cost per unit low, builders tend to restrict the common areas in such projects. You need to observe the restrictions, as beyond a certain extent, they can affect the quality of daily life at the project.
  • Amenities: Although not comparable to mainstream projects, some amenities like security, power backup, lifts, and vehicle parking are mandatory at these projects.
  • Maintenance cost: If the purchase cost of the project has been kept low, has it been compensated by charging a high monthly maintenance charge?

While purchasing a home in any project needs its own share of due diligence, an affordable home can be fraught with more risk, so buyers must spend more time investigating the project. Else, lakhs of rupees of hard-earned money can go down the drain.

Use Low-VOC paints for a healthy, happy home

In the last few years, one of the features that Realty companies like to highlight in the features section of their projects is the use of low-VOC paints for interiors. This is a healthy trend and must be welcomed by home buyers and regulatory agencies.

Volatile Organic Compounds (VOC) are harmful hydrocarbons such as Xylene, Formaldehyde, Acetone, Toluene, Benzene, Perchloroethylene, Methylene chloride, 1,3-vocpaintsbutadiene and Ethylene glycol among others. These are found in Building Materials and Homecare products such as Paints, adhesives, Solvents, composite wood products, sealants and wall putties, fabrics used in upholstery, varnishes, vinyl floors, wood and floor polishes, air fresheners, air cleaners, cosmetics, cleaning and disinfecting chemicals, etc.

VOCs have been used in Paints for interiors, since day one. Paints are composed of pigments, binders, solvents, and additives required to keep the paint resistant from climatic impact. Of these, solvents use VOCs extensively, to bind the binders and pigments, and to ensure the paint dries quickly.

However, extensive research in the last decade or so has shown that VOC-based paints can cause headache, burning sensation, liver damage, kidney failure, cancer in different parts of the body, and a host of mental disabilities for the residents of the house. Only 40% of the VOCs in the paint evaporate in the first few days of the painting being done. The remaining evaporates slowly over several years posing a great health risk to residents. VOCs are also harmful to the environment as they trap heat and accelerate global warming.

If your builder is not offering low VOC paints for your interiors, you can demand the same, or have your interiors painted by a third party. This will go a long way in ensuring sound physical and mental health for you and your family.

RBI eases norms for buying affordable homes

Affordable housing is emerging as the best thing to have happened to the Indian home buyer in the last 2 decades. Depending on the location, amenities provided, and construction technologies used, these homes are affordable to a larger cross-section of the working class than what exists today.

Now, the Reserve Bank of India (RBI) has eased norms for availing a home loan on an affordable home. Typically, stamp duty, registration and documentation charges add up to another 15% of the property value. Now, RBI has allowed Banks to include these chargesrbirate in the overall property value, while disbursing a loan, as long as the property value does not exceed Rs. 10 lakhs. RBI made this announcement in March 2015.

Last July, the RBI helped ease investment or bank lending in the affordable home sector. According to the RBI communiqué, home loans to individuals up to Rs 50 lakh (for houses of value up to Rs 65 lakh) in metros, and loans up to Rs 40 lakh (home value Rs 50 lakh) in Tier-2 or Tier-3 cities will be considered as affordable housing.

Thanks to this, banks can now float infrastructure bonds up to seven years. The money raised this way will not attract the typical requirements around CRR (cash reserve ratio) and SLR (statutory liquidity ratio). All this has a cascaded effect on increasing the availability of affordable homes.

Well, how does this affect you, if you are in a much higher affordability bracket? For one, you could buy one or more affordable homes as an investment option. Secondly, if you are a business owner, you could create policies that encourage your employees to buy an affordable home. This is a valuable perk that can go a long way in attracting and retaining talent.

Documents to examine before buying property

Purchasing property in India can be complex and unfortunately prone to fraud and deception quite often. That is why, the state and central governments, property experts, and lawyers specializing in Realty advise buyers to peruse all documents thoroughly with the help of a lawyer, before buying property.

Some of the things buyers must look out for:

  • Original Land Deed of Current Owner: Always insist on seeing the original title deed of the property to ascertain ownership details and rights to sell. Photocopies are not examinereliable as information on bank loans taken, or multiple ownership cannot be ascertained easily. A visit to the concerned sub-registrar’s office can help ensure titles are indeed in the name of the current owner who is the seller.
  • FIR of theft: In case seller gives the excuse that the originals have been stolen, ask for the FIR copy of complaint lodged. Once satisfied, place an ad in the newspaper mentioning the desire to purchase, to weed out objections from any quarters.
  • Release certificate from Bank in case of loans: In case loans have been procured in the past on the property, request for Release certificate from all the banks concerned and validate the same from the concerned bank(s).
  • An Encumbrance Certificate from the Sub-registrar’s office: This ensures no legal hassles or unpaid dues are involved in the property. This can be purchased from the concerned sub-registrar’s office.
  • Original property tax receipt for the plot, for the built property, as well as water and electricity bills paid must be provided to ensure there are no pending municipal dues which can become the liability of the buyer.

Remember, the Indian law provides adequate checks and controls to prevent fraudulent land deals. It’s the prerogative of the buyer to employ them and ensure a clean deal.

Integrated Townships or Independent Projects?

The concept of townships is as old as industrialization in India. Large corporate houses like Tatas, Birlas, Ambanis and JIndals built self-sustained colonies or townships around their plants.

In more recent times, Realty houses are promoting ‘integrated townships’ in a big way. townshipThese self-sustaining localities or satellite towns come with all the necessary amenities required for a good quality life. The Indian Government is also incentivizing Realty houses who would like to create townships, making it the most prominent trend in the years to come.

But what does it mean to an average home-buyer? Is buying a home in an integrated township a better option vis-à-vis an independent apartment / villa / villament / plotted development project?

Benefits of living in an Integrated Township

  1. Much better infrastructure like roads, power, water, and sewerage connections compared to the parent city.
  2. More standardization in construction, and hence better overall ambience in the township.
  3. Reduced need for transit to the parent city, as these townships are replete with schools, colleges, shopping and entertainment destinations.
  4. More cost-effective, as these townships are built on the peripheries of cities, where land-parcels are purchased in bulk, and development undertaken by a few builders only to keep costs low.
  5. Less crowding, and hence less traffic or pollution related issues

Downside to buying a home in a township

  1. Plot owners are bound by architectural restrictions while building their homes here
  2. Maintenance can be an expensive affair if the township’s Management maintains amenities like sewerage and street lights.
  3. Construction cycles are longer

Townships offer distinct advantages and are the ideal solution for India’s overcrowding and massive urban migration issues. As a buyer, one must choose the desired township after doing due diligence, if one must enjoy the dividends from investing in a township, for a long time.

5 things buyers can demand from their builder

Real Estate transactions are meant to be a win-win for the buyer and the seller (who is the builder). But in reality, it rarely happens that way. Home owners who are in a hurry to buy a property – or who are fixated on a particular property do not undertake a full due-diligence on the property, or the builder. And even if they do, they are willing to accommodate a few compromises along the way, which is where the trouble starts.negotiate

However, there are a few areas where a compromise is not required.

  1. Choice of Bank Loan: Do not be coerced into taking a loan from one or two banks recommended by the builder, and feel free to consider a bank of your choice.
  2. Frequent Updates on the project: Demand regular updates on the project by email or an online link, and cross check on them by visiting the project once in a while.
  3. Alterations and Customizations: There are several small customizations that the builder can accommodate without any extra charge, so feel free to exercise this option.
  4. Due diligence during the handover: The handover process can be a tricky one, and home buyers must have a clear checklist to ratify before taking possession.
  5. After-sales services: Since builders are supposed to maintain the project till an association is formed, check with other residents on the quality of the same provided.

Remember, end of the day, it’s your hard-earned money that is being invested in a dream home. One should be clear on why they are buying a particular property and must accept as few compromises as possible. This will add better value to your purchase and force the builder to provide better service in the days to come.

Carpet Area, Built-up Area and Super built-up Area

In our childhood, we have learnt that area of a rectangle is simply length x breadth. However, in the complex (and sometimes murky) world of real estate transactions, calculating the area of property you own can be a very involved process.

Developers and Builders have come up with various terms to mislead, confuse or take advantage of buyers.

  • Carpet area, as the name implies, is the horizontal space within the confines of the external walls of your individual home unit.
  • Built-up area is the carpet area + balcony + half of the terrace area + plinth area clapdoor_layout(horizontal footprint of vertical elements like walls, windows, doors and AC ducts). This is generally 10% more than carpet area.
  • Super built-up area is the built-up area + a share/portion of common areas like corridors, lifts, lobbies, entrances, passages, security-outposts, DG room etc, and amenities like clubhouse, amphitheatre, gardens, swimming pools and play-areas. This is generally 25% more than built-up area.

It’s important to know how these terms will make a difference in your transactions, and lifestyle.

  • Purchase: The difference between the built-up area and super built-up area is called loading factor. In most apartment complexes, this is approx. 25% while large villa projects with abundant greenery can have a large loading factor. Builders just quote on super built-up area, which is at an advantage to them.
  • Sale: However, at the time of sale, one will realize that the saleable area is actually lesser than the super built-up area, which is at a disadvantage to the home owner.
  • Maintenance: Maintenance is generally calculated on the super-built up area, so villas in a large gated community can be more costly from a maintenance perspective.

End of the day, one’s buying decision depends on budget, desired lifestyle, and negotiating power at the time of purchase. Bear in mind all of these facts to ensure a good deal.