Why pre-approve your home loans?

Home Loans have emerged as the most reasonable funding option for home buyers. Buyers from both the salaried class and the business class (who have filed IT Returns in the last five years) are eligible for home loans, making it easy for anyone to buy a home.

The home loan is typically availed when one has decided on their dream home or perfect property. The process can then throw up several surprises about the eligible amount, depending on the buyer’s profile, desired amount, presence of a co-applicant or not. At times, the buyer may have to reconsider his/her options and look at a lesser priced property, creating a slight emotional setback.homeloan

One way of avoiding such an eventuality is to have a pre-approved bank loan ready and then go scouting for the best property option. Pre-approval involves a pre-qualification process wherein the lending bank analyzes all the data related to your past and present debts (by looking at your bank statements and your CRISIL or credit worthiness report), your repayment track record, your credit card statements, sources of income, salary slips (or bank account statement in case of businesses) and IT returns for three or more years.

These data is run through a software that derives the loan eligibility amount. The same is mentioned in a pre-approval letter that is given to you. The letter states that you can avail the loan whenever you desire. With this in hand, you can choose your property options after factoring the down payment you must make.

The most important advantage of pre-approving your home loan is that it saves you enormous time during purchase. This gives you enough time to examine similar options without being rushed by the seller. That is why pre-approval is becoming very popular with younger buyers.

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.

Luxury Projects: Luxury by what standards?

A recent and amusing trend in Indian realty is how every other project is touted as a ‘Luxury’ or ‘High-end’ project. While one can appreciate the marketing hyperbole, as a home buyer, it’s important to know what really qualifies as a Luxury project. Experts in the Realty business provide a few pointers:

  • Location: The project should be located in an upscale neighborhood with excellent connectivity, wide roads, be free of any slum, have a low crime profile, and luxury-bhkreasonably good public and social infrastructure.
  • Space: The project should have abundant open spaces, and a low floor-area-ratio. A general thumb rule is that there should not be more than 100 or 150 units in an acre of land.
  • Number of Units: Irrespective of the above thumb rule, the lesser number of units in the project, the better, as this implies less crowding, less demand on and hence better availability of common amenities.
  • Amenities & Facilities: While every project has a gym and clubhouse today, it’s the additional, new and innovative features that distinguish a luxury project from an average one.
  • Interiors: The quality of fittings and fixtures used; the materials and finishes used for floors, walls, ceilings etc, make a huge difference and qualifies a project as a luxury one. Also, the floor-to-ceiling height should be 12 feet and above for that classy and imperial look.
  • Security: How sophisticated, high-tech, and prepared is the security staff, is a big differentiator. Feeling ‘extremely secure’ should be the minimum requirement in a luxury project. 

Other factors like builder’s experience with luxury projects also make a difference. As a buyer, do your due diligence and be the real judge of what is or is not ‘luxury’, before investing in such a project.

Things to keep in mind while renting out your property

With real estate becoming the most preferred form of investment, it’s common to find people owning two properties, one of which is rented out. This provides both short-term and long-term gains to the owner. However, it’s important to bear a few things in mind while renting out your property.

  1. Fixing the Rent Amount: It’s easy to ascertain rent value for flats in an apartment complex, although flats in good condition and semi-furnished flats can command a premium. For independent houses, research the neighborhood thoroughly to arrive rentingat the optimum rent.
  2. Advertizing the vacancy: While spreading word-of-mouth and having a ‘To let’ board on the property are time-honored methods, it’s better to advertize on online property portals to reach a wider audience and have more options for tenants.
  3. Background verification of the tenant: Unlike the past, a Police Verification of the prospective tenant is mandatory in most states. One could download the form from the internet, fill it out and submit it to the Police station under jurisdiction.
  4. Creating a Lease/Rent Agreement: It’s important to have a rent/lease agreement that clearly spells out dimensions and details of the property including fixtures, furniture and fittings, as well as the rent amount. One could add terms and conditions for rent payment as well as penalty clauses for delays, and damages to the property.
  5. Registering the Agreement: Registering an agreement makes it legally enforceable, and is mandatory in case the term of the lease is more than 11 months.

 Remember, a home is one of those few assets that appreciate with time. Follow the above process and you can ensure you have the right kind of tenants who will maintain the home well and pay the rent on time.

Sample Flats: How useful are they?

Sample flats are a marketing tool employed by builders. While these can give a hint on how the flat will look, one cannot make a purchase decision based on that.

  • Location: The best location in the project is chosen for the mock flat so that it overlooks gardens, swimming pools, neighboring projects, highways etc, while the real flat may overlook another block or a boundary wall.Sample Flat
  • Dimension: A large area is chosen for the mock flat while one’s purchased flat may have smaller dimensions. Consult the desired flat’s plan to get a better idea.
  • Walls: The walls are made of 2-inch half-bricks or plywood sheets or gypsum boards, which increases the space within the flat. Walls in the purchased flat will be thicker.
  • Ceilings: The ceiling is set higher than what one actually gets in the purchased flat, to increase the feeling of space.
  • Flooring: High-end and expensive wooden flooring is used in the mock flat. Whereas home buyers generally compromise on the brand or variety of wooden floor to keep costs low.
  • Doors: Doors are not fitted in all the enclosures which again heighten the roomy feeling.
  • Balconies: Larger balconies and more balconies are added to the mock flat to create a positive effect that triggers a ‘yes’ decision.
  • Furniture: Expensive furniture that is smaller than what are generally available is used, to create a luxurious and roomy feeling. Real-life furniture can be larger and occupy more space.
  • Cabinets: Cabinets in kitchens; and wardrobes in rooms are designed for less depth – once again to increase the spacious feel.

Builders have the right to market their projects using various tools. Home buyers should appreciate that, and factor in everything before making a purchase decision.