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.

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Is your Building Earthquake-Resistant?

The earthquake that struck Nepal and surrounding regions on April 25th and May 12th, 2015 shook more than the earth’s surface. It shook the confidence of residents in earthquakehundreds of buildings all over the quake-affected region, across six nations. Buildings in this region, both modern and historic, collapsed or developed irreversible damage during the quakes.

Thanks to the quakes, buyers in India have become cautious and are evaluating a property for its earthquake resistance. The Bureau of Indian Standards has established several norms for earthquake resistant design of structures, in India.

As a prospective buyer, you can ask your builder to share information on whether these norms have been followed while building the structure. You can also engage the services of a structural engineer or professional agency and get an evaluation done.

In addition to this, there are several small details that you can notice, which have a bearing on the earthquake-resistant capacity of a structure.

  1. Shape of the building(s): The plan of a building should be ideally composite in shape like a square, rectangle, circle, or oval. Buildings in the shape of H, V, L, Y or U are less resistant to quakes.
  2. Fancy elements: Multiple structural elements that are not tightly integrated with the overall frame of the building are more prone to collapsing during a quake.
  3. Number of storeys: The load-bearing-wall method that was in vogue during the 70s is risky. While all high-rises use the column principle which is less risky, it’s good to consider low-rises (less than 3 storeys) only if they have been built using columns or framed structure.
  4. Size of openings in the wall: High-rises that have large openings in the walls for doors and entrances are more at risk.
  5. Staircases: Cantilever staircases and externally overhanging staircases are more at risk. All stairs must be horizontally integrated with the overall frame of the building.
  6. Information on the use of earthquake-resistant elements like horizontal seismic bands, vertical reinforcing bars, core shear walls, pile lengths in the rock, mass dampeners, base isolation techniques, etc.

With time, Indian cities will only get taller, so it becomes all the more imperative to follow earthquake-resistant design in construction. While evaluating a property for purchase, buyers must do their due diligence; else, the consequences can be grim and tragic.

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.

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.