Professional Documents
Culture Documents
MagicBricks Guide To Buying A House - Open House
MagicBricks Guide To Buying A House - Open House
Page No.
The Need To Buy Property
Chapter 1
01
Chapter 2
08
Chapter 3
12
Chapter 4
18
Tax Implication
Chapter 5
22
Legal Perspective
Chapter 6
26
Home Loan
Chapter 7
30
Managing Finance
Chapter 8
36
Chapter 9
38
Chapter 10
40
g u i d e
t o
b u y i n g
h o u s e
Introduction
location
The developer
There 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.
End Users:
Investors:
g u i d e
t o
b u y i n g
h o u s e
g u i d e
t o
b u y i n g
h o u s e
When to Buy?
What to Buy?
Where to Buy?
How to Buy?
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-1
Realty Check
01
Own A Home
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 on
MagicBricks.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
g u i d e
Should I take a
home on rent or
should I buy?
There is no harm in
renting 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 your
monthly salary.
t o
b u y i n g
h o u s e
Delhi
Mumbai
Chennai
Hyderabad
Pune
Bangalore
Multi-storey Apartment
37
88
30
54
85
51
Single Floor
50
NA
23
11
Indpendent House
11
10
Residential Plot
34
23
23
Villa
NA
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 buyers
requirements. 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 redevelopment, 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 multistorey apartment, these lack economies of scale
and so have fewer common facilities such as
maintenance and back-ups compared to larger
multi-storey apartments. But these are newer
apartment units in downtown or preferred
areas and come at a price lower than multi-storey units.
02
The Need To Buy Property
g u i d e
Why is it necessary
to own property?
In a country like
India, where there
is 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
investment.
t o
b u y i n g
h o u s e
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 of
available 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
Infrastructure services such as power, water supply, drainage and sewerage should
be present.
03
The Need To Buy Property
g u i d e
t o
b u y i n g
h o u s e
04
The Need To Buy Property
g u i d e
Being an investor
should I keep
invested in one
project 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.
t o
b u y i n g
h o u s e
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 monthon-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 builders 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 and
sellers take advantage of this ambiguity.
Carpet area is defined as the precise area within the walls of your home. If you had
05
The Need To Buy Property
g u i d e
What is the
difference
between plinth,
carpet and
covered area in a
flat/apartment?
t o
b u y i n g
h o u s e
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.
There is no fixed ratio of super built-up to built-up or carpet area. Generally, the
ratios 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.
06
The Need To Buy Property
g u i d e
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 the
property rates don't
go up, interest per
month will still be a
regular outflow.
t o
b u y i n g
h o u s e
Ensure whether reputed financial companies approve the project. This will help you
in getting financial loans
Check carpet area of the apartment and find out if the difference between plinth
area and carpet area is reasonable
Ensure the Conveyance Deed is registered after entire payment has been made.
07
The Need To Buy Property
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-2
Selection
Search Drivers
Locality: Generally, the price difference prevails for different locations but when it
comes 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.
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 per
cent per year. A developer may break the norm in an existing locality
08
g u i d e
b u y i n g
h o u s e
t o
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 builders 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.
09
Shortlisting Your Property
g gu ui id de e
Is the property
boom for real or is
it a bubble ready
to burst any time?
t to o
b b u u y y i i n n gg
pa r oh po eu rs te y
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.
Ensure whether reputed financial companies approve the project. This will help you
in getting financial loans.
10
Shortlisting Your Property
g u i d e
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.
t o
b u y i n g
h o u s e
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.
Ensure the Conveyance Deed is registered after the entire payment has been
made.
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.
11
Shortlisting Your Property
g gu ui id de e
t to o
b b u u y y i i n n gg
pa r oh po eu rs te y
CHAPTER-3
Spot On
Location Is Key
12
g u i d e
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.
t o
b u y i n g
h o u s e
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 are
nearing completion.
13
Choosing the Right Location
g gu ui id de e
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.
t to o
b b u u y y i i n n gg
pa r oh po eu rs te y
14
Choosing the Right Location
g u i d e
Do infrastructure,
transport and
connectivity drive
real estate prices?
t o
b u y i n g
h o u s e
Lack of accessibility to public transport and connectivity to city centres, underdeveloped 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, builders 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 builders 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.
15
Choosing the Right Location
g u i d e
Should I invest in
suburbs and
peripheral regions
for higher returns?
t o
b u y i n g
h o u s e
16
Choosing the Right Location
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-4
Transactor
Broker Tips
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.
Check if the agent is licensed and can work full-time on your real estate needs.
Ensure that all agreements between your agent and you are in writing.
Do not pay money upfront to your real estate agent. This could be a loss to you if
you dont buy or sell a property with this agent.
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
18
g u i d e
Where should I
search for an
authentic broker?
Numerous real
estate agencies
are listed in
property websites,
the phonebook
and on the
Internet. Dont pick
one randomly.
Look for an agent
in the area where
you are planning to
invest.
t o
b u y i n g
h o u s e
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.
Check for all the legal pre-qualifications and due diligence mentioned earlier.
Ask how many million sq ft he has already constructed and how many projects are
underway
If public listed, check out balance sheet and quarterly reports to see how the
company has been faring financially
19
How to Choose an Agent
g u i d e
t o
b u y i n g
h o u s e
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.
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
Besides the per sq feet charges, what are the other charges in
a 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 buyers 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.
20
How to Choose an Agent
g u i d e
If a builder delays
possession of the
flat, what legal
recourse do
consumers have?
t o
b u y i n g
h o u s e
21
How to Choose an Agent
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-5
Money 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 are capital gains applicable and how can capital gain
tax be saved/reduced?
Tax Matters
The sold property has been withheld by a person for a period of more than three
years from the date of purchase/possession.
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.
The new property is bought after the sale of the first property.
Capital Gains Tax can also be saved by investing the sale proceeds in Capital
Gain Bonds.
22
g u i d e
t o
b u y i n g
h o u s e
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.
In case the
property is held for
more than 36
months and then it
is 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.
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.
23
Tax Implication
g u i d e
t o
b u y i n g
h o u s e
What are the capital gains and other taxation rules pertaining
to 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.
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 propertyplot or apartment.
What are the charges deductible from the capital gain for the
purpose 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.
24
Tax Implication
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-6
Advisors
Legal Perspective
What documents and formalities are required while buying
property?
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.
Legally right
Here are the important things to check before you sign the agreement with the
developer:
25
Details of area including super area, covered area and carpet area
Costing
Exit option
Specifications committed
Payment plan
Details of Land on which project is constructed and the project approval details
Ensure that the documents of Title of the property you intend to purchase are
clear. A defective Title will create problems.
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.
Ensure that the developer has clearance certificates from the Electricity Board,
Water and Sewage Board and other concerned departments.
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.
g u i d e
t o
b u y i n g
h o u s e
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.
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.
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.
26
Legal Perspective
g u i d e
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.
t o
b u y i n g
h o u s e
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.
Children will have to mutate their names and sell the property.
27
Legal Perspective
g u i d e
t o
b u y i n g
h o u s e
Panel of Contributors
l
28
Legal Perspective
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-7
Borrowing Funds
Home Loan
What are the factors you should keep in mind before getting a
home loan?
Smart Credit
Your income and your track record of repaying previous loans this is obtained
from the Credit Bureau.
Your current expenses including other loans you are servicing. The amount of loan
related to the property value.
Ownership of the property this means that the lending bank should be
comfortable that the seller has full and complete ownership of the property.
Getting a loan depends on the report of the local bank surveyor who will inspect
the property and give his recommendation.
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.
30
g u i d e
With a monthly
salary of Rs 30,000
- 40,000, what is
the amount of
home loan I am
eligible for?
The amount of the
loan you are
eligible to, will vary
on the existing
debts and your
past record of
repayment. You
can get a loan of
Rs 20-25 lakh,
assuming you have
no other debt still
pending.
31
Home Loans
t o
b u y i n g
h o u s e
g u i d e
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.
t o
b u y i n g
h o u s e
32
Home Loans
g u i d e
t o
b u y i n g
h o u s e
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.
33
Home Loans
g u i d e
t o
b u y i n g
h o u s e
remain the same, though the mechanics may be slightly different. Some banks may
insist on having a resident Power of Attorney in India.
In the current
economic
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 when
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
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-8
Handle your Finance
Managing Finance
Is real estate a better investment as compared to the stock
market?
Money matters
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.--
36
g u i d e
t o
b u y i n g
h o u s e
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.
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 your 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.
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.
37
Managing Finance
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-9
Profit on property
Price it right
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.
38
g u i d e
t o
b u y i n g
h o u s e
What is a better
investment
residential or
commercial
property?
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.
39
Return on Investment (ROI)
39
g u i d e
t o
b u y i n g
h o u s e
CHAPTER-10
Reap the benefits
Winding up
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.
40
g u i d e
t o
b u y i n g
h o u s e
What is considered What all things should be kept in mind before exiting the
market?
the right time to
The property investor must decide on the investment horizon (period between
exit a real estate
purchase and re-sale). A detailed analysis has to be done on the tax impact of
investment?
exiting a property investment. Expenses such as legal fees and brokerage expenses
need 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.
41
Exiting the Market
g u i d e
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 have
agriculturist
relatives you can
buy agricultural
land, in the name
of your blood
relatives.
t o
b u y i n g
h o u s e
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.
A person resident in India the definition of resident in this case will be as per
Foreign Exchange Management Act (FEMA)
An NRI
42
Exiting the Market
g u i d e
t o
b u y i n g
h o u s e
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.
Anuj Puri, Chairman & Country Head, Jones Lang LaSalle, India
43
Exiting the Market