Should you buy, or rent? Should it be a ready-to-move-in apartment or an under-construction one? Here’s a list of to-dos, may-dos, and most certainly don’ts.
Richa Kulkarni, a chartered accountant, moved to Mumbai from Bengaluru seven years ago and has been paying about Rs 50,000 rent per month for a house in a gated community in Kandivali, which has all the amenities.
She recently shortlisted an under-construction property in the same area and paid the booking amount. She says that she consciously chose to stay on rent all these years as it was more cost effective and there were several rental options to choose from, as against making a capital investment where there would be strict budgetary constraints.
“If I had bought a house seven years ago, it would have cost me around Rs 2 crore and my EMI (equated monthly instalment) would have been Rs 1.5 lakh. My rent then was around Rs 40,000 per month. I have now decided to buy a house despite rising interest rates because I am more financially stable and have this emotional and aspirational factor to consider. Besides, loan eligibility is also a big factor. I may not easily get a loan as I grow old,” explains the 38-year old.
An apartment worth Rs 2 crore in a Mumbai suburb with a rental yield of about 1.5 percent per annum will cost Rs 3 lakh per year in rent. Even if a person decides to stay on rent in the same apartment for years, he may end up paying Rs 1.99 crore in 30 years instead of shelling out the total amount in one go.
“Even if one were to assume that there is a 5 percent rental escalation every year, one will have approximately 30-35 years to pay the lumpsum amount that a homebuyer would need to pay now. Most homebuyers opt for home loans, which significantly adds to the cost of ownership. There’s also the added advantage of mobility. You can move homes across cities at a drop of a hat. This is the prime reason why millennials and GenZ are preferring to rent houses. Having said that, if the emotional attribute of owning a house weighs heavy on the family, then the purchase becomes necessary,” explains Abhishek Kiran Gupta, CEO, CRE Matrix, a real estate analytics firm.
It boils down to whether you can afford that rental / EMI
The single most important factor to answer the question of whether to buy or rent is one’s budget and availability of ready finance. Remember, interest rates are at an all-time high and so are rentals in some markets. If your rental budget is Rs 20,000 per month and the rents in your area have shot up to Rs 30,000, it’s time you considered areas 5 km away where rents would still be Rs 20,000. But if you are open to buying a house 15 km away from your current location and financially secure enough to pay around Rs 60,000 per month as EMI, you should consider buying an apartment.
Hefty down payment
If you’re sure you can afford a house, make sure you do the due diligence. Experts say that as far as possible and depending on your age, it’s always good to pay up a sizeable amount as down payment. The more the better, in fact. This is important because you may be able to service fatter EMIs today but not in the future if you do not have a job. With inflation rising, what if your debt-to-income ratio gets into an uncomfortable zone?
Ready-to-move-in or under-construction?
Ask yourself whether you want to buy a property which you can live in right away, or can wait three years, say. Accordingly, decide whether to buy a ready-to-move-in property or an under-construction one.
The ideal thing would be to go for a ready property. If your budget is slightly stretched, you can consider a soon-to-be-ready project that is at least 80 percent complete. There will be minimal risk of the project getting delayed, which is a critical factor. There are severe financial implications if a project is delayed. You would not only have to pay home loan EMIs, but also rent for the apartment you reside in. Do make sure that the project has received an occupancy certificate from the authorities and that flats are being registered.
Having said that, if you do not have adequate funds and can wait for some time, an under-construction property by a reputed builder is the way to go. There are always more options available when you decide to go in for an under-construction property, You may get the floor and the house number of your choice, you could have adequate sunlight, maybe even a terrace or a garden. But then, there is always the risk of non-completion. Take your pick.
Who should buy?
Those who are employed and have 25-30 percent of the cost of the apartment available for investment. Remember, banks will only fund 80 percent of the cost . Those who already own a home can consider upgrading to a more spacious apartment.
Don’t buy for quick profits or short-term gains.
Besides apartments, buyers could even consider buying into a plot by a Grade A developer.
Should you buy now?
Interest-adjusted affordability is still higher than inflation-adjusted prices. This means that incomes have risen more than prices, so people would still be able to afford houses. “If the house is affordable and suits your pocket, you can think of buying it. But only end-users should venture forth as it is still not an investors’ market and capital appreciation is modest,” says Pankaj Kapoor of Liases Foras.
According to Dhruv Agarwala, Group CEO of Housing.com. Proptiger.com, and Makaan.com, you cannot time the real estate market as far as buying a home is concerned. His advice is that buyers should get on to the realty investment ladder even if it is for a small home. “Don’t live in it. Rent it out and trade up for a bigger apartment to live in when you can afford it. Don’t keep waiting for the perfect time. if you keep waiting for the perfect time, then you may never end up pulling the trigger,” he adds.
Things to keep in mind before buying a house
A buyer should make sure that the title of the seller is clear and free from encumbrances. In case of a secondary purchase, all property-related documents for the last 30 years should be examined. If documents for 30 years aren’t available, then at least documents for the last 12 years should be examined.
In case of a new project, the layout plan should have been approved by municipal authorities. An occupancy certificate from the competent authority should be obtained before taking over the property. If this has not been obtained, there is a risk of the property not getting registered.
The project should also be registered under RERA and the buyer should verify if all its provisions have been complied with. Most importantly, even if the project is RERA-registered, do not purchase property from a builder who is sitting on debt.
Estimate the total cost of ownership, including parking charges, stamp duty, registration charges, interiors, etc. Take into account the monthly maintenance charges that you may have to pay.
Make sure you keep three to four options open and don’t fixate on a single property. The golden rule is to explore. Of four properties you select, at least one developer or seller in the resale market will get back to you. The buyer should be willing to negotiate hard or walk away.
It’s advisable for buyers to choose the right location. See that there are proper roads leading up to the project, enough shops for daily needs, and that schools and hospitals are close by. Most importantly, check the distance to your workplace (offices will not remain shut forever) and the modes of transport available. As an end-user, don’t buy into futuristic no-man’s lands.
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