Home Loan Prepayment: The Whys and Hows

A few years ago, Misha took a large home loan, at a monthly EMI of almost Rs.37,000 and interest rate of 11.75%. She still has to pay close to Rs.26 lakhs of the principal amount with just a little over 10 years remaining. She is looking for options that can help her diminish the loan burden. As home loans are some of the biggest debts we take on during our financial lives, repaying them often becomes a substantial burden on middle-income earners with a fixed salary. However, there are four ways in which you can reduce your home-loan debt—or at least minimize its effects:

1. Transfer your home-loan to a low interest provider: If Misha transfers her home loan to a lender who levies 10.5% interest instead of 11.75%, her loan tenure comes down drastically. If she maintains the same monthly EMI, the reduced interest brings the tenure down to 113 months from 124. The longer you spend repaying your loan, the more interest you have to pay—therefore, Misha will save approx. Rs.4 lakhs in interest.

2. Increase your EMI and reduce the tenure: This can be availed only if your financial situation changes substantially. For example, you had been saving for your child’s education, but she has already left for college. Or your salary has been hiked by 30% or more. Suppose Misha pays Rs.42,000 a month instead of Rs.36,407 a month— her interest tenure comes down to 96 months from 124, as a result of which she pays Rs.476000 less in interest.

3. Make prepayments: Prepayments are payments made towards your loans in large chunks, and at irregular intervals. Here are the basic ways in which they differ from EMI payments:

• EMIs are compulsory and regular. You pay them every months, and you pay a fixed amount. While this amount can be changed, there is not much flexibility. Prepayment, on the other hand, depends entirely on the loan taker
• Prepayments are much larger than EMIs, for example the average home loan EMI can be anywhere between 10,000 and 50,000, while prepayments are numbered in lakhs.
• The most crucial difference between EMI and prepayment is that a large portion of your EMI goes towards payment of interest, at least towards the beginning of the loan tenure. Prepayments, however, go directly towards your principal, thereby bringing down not only the loan tenure, but also the outstanding loan amount.

If Misha makes prepayment of Rs.2 lakhs for 5 years, alongside her regular EMI of Rs.36,407, her total interest will drop by a staggering Rs.8.5 lakhs and her loan tenure will be almost halved— from 124 months to 73 months. Obviously, out of the three options for reducing the home-loan burden, making prepayments is the most profitable one. But while going down the prepayment route, there are a few things you must note:

1. You will have to pay interest when you are making a prepayment, i.e. the day you make the payment, your principal will decrease and from that point on you will be paying interest on the reduced principal. But suppose you make a prepayment on the 10 of the month— the interest on the original amount for those 10 days will have to be paid as well.
2. Some loan providers insist on validating your proof of income before accepting prepayment, as these are usually big ticket payments. Therefore it is advisable you carry bank statements for the account from which you are making the payment, dating back to at least three months.
3. The longer you take to repay a loan, the more your loan provider will earn. Therefore, accepting prepayment is often not in the best interest of the bank, so there might be measures like prepayment charges and limitations in payment mode. There may be a specific period after loan disbursement during which prepayment is not permitted. Also, the borrower may have to be present personally to make prepayment. Acquaint yourself with these rules and regulations before you take the leap.
4. Once your principal loan amount decreases, your CIBIL score (which reflects your credit worthiness) will improve. Follow up on your credit score within a few months of making the prepayment, to ensure that the reduction in outstanding balance is reflected.
5. Make sure to preserve the acknowledgement of payment. This document contains important details such as outstanding principal, home loan tenure, and change in EMI (if any).

The catch is, prepayment is possible only in case of a sudden financial windfall, such as yearly bonus or inheritance or gift. Then you would have the dilemma of whether to invest it and increase savings, or whether to prepay your loan and reduce your debt. Our advice is, if the rate of interest from investment is less that the interest you pay on your loan, it is better to make a prepayment. For example, investing in a provident fund would fetch Misha interest at 8.8 currently, while her loan interest rate is 11.75. Therefore, making a prepayment makes better financial sense.



This is a guest post by Team Paisabazaar

Step by Step Guide to Buying Property in Thailand

In our last post, we discussed why investing in Thailand real estate can prove to be beneficial for foreigners. With Thailand economy growing at steady pace and improvement in transport system in Bangkok area, the time is ripe for foreign investors to invest in Thailand real estate.

The country is strategically placed geographically and offers convenient trade with 3 largest economies of the Asian continent namely China, India, Japan. At the same time, Thailand is the gateway to the countries of the Association of Southeast Asian Nations (ASEAN). It also offers easy access into the Greater Mekong sub-region, where newly emerging economies such as Cambodia, Lao People's Democratic Republic (Lao PDR), Myanmar, Vietnam offer great business potential. By 2020, full-fledged logistical infrastructure along with superb physical infrastructure will be ready to accommodate businesses that want to enter the growing economies of East Asia, upper ASEAN (CLMV), and South Asia. In a nutshell, Thailand will act as a stepping stone for investors and businesses alike looking to invest in the region.

In this post, we will list down the step by step process to buy property in Thailand.

• Step 1: What kind of property a foreigner can buy in Thailand?

First thing first, as a foreigner, what kind of property that you can invest in? As per the Thai laws, a foreigner can buy condominiums which are freehold and these condos can be 100% in foreigner’s name. If a real estate developer in Thailand develops condominium project, then, 49% of this residential development can be sold to foreign buyers. However, Land properties such as; villa/house, bungalow cannot be owned in foreign buyer’s name. For foreigners looking to invest in land properties, company setup is an option (51/49 share).

• Freehold

As stated above, foreigners are allowed direct freehold ownership in Freehold condominiums. Foreigners can also invest by way of common property co-ownership with locals.

• Cap on Foreign investment in residential development (condominiums)

If a developer develops a condominium project (residential development) with 100 condominium units, then, at any given time, foreigners can hold maximum of 49 condominium units in that project and 51 units need to be held by locals.

• Leasehold

If a foreigner is looking for land properties, then, he/she can effectively use land with a leasehold tenure. He/she is permitted by law to own structures or buildings developed on that land. The maximum duration of such a lease is 30 years. The lease can be renewed upon expiration of 30 years lease term. However, if a foreigner has a registered company in Thailand, then, he/she may also buy land or a house built on land.

• Step 2: A typical buying process for foreigners looking to buy property in Thailand

1. To reserve a property, pay for reservation fee (generally 50000 THB).
2. In 1-2 weeks time period, sign the standard purchase agreement with the developer.
3. Once the purchase agreement is signed, the foreign buyer will need to make 30% of property value to the developer within 1 month.
4. If you are investing in a completed property, then, pay 70% final payment in 4 months. If you are investing in an under construction property, then, no further payments are made till the construction is complete.
5. Once the final 70% payment is made, the developer and foreign buyer will meet at the land department to legally register the condominium with the land department of Thailand.
6. Within 1 month, foreign buyer will receive the title deed and census registration.

Below is a detailed chart for a foreigner who is looking to buy a condo in Thailand:

• Step 3: Get the FET Form

An authorized financial institution (normally a Thai Bank) issues a FET form (Foreign Exchange Transaction). This FET form is an official statement by the authorized Thai bank of exchanging foreign currencies into Thai baht. Whenever a foreigner brings native currency to invest in Thai real estate, the authorized Thai bank exchanges that foreign currency to equivalent Thai baht and issues a FET form for the conversion of foreign currency into Thai baht.

The FET-form was earlier known as the Thor.Tor.3 (and pronounced as tor tor saam). The FET form is one among many other documents that are required when buying and registering foreign ownership of a condominium unit in Thailand as a non resident.

• Step 4: Paying for taxes when a foreigner buys the condominium in Thailand

When buying a property in Thailand, Taxes can always be negotiated between the parties in order to determine who pays for payable tax and duty. Generally, the Buyer will be liable for the Transfer fee and the remaining types of taxes are borne by the Seller.

Transfer taxes - The land department levies 2% of the property value which is based on the value registered in the agreement.

Stamp duty - A total of 0.5% of the registered value will be taxed.

Withholding tax - 1% of the appraised property value will be levied (explained below).

The total withholding tax payable shall in any case not exceed 20% of the total price.

How much of these taxes will be paid by the seller and how much will be paid by the buyer? Well, it shall be negotiated before going to the land department and it shall be explicitly written into the sales contract.

• Step 5: Paying for taxes when a foreigner is looking to sell the condominium in Thailand

Special Business Tax (SBT) is only payable if the property is sold within its first 5 years of ownership and is levied at the rate of 3.3% of the appraised value.

If one retains the property for more than 5 years, then, only stamp duty 0.5% + the 2% transfer fee are paid.

If the subjected property has been used as the principal place of residence of the seller, then, the seller is also exempted from SBT (Special Business Tax). However, the seller name must also appear on the household registration certificate for at least one year.

7 Reasons for Investment in Chennai Real Estate

The real-estate industry is growing at a rapid rate in our country. The contribution of this industry to the national economy is significant. It chips in about 5% share to our GDP. The expansion of the real-estate sector can be attributed to globalization and the setting up of many MNCs. Within this booming sector, Chennai presents a stable and lucrative market to invest in. Let’s take a look at the factors that add up to make this city a prime real-estate location:

1. Ranked among top 12 cities
In a report by Candy GPS (Global Prime Sector), Chennai is positioned among the top 12 cities in the world to invest in real estate. Factors like market transparency, rational prices, and steady growth make this city ideal for investments.

2. Consistent appreciation of property value
The real-estate market in Chennai witnessed a 150% capital appreciation from 2009 to 2012. There is an overall positive outlook for this trend to continue, with the market value expected to increase by up to 10% year on year. These numbers alone give a strong cue for investing in the sector in Chennai.

3. Better employment prospects and flourishing trend of renting homes
The mushrooming of MNCs in Chennai has resulted in better job opportunities, which have further led to significant migration to the city. This trend has increased housing needs, which has hiked the real-estate value in the city. While some of the migrants move to Chennai permanently, there are those who do not have such long-term plans. They would rather purchase a house in the new city, stay there for a certain period, and then move elsewhere. In such a scenario, they choose to rent out their house and earn an additional income every month. Apartments in Chennai are, thus, a great investment.

4. Better investment returns
Increasing value, absence of depreciation, and no phase of depression have made Chennai an ideal city for real-estate investments. More people are now booking their homes and investing in properties in the city, thus propelling Chennai to the top of the real-estate list. This rise in demand has brought about an expansion in the housing sector. Also, a chunk of these investors are NRIs who were born in Chennai.

5. Developed infrastructure and public transportation
Usually, investors are weary of investing in cities that lack public facilities, especially a well-established transportation system. Chennai boasts of an integrated public-transportation network, including local trains and buses, which makes it an attractive real-estate market.

6. Education and health-care facilities
Be it for good education or advanced health-care facilities in the country, Chennai is a name that easily crops up in one’s mind. India Today has rated the city the best place in India for education, what with the presence of leading educational establishments. The city also has renowned health-care establishments. Recognizing these factors, a lot of people from across the country and abroad visit, and at times move base to, Chennai, which enhances the lucrativeness of the real-estate market in the city.

7. Choices across budgets
Those days are behind us when only IT professionals, NRIs, and foreign nationals sought to invest in Chennai. Today, real-estate investors have many options across budgets. They could opt for a small, affordable home or a luxury apartment in Chennai.

This is a guest post by Dinesh Dawde

Why investing in Thailand Property market can prove to be fruitful for Indians investing in overseas property market?

In October 2016, International Real Estate Expo was held in New Delhi – India. The purpose of the 3 day Expo was to showcase International Properties to Indian investors looking to buy property overseas. Real estate consultants and developers from Thailand, USA, UK, Cyprus, Dubai, Canada, Sri Lanka, and Australia participated in the 3 day event.

Indian nationals have been investing in properties abroad for plethora of reasons namely portfolio diversification, for studies of their children, holiday home to name a few. Singapore, Dubai, USA, UK have been the preferred locations. High Net worth Individuals, Strategic Property investors, Top level executives from India typically form the group of investors that are buying properties abroad.

On May 26, 2015, Reserve Bank of India (RBI) further liberalized Outward Remittance scheme for Indian Resident individuals. Under the scheme, an Individual can now remit US$ 250,000 per Financial Year (April-March) to overseas locations for the purposes of any permitted current or capital account transaction or a combination of both. Therefore many more properties are now under the reach of Indian investors.

According to a report published in October 2014 by US National Association of Realtors (NAR), buyers from India bought residential properties in USA worth 5.8 billion US$ during the one year period ending in March 2014. Similarly, in year 2015, data released by Dubai Land Department depicts that Indian investors carried out a total of 4089 property transactions estimated at 13 billion Dirhams. UK and Singapore also attract substantial real estate investments by Indian investors.

However, one location that hasn’t caught the fancy of Indian investors but can prove to be fruitful for Indian Property Investors is Thailand (Bangkok, Phuket, Pattaya, and other cities in Kingdom of Thailand). Non Resident Indians (NRI) as well as domestic Indian investors can consider including Thailand Properties in their portfolio. Following are the benefits that an Indian Buying Property in Thailand can look forward to:

1. Thailand: A tourists paradise

No foreign power has ever colonized Thailand. Throughout its history, Thailand has been preoccupied with two things: overcoming regional divisions to consolidate central Thailand's power and attracting foreign wealth without allowing it to undermine internal stability. On the surface, the country's politics fluctuate continuously as successive governments attempt to balance regional and foreign interests. Yet Thailand's economic and cultural core remains relatively stable.

Thailand is the member of ‘The Association of Southeast Asian Nations’ (ASEAN). It is an alliance promoting economic and political cooperation by fostering dialogue among its ten members.

Thailand dominated as the most popular regional travel destination last year, with three of its cities making the top ten in MasterCard's Asia Pacific Destinations Index 2015.

   

2. Bangkok Transport Infrastructure

MRT system – Metro
BTS system – Skytrain
BRT system – Rapid Bus

3. Thailand – India historical relations

Thailand and India share a deep historical bond.

The Thai alphabet is derived from the Old Khmer script (akson khom), which is a southern Brahmic style of writing derived from the south Indian Pallava alphabet.

Thai vocabulary includes many words from Pali, Sanskrit ……especially in praying

During the 5th to 13th centuries, Southeast Asian empires were influenced directly from India and followed Mahayana Buddhism. The Mahāyāna and Hindu Khmer Empire dominated much of the Southeast Asian peninsula.

Theravada Buddhism was made the state religion only with the establishment of the Sukhothai Kingdom in the 13th century.

Hinduism played a strong role in the early Thai institution of kingship, and exerted influence in the creation of laws and order for Thai society as well as Thai religion.

Hindu influences, particularly shrines to the god Brahma, continue to be seen in and around Buddhist institutions and ceremonies.

The Ramakien is Thailand's national epic, derived from the Hindu epic Ramayana.

Popular celebrations in Thailand – Diwali, Navratri ( nationwide including the corporate entities), Ganesh Chaturthi.

Phahurat or Pahurat known as Little India - A Sikh community settled there more than a century ago and established a textile trading center that is still thriving. The golden-domed Siri Guru Singh Sabha temple is a landmark of Phahurat. The neighborhood is also home to South Asian Hindus and Muslims.

The number of tourists from India to Thailand is on the rise. In 2016, Expected number of Indian tourists to Thailand are 1.8 million.

4. Thai Economy and its growth

As per the World Bank Data, in 2015, Thailand’ population was 67.96 million, GDP (Gross Domestic Product) was 395.3 billion US$, GDP Growth rate was 2.8%, and inflation was -0.9%.

Economically, Thailand has been one of the great success stories of the ASEAN region. Smart policies adopted by successive governments have enabled the country to become an upper middle income economy.

 

5. Thai real estate and its prospects

Find below the detailed analysis of Bangkok realty market including supply, demand parameters and rental yields.

6. Easy Process to buy property and Liquidation or exit

• Reasonable investment entrance
• Growing rental market
• Growing tourist market
• Iconic buildings – innovative designs
• Thailand offers the highest rental return in South East Asia
• Easy buying and selling process – one stop service
• International banks present for transfer

Click here to read the Step by Step guide to investing in Thailand Property Market.

7. Portfolio diversification

As the saying goes - ‘Never put all your eggs into one basket’. One can diversify his/her investment portfolio by investing in various asset classes or if one has propensity to invest only in a particular asset class, then, geographical diversification certainly helps in risk mitigation. Investing in lucrative Thailand property market will certainly help in diversification of one’s investment portfolio.

8. Double Taxation Treaty

As the name suggests, levying of tax by 2 countries on the same income is known as double taxation. Since, you will be investing in and operating an income generating property in Thailand, therefore, you must make sure that taxes are not paid in 2 countries on the same income. To avoid double taxation on same income, Government of India has entered into a double taxation avoidance agreement (DTAA) with several countries and Thailand is one of them. Here is a list of countries with whom India has double taxation avoidance agreement (DTAA).