Thursday, October 31, 2019

Resale Vs. New property – 10 Things to think about

Buying a resale property differs from buying a newly constructed one, both in terms of legality as well as the buying process. The properties listed on resale are often priced higher than the original cost considering factors like new amenities, pricing trends in the vicinity, ease of commuting to the city, malls, schools and hospitals, overall civic amenities in the area, etc.

However, there are several advantages of buying a resale property, such as…

  1. Immediate possession of the property
  2. Escaping the rent and EMIs simultaneously
  3. Getting to see the desired specifications completely
  4. No construction delays
  5. Time for planning your move-in
  6. Tax sops on home loan from the beginning 

In spite of the advantages at a higher price level, it is imperative to know what to expect and what you will get in a resale-apartment deal. 

  • Talk to the experts 
There’s definitely a friend or acquaintance who has invested in a resale apartment in the past, and is evidently happy with the purchase. Ask how they went about the purchase. Also try to understand the general legal procedure. Apartment specific details may not be similar to your desire, but certain basics always match. 

  • Check for clarity in the ownership context
Although one feels it’s easy to hire a lawyer or an estate agent, it’s better to be well versed in certain areas for your own understanding. Check the title of the property, as its clearance is highly essential to avoid any sort of fraudulent selling. 

  • Documents
Check for all documents available with the purchase. Some of them are project commencement certificate, completion, occupancy and sale deed. Also check for the authenticity of the same with a lawyer or an agent of your choice.

  • Clearance of loans taken 
Check whether the property is completely free of past loans taken by the builder. Check with bank personnel to conduct this verification because they have the necessary network to do so. 

  • Eligibility to apply for a new loan
Considering that you need to fund your purchase through a loan, and this would be a resale property, cross check with your bank about the amount that you are eligible to receive as a loan. Verify that you have the all-important documents to process your loan application. Sometimes it is better to fund the property partly through a loan, even if you can afford the entire payment. Outsource the due diligence to bank authorities and stay rest assured about the safety of the investment. 

  • Conduct an evaluation of the property
It is important to get your desired property evaluated for its market value. This is required firstly to ensure that the finances are planned properly. Secondly, check whether the property prices are predicted to fall, which would discourage the banks from granting you a loan amount that you are eligible for. 

  • Down-payment amount
Make prerequisite arrangements to pay an initial lump sum amount as a down payment for the purchase. The banks usually give you close to 80% of the total price on the property as a loan. 

  • Age of the property
The ratio of loan amount received and the amount of down payment varies based on the relative age of the property. Older properties tend to be valued away from your advantage because banks try to safeguard their interest. Thus, the down payment for an older property would be a larger amount with respect to the loan you can avail.

  • Maintenance fees charged by the society
This is a monthly recurring expense after you occupy the purchased apartment. Ensure that your budget can accommodate it with the EMI that you would be scheduled to pay every month to the bank for some years as well. 

  • Reason for the sale
This should have appeared much higher in the list, but you can find out the reason for sale only after you build a rapport with the owner. Try finding out the reason behind the sale. Although it is not always necessary that you get authentic information, do ask to understand the intentions.

This is a blog post by Bharath Joshi who is the Marketing Executive for Unishire Signature in Bangalore.

Friday, October 25, 2019

10 things to check when booking an apartment in a builder project

Author: Sachin Gupta | Find me on Twitter

Call it practices or malpractices; real estate in India is riddled with cases where buyers have been taken in for a ride. And in this environment, buying an apartment is not as easy as it may sound. Whether you are an end-user or an investor, you should pay attention to the following 10 items when booking a flat. These 10 items are categorized into two principal checklists namely Project details and Apartment details:

Project Details

  • Land Titles
When making real estate investments, buyers of property typically want assurance that they will become the legal owner of the property and that the seller is lawfully possessed and has the right to convey title. When a real estate developer has “Title”, he is said to have all the elements, including the documents, records, and acts, which prove ownership. Therefore, a buyer should insist on documents that clearly demonstrate Land Titles.

Some of these builder projects are approved for home loans by banks or lending institutions. These lenders are also concerned about title assurance because the quality of title affects the collateral value of the property in which they have a secured interest. Therefore, if you as a buyer lack the capacity to verify Title certificates by yourself, you should at least check and verify with the list of banks that have approved the project for home loan grant.

  • License Grant
The Town and Country Planning (TCP) Department grants license to private developers owing land for converting it into a colony or a group housing society. The license is granted upon fulfillment of parameters laid down by the TCP Department.

Ask for the License number from your developer and verify it at the TCP website.

  • Intimation of Disapproval (IOD)
Check if the builder has received the IOD from relevant authorities (Town and County Planning Department). IOD lists out the conditions based on which the building should be constructed. It is usually valid for one year and has to be re-validated thereafter.

  • Master Plan
A master plan typically demarcates city or region’s future development including residential, commercial, industrial, and recreational facilities. Visit the City Development Authority website and verify the claims made by the developer while selling the project.

  • No Objection Certificates (NOC)
In addition to the License number granted by the TCP department, a builder should also possess NOC from environment, fire fighting, electricity, water, airport departments. Check these NOCs.

Apartment Details

  • Location
First thing first, location is the key differential in selecting or rejecting a project. Make sure, you book an apartment in a project which is well connected by road to city’s CBD (Central Business District). In addition to that, look around for the presence of social infrastructure such as schools, shopping malls, college, etc.

  • Floor Plan
You are going to live in this apartment. Therefore, pay attention to the floor and unit plan. In one particular project, we noticed there were about 14 apartments on one single floor and that was a big dampener in otherwise a good project. In an under construction project, it is very difficult to assess the floor plan and unit plan. Ask for the approved floor plan and unit plan from the developer and analyze these plans for open spaces, lobbies, lifts, etc.

  • Amenities
After a long and hard day at office, one would like to relax and rejuvenate. Buy an apartment in a project which offers state of the art amenities such as park, jogging track, swimming pool, clubhouse, etc.

  • Kitchen

Many people overlook the Kitchen; however, make sure Kitchen is not only spacious but also properly planned. Many developers in Gurgaon offer the option of Modular Kitchen, however, check if the same can be developed from outside suppliers at lower prices. There are numerous vendors of Modular Kitchen in Gurgaon, visit them and inquire about the quality and total price. Thereafter, one can compare and take a final decision on the modular kitchen offered by the builder with the one offered by outside vendors.

  • Apartment specifications
Specifications comprise of kitchen fittings, bath fittings, flooring, electric work, walls, etc. Visit the sample flat prepared by the developer and assess the specifications first hand. Make sure that specifications provided in the brochure and shown in the sample flat are part of the builder buyer agreement.

  • Carpet Area/Sale-able Area Ratio
Most builders would charge you on the basis of sale-able area. Ask for the efficiency of the apartment or in other words carpet area of the apartment. In most cases, ratio of carpet area to sale-able area is 75 to 80%. If possible, get that included in the builder buyer agreement.

We are sure you will have your own stories to tell, your own issues with real estate projects, your own experiences of buying an apartment with a builder, and your own follow-ups? Share them here with the larger audience and let’s help each other.

Have any Questions?

Friday, October 18, 2019

Repo rate and its impact on bank's lending rates to home loan customers for buying property in India

Author: Sachin Gupta | Find me on Twitter

To control inflationary pressures, RBI increases repo rate. And it is quite evident from the short term and long term graphs; whenever repo rate is increased, it impacts growth of the industry. And in recent times, one can correlate the slowdown in real estate transactions with increase in repo rate.

Latest short term repo rate changes by Reserve Bank of India

History of repo rate changes by Reserve Bank of India

Whenever, repo rate is lowered it encourages individuals and companies to invest because of lower cost of borrowing.

For example, the debt on balance sheet of 11 real estate listed firms on BSE stands at Rupees 42000 Crores. Even a drop in repo rate by 1% reduces the debt servicing by Rupees 420 crores per year. That’s massive for real estate developers given that other input costs are rising.

Similarly, for a home loan seeker who has taken 50 Lacs rupees of home loan, drop in repo rate results in substantial savings on EMIs.

Loan amount – 50 lacs
Bank interest rate – 11%
Tenure – 20 years
EMI – 51609

Loan amount – 50 lacs
Bank interest rate – 10%
Tenure – 20 years
EMI – 48251

Which means, monthly savings of rupees 3358.

Therefore, just like any industry, real estate sector including the developers and customers are keeping an eye on RBI’s monetary policy and are batting for lowering of interest rates.

Have any Questions?

Friday, October 11, 2019

A typical real estate project development process

Author: Sachin Gupta | Find me on Twitter

Once the land development process has been completed successfully, a developer will focus his/her energies on the project development process. Developing and delivering a real estate project successfully is challenging and it lasts for several years passing through various phases. Primarily any real estate project can be divided into 5 phases:

Phase I – Land acquisition
The details about land acquisition process can be found in our earlier post of land development process.

Phase II – Construction
Construction phase requires applying for license (permitting), and project development.

  • Permitting/Licensing:

The permitting process usually begins with an application which identifies the site, its location, and a preliminary design of the improvements to be constructed. This application is then used by public officials to verify compliance with its current zoning classification. If it complies, the permit is granted and the construction of the project may commence subject to building codes and inspections. If the permit is denied, the applicant will usually clarify or amend the application and will ask the city planning staff/director to review it again.

  • Preliminary checklist – Project development:

This checklist is usually the first step that a developer reviews when evaluating a site for possible development.

    1. Allowable uses per zoning classification.
    2. Minimum lot size per zoning classification.
    3. Maximum floor to area ratio (FAR).
    4. Building bulk/density limits.
    5. Setback/building line.
    6. Building height limits.
    7. Building footprint/envelope.
    8. Parking ratios.

  • Important terms/project development:
    1. Setback/building line – requirement to construct building a specified number of feet (setback) from the right-of-way line or other landmark.
    2. Right-of-way line – area designated for a public street or alley that is dedicated for traffic, public use, utilities, etc.
    3. Building related terms:
          • Footprint – it is the shape or outline of the primary building slab or foundation as it will be constructed on the site.
            • Envelope – the total outside perimeter of a structure, including footprints and any exterior patios, mall ways, landscaping, etc.
              • Facade – the exterior, usually the main entrance of a structure
                • Bulk – a three dimensional space within which height, width, footprint, and number of structures/elevations/shapes are viewed in total relative to the land area upon which it will sit to determine land use intensity.
                  • Building codes – refer to required materials and methods used to construct improvements within a jurisdiction.
                    • Permit- document executed by the director of planning authorizing the construction, restoration, alteration, repair, etc., of a structure and acknowledging that it conforms to requirements under the applicable zoning ordinance.
                1. Floor to area ratio (FAR) – it is usually calculated as gross building area divided by square footage of land area.
                2. Height restrictions – used to limit the vertical height of a structure to be constructed.
                3. Allowable use – user activities permitted in a zoning classification
                4. Impact fees – charged by public entities to cover added public sector expenses expected to be caused by the development such as traffic control, drainage, etc.
                5. Incentive zoning – used by city planners to accomplish community goals simultaneously with private sector development.
                6. Inclusion zoning – part of a zoning ordinance that requires that a specified type of development be included in order to obtain permit for that site.
                7. Minimum lot size – per zoning classification
                8. Parking ratio – required number of parking spaces per sq. ft of gross building space or per number of apartment units.
                9. Site plans – drawing done to scale depicting the placement relative to other requirements
                10. Traffic counts – number of vehicle trips per hour past a specific site.
                11. Encroachment – occurs when the construction of improvements extends over a property line on to an adjacent property.
                12. Property tax abatement – forgiveness of taxes for a specified number of years.
                13. Land to value ratio – calculated as rupee value of land to total project value (including land) anticipated upon completion of project.

              Phase III – Completion and occupancy

              There are certain risks in any real estate project development. Once the construction has been completed, there is an additional risk of selling and handing over the project to clients or bringing in tenants in case of rental property. Risk begins with land acquisition and increase steadily as construction commences until cash flows from the leasing phase materialize. It should be noted that factors determining the demand for type of space (such as office, retail, warehouse) being developed are critical to project risk. These factors may manifest themselves in current market indicators, such as vacancy rate levels, rent levels, or the extent of leasing commitments from the tenants.

              A very good understanding of the underlying economic base of an urban area or region is critical when assessing the viability of real estate development.  The point is that investors must examine the demand for space in terms of the characteristics of the demand by end users (tenants) in a given market. This demand in turn depends on the type of employment in the local market and the nature of the functions tenants will perform. Only by understanding the local economy and the nature of employment can developer anticipate demand accurately and produce and supply the quantity and quality of space in the proper combination to satisfy market demand.

              Phase IV – Management

              Once the property is occupied by clients/tenants, there is need for professionally managed facility management team. This team can look into the property management tasks such as maintenance, HVAC, parking management, security, civil works, housekeeping, landscaping, etc. These tasks are equally important and ascertain the long life of property and thus ensure positive rental income as well as capital appreciation. 

              Phase V – Sale
              The developer may choose to sell the property from construction phase onward as happens in residential development in India. Or he/she may choose to hold the property in case of commercial developments provided rental income from the commercial properties is significant enough to justify retention.

              Have any Questions?

              Friday, October 4, 2019

              3BHK Available for Sale in Madhuban Bapudham, Ghaziabad
              Size - 152.62 square meter
              Price Expected - 60.89 Lacs
              Silver Oak, Madhuban Bapudham, Ghaziabad

              Fill the below form to buy this apartment at best prices.