For every investor, the bottom line is extremely important. At the end, what is the payoff and was it worth all the hassle?
No one can predict the future but investors who have given great consideration to the matter know which is better.
The fact is that when it comes to investment, there are some who firmly believe in the stock market and others who will swear by real estate.
As investment opportunities, both have their advantages. However, there are a few reasons why real estate is better than the stock market.
As an investor whose hard earned money is at stake, here’s why you should invest in real estate instead of stocks.
1. Stock Market is Volatile and Uncertain
Most investors find the stock market to be extremely volatile. The highs can be exhilarating, but the lows can be devastating.
Why it behaves thus cannot be quantified or understood and this irrational aspect of it makes it extremely unpredictable as an investment opportunity.
Changes in the stock market resonate across the whole market, affecting everyone directly or indirectly. Avid stock market watchers will claim that the constant spikes in the stock market can provide great tidings but there’s no saying when the tide will turn.
This is not the case with real estate which is comparatively much more stable.
2. Real Estate Powers Higher Returns
Returns are of primary importance for every investor. A comparison of returns between real estate and stock market definitely shows in favor of the former.
In fact, returns are phenomenally higher for real estate, making it far more suitable and attractive for investors.
The reason for this is that property often appreciates better than stock and this has been proven historically as well. Even across a ten year period, real estate has been known to perform better than stocks in terms of appreciation.
The wise investor will of course want to choose an option that gives them more returns for the same amount of money.
3. Property Ownership comes at far lesser cost
One of the advantages of investing in real estate is that you can own the property by just paying 5% to 20% of the whole value.
Obviously, this cannot be done with stocks. Real estate offers investors higher leverage with this option.
The sense of ownership is real and tangible in the case of real estate and this gives the buyer a psychological satisfaction as well.
4. Real Estate Allows for a Proactive Approach to Appreciation
Most people choose to enhance their property’s appreciation by making it more attractive to buyers or renters by doing interiors or increasing amenities.
These elements help in appreciating the property value considerably.
But there’s nothing of the sort that you can do with stocks where you are at the mercy of the market.
5. Greater Tax Benefits with Real Estate
The wise investor will always look for investment options that will save money and if it comes with tax benefits, then it’s even better.
People take loans while buying real estate and often, they get tax rebates on principal and tax exemption as well.
These advantages are missing in the stock market.
It would seem that the prospective home buyer today is spoiled for choice, at least when it comes to numerous financial schemes that developers are offering.
You might have seen many hoardings of real estate builders with the famous lines like “ Just pay 20% now and 80% at possession” or “No EMI for 24 months”
These are some popular finance schemes that are being used by the developers, we have listed out the benefits of the scheme along with the flip side that you need to be careful about
The 20:80 scheme or 10:80:10 scheme
This is one of the most popular financial schemes offered by developers, and is also known as the 20:80 scheme. Here, the buyer invests 20% of the total cost and the EMI on loan for the balance 80% is paid by the developer for a period of time or till possession of the home (as per the scheme).
Since the buyer is paying interest only after a period of time, and the developer is bearing the interest costs, it appears to be an attractive scheme and there are a number of variations on this scheme such as 10:80:10 and 6:88:6 but the end game is largely the same.
In yet another variation of the subvention scheme offered by developers, there is no home loan to consider. Buyers have to pay 20% of the total cost and the balance 80% has to be paid only on possession.
Book your Home for only 8% interest
One of the reasons why people are often reluctant to buy homes is because the idea of paying hefty interest rates is intimidating. There are many builders who sell in the low interest scheme , where the buyer is not burdened with high interest that prevails in the market.
The interest rate the builder offers is as low as 8 % for some certain duration sometimes for 12 to 24 months.
The scheme looks pretty tempting in the beginning but it is important that you analyze the interest rate after the lower interest rate scheme gets over . Ascertain that the bank is not charging you more after the initial period, and make sure you don’t end up paying more EMI than expected.
No EMI for 24 months
Some schemes waive interest for a period of time subject to the loan tenure, giving buyers a breather. Here, the buyer pays only the principal amount while the developer pays the interest component to the bank/financial institution.
At the outset, this seems like an innovative offering with a lot of benefits for the home buyer but on deeper inspection, it could reveal as being risky for the buyer.
For instance, if the builder defaults the interest payment, the buyer will be held responsible. There is also the possibility that the developers could inflate the property price to include the interest in it.
Own a semi or fully furnished house.
Tapping into the consumer need to having the latest furnishings or appliances, some developers are offering semi to fully furnished flats as part of their schemes.
This could include modular kitchens as well, a must in every home today, or come with furniture, making it an overall attractive package. By opting for these schemes, buyers can save a significant amount of money on interior decoration. Also, it’s relatively easier to rent out a furnished flat, so buyers stand to gain either way.
Get assured rentals for 2 to 3 years
For those who are looking to increase their income and not particularly concerned about living in the apartments themselves, this scheme sounds attractive. This isn’t a common scheme and not many builders offer it.
The interesting aspect of this scheme is that developers offer guaranteed rentals for two to three years, either until possession or post-possession. This is perfect for those who are not looking at occupying the apartment themselves but using it more as an income generating asset.
However, the lump sum rental amount for two to three years might seem like an attractive proposition for many buyers but it’s actually the discount that developers typically offer their customers. Hence this scheme is a bit like old wine in new bottles.
So, where are the downsides?
Before investing your hard earned money into such a scheme, it is a good idea to fully understand what you’re getting into.
- Investigate the property prices and compare it what the developer is offering through the schemes. This is because sometimes the buyer ends up paying the difference through an increased property price.
- If developers delay in construction, then the burden of the EMIs could fall upon the buyers.
- Your credit score could be affected if the developer defaults or delays payment to the bank because the loan would be in your name.
- Tax benefits are not applicable as these are often under construction projects.
Financial schemes that builders offer might be tempting and also seem like a good deal. The truth is that they may actually work in your favor and push you to make that property purchase you have been dallying for a while.
But our advice is to buy property based on the value you are receiving on the property and not just because the scheme offered by the builder seemed perfect.
No doubt, buying a home is a huge decision. There are several factors to take into consideration, many of them related to finance. Once you have made the decision to buy a home, you have to look into your eligibility for a home loan – and this is a crucial first step to actually financing your dream home.
Here are the important aspects banks look into when assessing your eligibility for a loan. Check where you fare on these and work towards improving your eligibility. It will mean the possibility of a higher loan amount:
- Good credit score of 700 and above. This is mandatory to be eligible for a home loan. If you already have a good credit score, then working to enhance it will not help your position in any way.
- Past loan repayment track record, if you have availed of one
- Current number of Non-EMI related credit you may have pending. This includes credit cards, loan against gold and overdraft facilities utilized
- Track record with you as guarantor for any loan taken by others
Tips to Increase your Home Loan Eligibility
Here are some ways to increase your eligibility. Some may sound familiar and others will have you wondering why you did not think of it before.
- Clear all Pre-Existing Loans: It is important that you start on a clean slate. If you have any outstanding loans, especially on your credit card, clear them. This will work towards enhancing your CIBIL credit score. Once you have no-dues certificates on hand, it takes around 30 to 45 days for banks to update information with CIBIL. Plan the clearing of your debts so that you have a good CIBIL score when you apply.
- Check for Employer-Bank Relations: If your employer has a tie-up with a bank, usually for salary accounts, chances are you may be able to secure a lower rate of interest. This lower rate naturally increases your eligibility. Check with your employer on whether this is a benefit you may avail of.
- Consider a Step-up Loan: Eligibility increases in this kind of a loan. The basic premise is that you pay a lower EMI to begin with and this goes progressively higher into the tenure of your loan. If you are sure of your financial status going forward, this may be an easy way to secure a home loan.
- Consider Longer Tenures: Higher EMIs increases liability and brings down eligibility. If you opt for a longer tenure of loan, chances are you’re the strict norms for eligibility are also relaxed. This may be a good way of increasing your eligibility.
- Pool in Additional Income: If you have other sources of income such as high-yielding fixed deposits or rentals from properties that you own, these may be used to show a higher, steady income, thus increasing your eligibility.
- Apply with Your Spouse or Parents: Much in the same manner as the earlier point, you may consider applying for a loan along with your spouse. Pooling in your income enhances your eligibility to a large extent. The age of an applicant makes a small difference. Those in their late 20s and early 30s are preferred considering a home loan is a long term engagement. You may want to apply with your parents for a better chance.
- Include Bonuses and Perks: Many employers offer a range of monetary perks to their employees. Do be sure to include all of these when making out your application. This can go towards enhancing your eligibility.
- Work on improving your CIBIL score if it is below 700, as this will help enhance your eligibility for a home loan.
- Look into your financial track record to understand your position
- Explore avenues such as longer tenures, employer-bank relations and the inclusion of other means of income, when looking to enhance your eligibility.
As a Non Resident Indian (NRI), you have migrated to a foreign country in search of better job prospects. Over the years, you may have earned enough to consider buying a home in your own country. Naturally your first step is to look for the appropriate NRI Home Loan in India. It is important to know and understand your eligibility, the kind of loan you may get and the repayment schedule involved. We will tell you all you need to know.
1. What Kind of Property Loans Can You Opt for?
As an NRI looking to invest in property in India, you can consider applying for a loan for the following kinds of homes:
- A ready to move in property
- Property under construction
- Property to be constructed on a plot of land already owned
- Upgrading a currently existing property
2. What Loan Amount Can You Look Forward to?
There are a couple of considerations based on which the loan amount provided is decided upon:
- The educational qualifications of the loan seeker. Being a graduate or higher in terms of qualifications will allow an NRI applicant to be eligible for a loan.
- The income of the NRI applicant. Here the Gross Monthly Income (GMI) is taken into consideration. In some cases, a comparison is made between the prospective Equated Monthly Installment (EMI) and the Net Monthly Income (NMI) of an individual.
- Most banks have a few additional criteria based on job profile, country of residence etc. these are factors that you will have to research based on your individual case.
3. Loan Tenure and Rate of Interest:
NRIs may avail a home loan only for a restricted period of 5 to 15 years. In comparison, an Indian resident may apply for a loan with tenure up to 30 year. Any extension is based on the discretion of the bank. The margin of interest is also higher for an NRI loan and is usually around 0.25% to 0.50% more on the regular rates charged.
4. Documentation Requirements
The documentation for an NRI applicant is slightly different from that of a resident and may include the following:
- Copies of passport
- Valid work visa and permit
- Employment contract
- Work experience certification
- Salary slips
- Bank statements of NRE or NRO accounts
- Applicant from the Middle East have to include employment card copies
Most banks have overseas branches in several countries and you are likely to find one close to you for submission of your documents. For a few other banks, you will even be able to make your submission online. You could also consider giving a local resident a Power of Attorney to help facilitate the process.
5. Loan Repayment
When you apply for a loan as an NRI, you will be able to repay it only from Non-Resident External (NRE) or Non-resident Ordinary (NRO) account. All repayment will have to be done in Indian currency.
During the course of repayment should your status change back to that of an Indian resident, the loan amount, tenure and interest rate will be reworked to fit your new status.
Though the process is relatively hassle-free, do note that every bank may have a few requirements that vary from the norm. It is advisable to chalk out things in advance, make essential enquiries and have the documents ready. It is best that you consult the bank that you plan to approach and have your documentation in place accordingly.
- An NRI may apply for a home loan in India based on certain criteria
- The tenure is lower than that provided to a resident and the rate of interest marginally higher
- The loan may be repaid only through a NRE/NRO account in Indian rupees
- Should the status of an NRI change to a resident, the loan will be reworked to match the new status
The big budget day is coming up and naturally there have been lots of discussions on what Finance Minister Arun Jaitley has in store for us with Budget 2015.
Belonging to the fraternity of real estate development, it is natural that several of our conversations have steered towards the desires of the community. While some of these requirements have been pending for a while now, several new ones have cropped up thanks to the prevailing scenario in the real estate world.
If I were to summarize it, here are some thoughts on the expectations of the real estate community from the Budget 2015.
Infrastructural Development is the need of the hour. Emphasis on infrastructural development is essential to help support the rapid residential growth that is taking place across cities.
Also, the development of Smart Cities will provide a wider range of opportunities to a larger segment of people.
- Tax provisions for smoother operation of Real Estate Investment Trust (REITs) and Infrastructure Investment Trust (InvITs) may have been introduced in the previous budgets, however there are certain ambiguities in relation to foreign funding that need to be resolved for REITs and InvITs to be successful.
- Special Economic Zones (SEZ) were a priority once and were well received by the realty community. But with the withdrawal of Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) exemption, these have lost their luster, thus halting the progress on many of them. Restoring these benefits will help revive SEZ development.
- While 100% capital expenditure deductions are available for affordable housing, the definition of capital expenditure does not allow a builder to benefit in any way. This is primarily because construction and land cost are not included in this expense, which is the bulk of the investment. This definition needs to be altered.
Suresh Hari, Secretary of CREDAI-Bengaluru has these points to add:
- Service Tax applicable on residential units adds to the customer’s burden. Similarly the levy of Value Added Tax (VAT) on sale of under-construction properties is a burden. The government will need to offer more clarity on applicability of such taxes. Ideally having a single taxation system across the country will help in transparency in real estate development.
- Before VAT issues are addressed by states, it is essential to get Goods and Services Tax (GST) rolling. Clear-cut rules regarding GST have to be in place, especially in the case of residential development.
Transparent Regulations Needed Today
Of course, the needs of the real estate community are almost as vast as the community itself. Comprehensive development with an integrated approach across the nation is what we need.