What’s in store for home buyers in 2016?

What’s in store for home buyers in 2016?

As the first month of 2016 comes to an end and as we power through the first quarter of the financial year, now’s the time to evaluate, introspect and look at property forecasts for the year.

The last two years have changed the status quo for the real estate sector, with home sales being rather dismal.  Inventory has been piling up and investors, though keen, have been following a wait-and-watch policy.

But it’s a good enough estimate that things will change this year, for the better. Let’s take a look at what the Indian home buyer can look forward to, in 2016:

Prospective home buyers will not stop at just inquiries: The last two financial years have seen a massive rise in the number of inquiries. This could have stemmed from stagnant prices, smaller unit sizes being available and reduced interest rates, thanks to RBI.

Realty companies also adopted innovative marketing practices, such as selling through popular e-commerce portals like Snapdeal.com & Amazon.in etc. For the potential home buyer, all these micro-economic factors have consolidated and will work favorably for them.

Hence, there could be a balance in the demand-supply situation, reducing inventories across the board in most cities. Home buyers will definitely rethink their stance on inquiries and take it to the next step.

Easy Payment Plans will make home buying an attractive option: Realtors and financial institutions are ensuring that advantages are in favor of buyers.

Several innovative schemes are coming into play right now:

  • Customized payment plans: Buyers can modify payment schedules according to their convenience. While this may result in a marginal increase in the price of the project, it works out beneficially for the buyer.
  • Schemes that work for buyers: The two popular versions right now are Construction Linked Plans (CLP) and Possession Linked Plans (PLP). These are offered in ratios such as 20:80, 30:40:30 and 5:85:10. The PLP 20:80 scheme is popular among home buyers, and many also opt for the 30:40:30 scheme for popular areas. For those who can get a good deal from banks – the 5:85:10 works ideally.
  • Reduced Pricing: Many builders with a huge inventory on hand are offering options of purchasing a 3BHK at the price of 2BHK. This is a relatively new scheme, but perfectly suited to today’s buyer.
  • Besides these, there are also discounts based on referrals and loyalty schemes. Cash back offers and  the no-EMI scheme are also popular. Some buyers are even offering a fully furnished home as well as additional car park spaces. Such schemes are bound to go up during the festive seasons this year.

More affordable units:  Over the last two years, builders have progressively moved towards aligning themselves with market requirements. This is why we are witnessing an increased supply in the mid-segment apartment range. These are primarily in the Rs 25- 40 lakhs price range and are available in Tier-I cities. Converting 2BHK homes into 1BHK models with basic amenities is also on the rise, ensuring there is balance of home spaces.

Real Estate (Regulation and Development) Bill (RERD Bill) 2013: For the last two years, the Government of India has been under immense pressure to pass the RERD Bill. The immediate benefit for potential home buyers if this bill is passed, would be the establishment of a real estate regulator, independent of the government.

A Real estate developer can register only if they deposit 70% of amount received for a project in a single bank account, and this amount has to be used for the purpose of that project only. This will act as a safeguard ensuring the project is completed on time and that the buyer’s money is not locked indefinitely.

Pro-Growth Movements:

Housing for All initiative: The Housing for All by 2022 is an initiative of the Prime Minister, Narendra Modi and is aimed at urban centers with the following agenda

  • Slum rehabilitation with the help of realty developers
  • Promotion of affordable housing options for the poor through a credit linked subsidy
  • Creating affordable housing with the help of the Public and Private sectors
  • Subsidies for individual house construction or enhancement if beneficiary-led

Smart Cities Mission: The Smart Cities Mission is an innovative initiative by the Government aimed at enhancing economic growth and improving the quality of life of people. This will be done by promoting local development and harnessing technology for the benefit of citizens. A 100 such cities have been identified and the focus will be on the development of core infrastructure. In the long run, this will have a positive effect on the growth of realty in the region.

Make in India: Indian Prime Minister Narendra Modi launched his ambitious “Make in India” program last September. This was aimed at bringing down barriers for international companies to do business and to promote foreign investment. The idea is to transform India into a manufacturing powerhouse. This is a move in the right direction considering the increase in FDI in the recent month. Data shows that industrial production is up by 2.7%, up from a dismal 0.6% in the previous year.

GST: The impact of the impending GST Bill across various sectors will be undeniable, ensuring transparency and better markets for international brands doing business in India. All this will translate to a better real estate industry.

So if 2015 was not really your year to buy a home, 2016 promises to have a lot in store. 

Rent Vs EMI – The Big Debate !

Rent Vs EMI – The Big Debate !

buy_or_rentFor the average Indian, a major sign of truly having arrived to success is buying a home of his own.

A common refrain heard is that “it is better to pay an EMI and own a home, rather than pay a rent and make someone else rich”.

While this argument does have merits of its own, there are certain times when paying a rent makes more sense.

If you are currently caught in the dilemma of whether to pay a rent or EMI, here is some advice that will help with the decision.

A home is definitely about being close to everything that you need to lead a comfortable life. The question of whether to buy it or rent it often depends purely on the financial considerations involved and how you handle it.

It would be prudent to get a financial advisor to help you make the right decision. If not, here is what you need to keep in mind.

Loan-EMI-Calculator1. When EMI Makes Sense Financially:

 The first factor to evaluate in the rent vs EMI debate is your financial position. You may have found the perfect house – one that is close to work and school and which has all the amenities you need for a good life close to you.

Find out the approximate price with all additional costs.

If this sum is more than 75% of what your proposed EMI is going to be, it would be a good idea to consider buying.


e39e4a0327acbf2f0ffd7dd02f26fcca2. How Much Upfront Payment Can You Afford:

In general, you may be eligible for a home loan that covers up to 80% of the cost. Which means, you have to pay around 20% to 25% of this amount upfront as your contribution.

For example, with your down payment, you will take on a loan amount of Rs 48 lakh for a Rs 60 lakh home. This would put your EMI at approximately Rs 50,000 a month, based on current rates of interest.

If this EMI is more than 40% of your monthly income, then you are better off with a rental home. Ideally, if you can pay over 50% of the value of the home as your contribution, then that it would be a good idea for you to invest, else continuing to rent is better.

 

3. PO16_BS_Lead_1_jpg_1950975fWill You Be Ready for Pre-Payment:

In an ideal scenario, you should be prepared for a total pre-payment of your loan amount within a few years of beginning it.

Keep in mind that making regular EMI payments will get you a good discount when you work on pre-payment. Work out your finances and make a projection of where you will stand a decade or so after taking the loan.

Pre-paying even a small amount of around Rs 10,000, in a reducing EMI scheme, will help you make some good savings while buying a home. This will help you make a decision on whether to rent or buy.

 

You have to remember that investing in a home is all about investing a large part of its complete pricing. Putting in only a small amount of this may lead to the banks benefitting more from the interest you pay, rather than you making the most of your investment. Similarly, if you end up investing more than you can afford, you are going to be stuck in a financial rut for a long time to come.

Take-aways:

  • Buying a home makes sense if you are able to invest at least 50% of the total value of the project.
  • Buying a home vs renting one, makes sense only if it is in line with the rent you are paying and not double that amount.
  • If your financial planning allows you to be able to pre-pay major parts of the loan over a period of time, then buying a home makes more sense than renting one.
2015: The Year of the Buyer

2015: The Year of the Buyer

Real Estate 20152014 was quite the interesting year for Indian real estate, much like several other sectors. The change in Government brought in the hope of a steady hand at the Centre and this positivity percolated down the ranks to various commercial establishments. New reforms brought in the promise of a better future and the positive sentiment spread among Indian and international investors alike. With all of this characterising the end of the year, 2015 has a great deal for the real estate industry and potential home buyer to look forward to.

A Mid-Range Buyer’s Market All the Way

With the positivity of 2014 spilling over, 2015 will see the tides turning and the sector turning into a buyer’s market. This will be triggered by the positive market sentiment and the expected cuts in interest rates this year. Other things you may expect to see are:

  • Many launches in the mid-end and low-end segments at introductory prices, which will have many takers.
  • Homes with basic, yet quality amenities at a value-based price point being in focus all through 2015.
    Innovation will be the name of the game this year, with builders working on innovative features to gain traction with potential customers, since price escalation is inevitable.
  • While the demand for premium housing will still be there, it may not see any increase.
  • Social media and online marketing will emerge as a strong means of wooing potential customers, thus helping brands reach out to a wide audience.

Suresh Hari, Secretary, CREDAI Bengaluru, speaks on buyer expectations and explains that there is a need for an attractively priced home, considering that there is huge gap between demand and supply. “I see the Smart City concept taking shape, thereby providing newer avenues of investment. I also feel that there is a need for a more user-friendly interface online to help deal with property related issues.”

A Decrease in Interest Rates a Possibility

Ganesh Vasudevan, CEO IndiaProperty.com, says, The drastic increase in the number of enquiries over the past two quarters indicates positive market sentiments amongst buyers.  The increase in the home loan exemption in 2014 was just the first step of the NaMo government towards its promise of providing houses to all by 2022. In the coming year, home buyers may expect more such buyer-centric policies. Project pricing will be the most critical aspect to attract home buyers this coming year.”

Suresh Hari reiterates this point saying that to ensure that the buyer is benefitted, there is need for home loan interest rates to be brought down to 8% or lower.

There is an expectation of tax exemption limits being increased under Section 80C of the Income Tax Act. This in turn will encourage savings and provide an impetus to buying new homes. The possible tax holidays to the making of affordable homes may result in monetary benefits that may be passed down to the end-user.

All this and more is what a potential home buyer may look forward to in 2015. Key areas in Bangalore that are likely to see development:

  • South Bangalore – thanks to better connect with Electronic City through the NICE Road
  • The ORR-Marathahalli-Whitefield area and beyond will be in demand
  • Kengeri
  • Varthur
  • Begur
  • Devanahalli are some of the areas to watch out for.

It would be a good idea to wait a while to see how the implementation of proposed reforms by the government plays out before making a decision to invest. Market sentiments are good and there is no reason to believe that this will not be a good year for realty, despite burgeoning prices of construction materials.

 

Takeaways

  • 2015 will be the year of mid-range housing projects with innovative features.
  • Financial reforms will come into picture, making it a buyer’s market.
  • Online marketing and interactivity will characteristic real estate transactions.
  • Key sectors in South and East Bangalore will be in demand.
Real Estate Ads – Look Beyond the Fluff

Real Estate Ads – Look Beyond the Fluff

Mahesh, a good friend of mine came to me with utter confusion written all over his face one afternoon. He has been looking for a good residential project to invest in and was completely overwhelmed by the number of ads out in the media on homes. Almost everything seemed to promise the sun, moon and stars combined.

As any discerning customer, he knew not to take things on face value, but being able to read through the fluff was proving difficult.

We spent a good while discussing the subject and came to the conclusion that real estate ads tend to claim a set of features that seem too good to be true.

While these claims may be true, it is important that you learn to read through the fluff that is expert ad writing. We narrowed down on a list of words/terms that you may want to look into more deeply when you are evaluating a potential home :

1. Centrally located

Centrally located is a subjective matter as far an individual buyer is concerned. The property may be centrally placed in terms of geographic location in your city, but you will have to look into distances to your work place, school and other important amenities, before this term actually applies to you.

Moreover, centrally located may be understood as a neighbourhood that may be at a good point in the city but it is the location of the property within that neighbourhood that matters. Take for example, Bannerghatta road which stretches for close to 50kms. Centrally located here becomes subjective to where the property is placed on this road and how interior it may be as well.

Another example would be distances mentioned on brochures – Often builders claim to be only a few kilometres from the city centre or important amenities, whereas reality is something quite different. Such false claims may be quite misleading to potential buyers, especially NRIs.

2. Upcoming neighbourhood

There are several new neighbourhoods coming up across Bangalore. You will have to evaluate how new the neighbourhood actually is.

Look around for the development taking place in the area; evaluate utilities available, distances to emergency services and the like. You will also want to know how far you are from entertainment options and the time taken to commute to common places in your daily life.

Upcoming neighbourhood is also often the reason cited for inflated prices on a project. Independently verify property prices in the area and see if you are getting a good deal.

3. Close to Amenities

Common amenities that you need are hospitals, schools, stores that provide you with everyday needs, entertainment options, restaurants and the like. Make a list of amenities that you cannot do without and check to see how far each of these is from the property.

With most things going online today, especially as far as shopping is concerned, you need to know if the area this property is in facilitates Internet connectivity. There are quite a few localities that are not yet conducive to Internet connectivity.

4. Water-front property

Considering the fact that Bangalore does not have coastline, this is a feature that has to be well understood. We have a number of lakes which have properties placed in close vicinity. In fact, there are even a few builders that are making the effort to revive a lake in order to provide their property with this feature.

What you need to look out for is whether the waterfront view will be visible from every apartment or from a select few. Will these have a premium price tag attached to them is also something to consider.

5. Lots of natural light

This is something that you will have to see for yourself. The floor plan and the exteriors of the building will determine to a large extent the amount of natural light coming in.

What you may also want to see is your surroundings. If there is a chance of another high-rise development coming next to this property, your exposure to natural light will reduce.

6. The .5 room

Many builders offer you what is called a 2.5 bedroom home, where you have 2 proper bedrooms and a smaller room that may be used as an office/playroom/gym or the like.

You will want to check the dimensions of this room and its placement to see if it actually may prove useful to what you have in mind for it.

7. Ample parking space

There are a few details of this that need to be made clear – is the parking closed or open and how many vehicles may be accommodated.

You may also want to look into whether there is a possibility for the allotment of an additional parking space if needed. The arrangements for two wheelers will also have to be seen.

These are the primary terms that you must not take at face value. A good amount of research will help you decipher ad talk in a much better way. This will help you make a good decision.

Takeaways

  • Real estate ads must not be taken at face value.
  • Each term in the ad may not give you the exact picture.
  • It is important that you evaluate in each in your own perspective and according to your needs.
Simple Considerations Before Applying for Your Second Home Loan

Simple Considerations Before Applying for Your Second Home Loan

two-white-housesToday was a happy day for a family friend – He and his wife have just been handed the keys to their new home. Having helped them through the process, the mix of happiness and relief on their faces was something I totally understood.

With the house warming ceremony done, we all sat down and were relaxing, when my friend suddenly asked me, “Do you think I will be eligible for a second home loan anytime soon?”  The question did not really surprise me as there are several young couples that are investing in a second home, as early as at 40 years of age.

If you are in the same boat as my friend, perhaps this article will help you plan your second home loan better. There are few factors that you will have to ascertain before you take the plunge:

Today was a happy day for a family friend – He and his wife have just been handed the keys to their new home. Having helped them through the process, the mix of happiness and relief on their faces was something I totally understood.

With the house warming ceremony done, we all sat down and were relaxing, when my friend suddenly asked me, “Do you think I will be eligible for a second home loan anytime soon?”  The question did not really surprise me as there are several young couples that are investing in a second home, as early as at 40 years of age.

If you are in the same boat as my friend, perhaps this article will help you plan your second home loan better. There are few factors that you will have to ascertain before you take the plunge:

1. Can you afford a second home?

The economy is a volatile one and this is the first questions you have to ask yourself. If you are currently paying the EMI on a home loan, a new loan will be an added financial burden. Ask yourself the following:

  1. Do I need a second home?
  2. Will my income over the next couple of years grow to accommodate this additional expense?
  3. Is my job secure?
  4. Will I be able to absorb the effects of taxation laws such as municipal tax and rental yield tax?
  5. Will my returns on this investment balance the financial burden of a second home loan?

2. Are you eligible for a second home loan?

Remember that the terms of a second loan may not be similar to your first. The upfront amount you have to pay will be higher since banks will back you up to 75% of the second home value only. The interest rates will be higher too.

3. What loan amount you will receive?

This will depend entirely on the bank’s discretion which will take your current EMI and your monthly income into consideration.

4. Can you handle the additional taxes?

When you buy a second home, it is assumed that it is not for personal use. Thus taxation laws are applicable.

Once you have your answers to these above questions figured out and are willing to go ahead, note that banks will examine your application for a second loan on the same criteria. There is a tax benefit from your second home loan as well, but this will be based on the calculations of income from this new property. The benefits will be:

  • Since the property is considered to be rented out, you will be allowed the full interest on the second home loan as a tax deduction. You will not have the ceiling limit applicable as with the self-occupied property.
  • With regard to the principal, all your properties together will be eligible for a Rs 1 lakh deduction.

These are the basics of getting a second home loan and are exactly the points of advice I gave my friend as well.

Major Take-Aways

 

  • You can consider applying for a second home loan soon after your first.
  • Question your intentions based on affordability, taxation implications and loan eligibility.
  • Benefit from second home loan taxation laws.
Earn Well from Your Property – Play Your Cards Wisely

Earn Well from Your Property – Play Your Cards Wisely

Annual-Value-of-House-PropertyFor those of us with a remote understanding of investment in real estate, one thing is very clear – there will be steady appreciation over the years and it is a rock solid investment.

Based on these two facts, you may be under the impression that property will get you instant returns. Unrealistic expectations are a common mistake made by most investors. Real estate, just like any other asset form has its ups and downs. You have to make certain smart decisions to make the investment work well for you.

Here are a few common mistakes committed by novice real estate investors

Not understanding the market

If you are looking to invest in real estate purely to sell or to earn rentals, then you should have a clear understanding of the market. Look for places where the demand lies and see if you can find a property to leverage this demand.

Being unrealistic

What many real estate investors fail to understand is that real estate is not an overnight money spinner. If you are renting out the space, your gains will increase over the years, with the annual increase in rents. You will also earn interest on capital based on the deposit amount with you.

As far as sales go, a home will not show you a substantial appreciation for at least 5 years after it is bought. If you are looking for instant high returns, then banking solely on real estate may not be the way to go.

Now if you have investment in residential real estate, here are a few ways to earn on your investment:

1.Rentals

Of course renting out your home will be the first means of earning from real estate. Be sure to have competitive prices that are in keeping in the prevalent rates in the locality. Also keep in mind the rentals will vary based on location and proximity to amenities. You may use the rent to pay your home loan EMIs each month or avail of the 5% to 6% returns you get on it, each year, exclusive of taxes.

2.Leases

You may consider a company or an individual lease. Handing over your property to a corporate is a good way of ensuring a fixed income and having your space looked after by responsible entities. The paperwork is always in order as are all legal requirements. You may also consider the same with an individual tenant. It ensures that you have a long term tenant and are prepared to look for another when the time comes.

3.Short term guest house

If you plan to use the house on occasion, then you may consider renting it out as a guest house, perhaps with domestic help included, to short term tourists. Alternately, you may also consider the popular option of running a paying guest establishment.

4.Service apartment

If you plan to use the house on occasion, then you may consider renting it out as a guest house, perhaps with domestic help included, to short term tourists. Alternately, you may also consider the popular option of running a paying guest establishment.

There are several ways to earn a profit from your real estate asset. The key is to remain realistic about your expectations and give your asset time to grow and appreciate in value. Diversifying your investment portfolio into other assets helps.

Main take-aways