ABOUT PURCHASING A FLAT IN A SOCIETY

India has seen phenomenal growth in the past decade, as the GDP has grown multifold. A major contributor as well as benefactor of this growth was the real estate market. Since 2003 real estate in India has been booming, even while the world markets crashed. With increased affordability and easy loaning facilities, the idea of owning a house is not as far-fetched as it was earlier. While vertical growth is the only option in case of limited land resources, it also serves for affordable housing. Today group housing is being developed in almost all new cities.

 

With that comes a lot of options for a home buyer and the sales pitch is so strong that actual facts are sometimes hidden or twisted. Here are some crucial points a buyer should look for before committing to buy a home in a society:

Parking should be adequate for homeowner and easily accessible/visible for visitors as well.

Fire-fighting arrangements should be adequate.

Look for space utilization/orientation. For example: light should be proper and ventilation should be good.

Electrical wiring/conduits should be fire- proof /fire-resistance.

Check for dampness/leakage in sanitary fittings.

Ample space for park/kids playing area.

Security should be adequate.

Water storage tanks should be individual for each flat.

Parapet/Railing height should be more than 3’6″ for high-rise buildings (secure for kids).

Woodwork quality and workmanship should be good. Look for water/termite resistant work.

 

REAL ESTATE INVESTMENT       HOW BENEFICIAL IS IT?

 

Are higher real estate prices here to stay? This seems to be the one question which is bothering all, be it the super rich, middle class or somebody at the lower strata of income.

 

The sharp bounce-back of housing prices in and around Chandigarh in the last year has created a “missed opportunity” feeling amongst many. Suddenly, timing in property purchase has become very important just like buying stocks. The only big difference is that the stock market may offer you such timing opportunities a number of times, but in real estate, the options are limited since that dream house is only one and if you missed the bus you are not sure when the next one will arrive.        This has probably happened to many aspiring buyers and investors during the real estate boom of 2003 to mid 2008 (first phase) and then from mid 2009 till now (second phase). The price movement in these periods has been so sharp that even before receiving a loan sanction letter, the builder would have increased the price.

A simple overview of the last year suggests that from a consumer’s point of view the two critical factors that have pushed demand for real estate were a sense of job or business security and investment driven purchases – probably the biggest culprit.

Whereas from the builder’s point of view, it is the return of liquidity and holding capacity in terms of pricing the stock which has again given way to a seller’s market than what could have been a buyer’s market – during mid 2008 till mid 2009, the so called recessionary period. Even as developed economies reeled in the global financial crisis, the Indian economy recovered – as if recession never hit us and real estate prices resumed their upward journey.

 

In response to the global economic shock, RBI lowered interest rates to such levels that home loan providers launched lucrative schemes. Also luring full page ads by developers ensured that your dream house is once again within your reach.

 

Once again the demand started to outstrip supply but one big differentiator – this time the demand was coming more from investors and speculators. Rising stock markets handed over handsome profits to market players while improved job situation and business environment instilled confidence in the salaried class to take that big leap of investment diversification.

 

But this was just the first half of the show. As banks released liquidity in the system and buyers opened their purses, developers found themselves in a comfortable situation and finishing pending projects in stipulated timelines became possible. It was not just the organized sources of generating funds that helped, but also the conventional Indian ways of funding through presales ensured that at least 20% to 40% of the flats are already sold in a project even before launch.

Such a situation can always create the notion about rising demand which is more speculative in nature but strong enough to fuel a sustained pattern of steady and genuine demand in fast growing cities where people are always striving to upgrade their standard of living.

Now having established these broader reasons of rising real estate prices let us evaluate what one can expect in the near future and what should be the action steps.

Deferring your purchase decision may not be a wise decision for now but it will depend a lot on what type of a buyer you are, an investor or an end user?

If the decision is purely self use oriented then it is safer to say that owning a real estate asset is one of the best things to happen in one’s life since one can always look back 20-30 years later and still find that the timing wasn’t too bad. Historical trends over such time periods have proved that real estate price over longer term have always moved upwards. From this perspective the timing does not really matter but what matters in a situational context like the current one is that ‘should one pay this price now or wait?’ So if you intend to buy a property when prices are rising fast, it is important to identify its intrinsic value by understanding four key simple factors like the locality, area wise demand and supply scenario, developer track record and your ability to negotiate with the developer.

This is definitely not an exhaustive list but quite critical – hence let us try to understand the significance of each one.

Everyone is talking about various infrastructure projects coming up and hence prices in that locality are expected to move up. Agreed, but a metro line passing through a locality may not necessarily be the driving force behind the price rise.

Many a times these factors would have already played their part in an already risen price. Generally the price differentials prevail for different locations but when it comes to price rise from here, it will always be proportionate to its strategic placement which could be linked to accessibility to highways, markets, business districts and overall livability. Having basic infrastructure around your house has become a necessity and hence it is important to have some understanding of the whole area.

It is quite possible that a particular area has all the necessities of good infrastructure, access to markets and entertainment means but if it is loaded with existing and upcoming projects, the price rise in that area may not be dramatic, but a gradual one. One may make an estimate of number of available and proposed flats in an area through good brokers and ascertain the price movement in shorter term. Developers offering free stamp duty and registration or any other goodies along with the flat purchase are suggestive of excess supply in that area.