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Avoid herd mentality:Do not rush only because you are being told that others are doing so.
Deven Desai, 35, is a frustrated man today. He has been waiting patiently to buy his dream house in Juhu for the past three years. He has seen many flats and is thoroughly disappointed at the overall transactions. He is earning Rs 30 lakh, post tax, per year and is looking at buying a 3BHK flat. He saw one where the halls and rooms were pretty small. The builder’s salesperson told him, “Sir , this is the last flat left. All are sold. The price also is very reasonable, at Rs 15,000 per sq ft. “ Though he was not very pleased at the amount, he decided to go ahead, considering the area and his long wait.
He asked the salesperson about the size of the apartment and the net cost to him. Who told him the super built-up area was 1,980 sq.ft. “What about carpet area?”, Deven enquired. “It is 1,188 sq.ft. There is a 40 per cent loading.” Deven was annoyed and asked, “How is loading just 40 per cent? It is 65 per cent minimum, as the loading must be done on the carpet area and not in the reverse manner that you are calculating. If you add 65 per cent to 1,188, then it comes close to the super built-up figure you are talking about. Why do you guys calculate loading on the super built-up figure? This means my carpet area cost is Rs 24,750 per sq ft, which is ridiculous.” The salesperson replied: “Sir .This is a common practice and everybody calculates it this way. You take it or there are many people waiting in the queue.” Deven decided to let this go, as it just did not make sense to him.
Ashok Ganesan , a sales professional, faced a similar situation in Malad. He was made to believe that the price was low and he should buy it before prices move northwards. However, the loading on the carpet area was way beyond 55 per cent. Many people are simply unaware about this computation and often ignore this. Additionally, how many people have actually measured the super built area they have been charged for? The absence of a regulator makes real estate a perfect recipe for abuse.
So, how should you evaluate a real estate deal and decide whether to buy a house now or later? Considering that you have already identified a location, the first thing to figure out is your actual cost of acquisition. Here are a few things to check out
There is no correct loading figure but I can’t see why it should be more than 35 per cent, itself too high. It must be calculated on the base carpet area. There is no regulatory help or any other available but you can negotiate hard on this front, as there is still a lot of inventory that has to be sold. For example, in Andheri, Mumbai, a couple of wings in a premium 2.5-3BHK flat complex are completely vacant for the past 12-18 months. End users cannot afford it and banks are unwilling to lend. If you are serious about a property and can make upfront payments, negotiate well to strike a good deal. If you can’t , just let it go. The patient ones will be rewarded amply.
Check the prices in surrounding areas for similar-size flats. Yes, there will be a difference between a new 3BHK flat and one built 15 years earlier, but the difference should not be huge.
Find the rental yields for residential flats. A fair value is when the rental yield is between 5-6 per cent. For instance , if a flat costs Rs 75 lakh today and if you are getting a rent of around Rs 300,000 per annum, this is a yield of 4 per cent and means the price is high. If on the other hand the yield is 6 per cent or higher for residential property, then the price is reasonable and you must grab this property.
At the same time, check the difference between EMI and rent. If this gap is too much, you must rent. On the other hand, if the gap is narrow, you should buy.
Don’t fall for the redevelopment stories and buy properties at exorbitant prices. Redevelopment is a long process and there are often a lot of thorny issues involved.
There is a gentleman I know who sold his apartment, pocketed Rs 1 crore and has now gone on rent, paying Rs 25,000 a month. He is earning an interest of Rs 7 lakh on his corpus, whereas his rental outgo is just Rs 3 lakh. He is able to save an additional Rs 4 lakh per year and he has additional liquidity of Rs 1 crore at his disposal. It’s a smart move, but not everyone can do this, as a home is an emotional space and one that many will not sell just because the price has gone up in value.
At the same time, there is no point in paying any price just because someone else will buy before you.
Prices are still not low enough to spur genuine demand in the real estate market, so don’t worry, you won’t be left out.
The writer is director, My Financial Advisor