Tag Archives: property

Plan for extra costs before buying a flat

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Vidyalaxmi, ET Bureau

Why does the payment schedule of your house read different from the figure you had in mind? Most probably because you have done your mental calculation by just multiplying the total area with the cost per square foot. However, the total cost of your flat is not just a function of the total square feet area of the house and the cost per square foot. There are certain fixed costs such as stamp duty, registration , property tax, service tax, etc, that also need to be factored in. Also, there are other costs that vary from developer to developer.

The exact cost and the area

To begin with, you should know the exact area of your house, which is used to calculate the cost of the house minus the taxes and other fixed costs. Today, most projects are sold on the basis of the super built-up area (SBUA). “The SBUA is usually 40% to 60% more than the carpet area. Which means that if you buy 1,200 sqft of space from the builder , it can be safely assumed that your net carpet area will be around 700-750 sqft,” says Akshay Kulkarni, executive director – India , residential services, Cushman & Wakefield.

The most common costs that are not taken into account are stamp duty and registration charges, floor rise, and the maintenance cost per square foot. “While some of the additional charges such as stamp duty and maintenance are known to most buyers, the less obvious ones – which often adds up to a considerable sum – are only communicated verbally. In other words, the buyer may not have a document to go back to establish when such add-on costs were mentioned. Therefore, the overall cost of buying a property can rise drastically above the originally quoted rate,” says Mrunal Duggar, vicepresident – Homebay Residential , Jones Lang LaSalle. In India, the cost break-up given by a builder usually does not include the stamp duty charges. In a way it is a hidden cost for most flat buyers, since they do not factor in this cost while working out their budgets. Also, since most homes in India are bought through home loans, flat buyers should also take into account the cost of an insurance policy to cover the home loan. Besides, a strata search of the property’s legal antecedents may add up to quite an amount. “The registration of a new property with the local electricity board for the fitting of an electric meter involves a one-time expense . If a home is not fully furnished and outfitted, the buyer will incur the cost of furnishing, fittings and all other expenses involved in customising the property to individual needs and tastes,” says Duggar. “In the case of a resale standalone property, valuation of the property may be a prerequisite. This will be charges involved in using the services of a registered valuation agency. There may also be costs incurred on the transfer of the title of the property , which is also known as conveyancing ,” he says. “Society maintenance charges and a yearly property tax are among the other costs that most buyers do not factor in prior to purchasing a property.” For most under-construction projects, buyers agree on a price and the agreements are drawn up and registered, post which the bank starts to pay the cost. In most under-construction buildings , there is very little scope for any major negotiation on the costs to be borne by the buyer. Some of the components that should be checked are – floor rise, car park, PLC (preferential location cost), maintenance cost and fit-out cost, if any. “Even while buying a resale property, all the above costs will be involved. Besides, societies may ask for transfer premium, also known as voluntary contribution, which is rather involuntary. It can range from 2% to as high as 5% of the registered sale value. The actual cost as per the Societies Act is Rs 25,000. Any amount over this is shown as voluntary contribution ,” says Kulkarni.

The common area

Right from your fancy lobby to your elevator to the kid’s pool, every square foot gets added to your bill under the common area head. There are several such parameters that come with a rupee value and get added to your final home price tag. What makes this component of the cost tricky is that there is no standard definition for common area. Usually, common areas would comprise the floor service areas of your apartment, stair cases, lift areas, floor electrical distribution rooms, lobby, swimming pool, etc. The logic a developer gives is that a home owner uses these facilities as much as his/her own house. Hence, check with your builder on the gross floor area, the difference between the super built-up area and the carpet area, and details about all that is included under common areas.

No free lunch

Builders provide facilities/ amenities like pools, gyms, health clubs, recreation areas, and yoga rooms. Some even provide spas, mini theatres, etc. However, none of these is free of cost. These facilities are included in the super built-up area, in addition to all the common areas over the carpet. In some cases, where clubs, etc, are being formed, there is a separate membership fee that is to be included in the price of the apartment . In some projects, however, the fee may be voluntary. In townships with facilities for healthcare and education, the premium over the basic rates will be higher.

Society maintenance charges

Most builders take the society maintenance charges for up to two years in advance. “This trend is due to the fact that it is easy to create the facilities but difficult to maintain as time goes by. Some people end up not paying as they don’t see value in the facility provided. Hence, the best way is to take the maintenance cost upfront,” says Kulkarni of Cushman & Wakefield. As far as your developer is transparent about the pricing and terms and conditions, there is no reason to worry. But now you know all the the relatively unknown cost heads that can increase the cost of your house.

Source: Economic Times

Owning a property makes more sense than staying on rent

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By Harsh Roongta
Whether to buy aproperty or rent one is an age-old debate and it is unlikely to be settled in a hurry. One can do very sophisticated calculations to show that renting is a smart option. Some equally valid and complicated calculations will show that buying makes more sense. A lot of calculators are available that will assist you in taking this decision.

The more sophisticated among them will take into account the possible appreciation in the property if you buy it, maintenance costs, the potential increase in rent if you rent it out, etc.

Unfortunately, the decision is rarely so straight forward. Firstly, most calculators don’t tell you that this is rarely a one-time decision and it is only as good as the assumptions made. If the assumptions change, your decision should change, too. Unfortunately, while you may put in a lot of research and effort in doing the calculations the first time around, most people are unable to devote the same amount of time on a regular basis to check if their initial assumptions still hold true. More importantly, what most calculators also miss are the intangible benefits of owning your own house.

In a house of your own, you can make personalised changes. Then owning your own house (even with a loan on it) imparts a sense of security to the household. Whilst it is difficult to put a dollar value to such intangible benefits, these are clearly significant.

Take this quick test. Conduct a straw poll in your office or among your friends or your family circle. You are unlikely to find many people who regret having bought a home.

I am sure you will definitely find a few who will talk wistfully of the opportunities missed to buy their own home when it was still affordable and within their reach. In fact, I know of some extremely smart and publicly well-regarded professionals who passed on an opportunity to buy homes being sold by their own employer (after doing some very fancy calculations on paper since it was the pre-computer era). Their other less gifted colleagues did not have the ability to do such calculations and, hence, bought the houses and within just 5-7 years their decision was proven right.

The point I am making is that it is not advisable to do a lot of complicated calculations to decide whether to buy or rent your home. As long as you have made a reasonably long-term commitment (at least 5 years) to the city you reside in and have the necessary down payment amount and your income can afford the EMIs, you should go ahead and buy your home. But before I am accused of being an agent for thereal estate industry (disclosure: most largehome loan lenders advertise on Apnapaisa as also some large realtors, and both together constitute a significant portion of our income), let me quickly add some caveats.

First, this whole logic applies only if you are buying a property to stay since the intangible benefits only accrue if you stay in your home. In other words, you need to do a more thorough analysis if you are buying to rent out a property or use it as a business asset. Secondly, if it were me, I would put in a little more effort and hunt around to buy a ready-to-move-in home rather than take the risk of buying an under-construction property, which come with attendant risks of delays, hidden costs and quality issues.Thirdly, you need to watch out for artificially inflated real estate prices. If the real estate rates look artificially inflated, maybe you can wait for the market to cool before you go ahead and buy.But how do you judge whether the real estate prices are artificially inflated?A rough and ready measure is the rent-to-value ratio. Check around in the area where you are looking to buy a property. In these days of high interest rates, if the annual rent of a house similar to the one you intend to buy is less than 3% of the cost you will need to pay, the prices are clearly inflated. The rental market is telling you that the capital prices may not stick. By this measure, most properties in Mumbai (as also in most parts of Delhi) are clearly overpriced.
This does not mean you shouldn’t buy a property. It only means you have to wait a little to see if the property prices correct.

And if you think you don’t have the resources to either keep track of the movements in rental or property prices, then it is better to buy (even at the “inflated” prices) rather than be sorry later.

The author is CEO Apna Paisa

Source: Economic Times: http://economictimes.indiatimes.com/markets/real-estate/realty-trends/owning-a-property-makes-more-sense-than-staying-on-rent/articleshow/9401990.cms?curpg=1