Potential property buyers who have been waiting to buy their dream house but are facing some paucity of funds in the short-term, can seriously consider booking their property in the under-construction stage.
There are several advantages that such a customer would have. First and foremost, is the huge luxury of deferring of payments for your dream house. As the property would take a minimum of 3 years to complete, the customer can book their house and make the payment as and when the construction commences, or in certain cases, on taking possession. The booking amount would only be a small fraction of the total value.
All banks offer home loans for booking an under-construction property through their construction linked schemes. There are several developers offering to pay even the interest component of the loan till the time they give the possession to the customer, to incentivize a quick sale. As the developer is assured of a transaction, he even goes to the extent of offering a decent discount to the customer which usually is around 10 to 15 percent of the market value of the property.
A salaried property buyer can also avail tax benefits on the interest component paid during the entire pre-construction period. This can be availed after the project is complete and buyers have taken possession of their property. The value of the total interest paid is accumulated and divided into 5 equal parts and taken for tax deduction for the first 5 years from the date of final disbursement that is from possession of the property.
However, it is important for a customer looking to book a property at an under-construction stage, is thoroughly sure of the developer’s capability to deliver on time and the future prospects of the project and the location. You need to make a thorough check of the documentation of the developer before committing your money.
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.