How Delay in Land Registration Costed Rs 50 lacs to Vivek

How Delay in Land Registration Costed Rs 50 lacs to Vivek – Real Life Experience

Posted on August 31, 2012November 27, 2019 by Jagoinvestor

I want to share a real-life incident. One of my friend Vivek told me how he lost Rs 50 lacs worth of Land in one shot because his grandfather made a mistake of not doing land registration on time and kept delaying it for so long, that it was finally too late. It was just an irresponsible attitude towards documentation. The funny part is that no one in the family knew about this except his grandfather and these guys only came to know about it and were shocked by the incident. Vivek’s Grandfather lived near Varanasi and had always believed that the money should be invested in land and properties, Its the only way to grow your money faster and there is no risk in it.

Whenever he has any chunk of money, he just used to buy land with a future vision that one day it will be useful and give good returns and help his big family and so many children and grandchildren. This was during the 1960’s and ’70s. So once, he bought a big plot near Varanasi. You might be aware of how in villages and small cities, most of the work is done on relationships and verbally. Someone’s word is taken as promise and that was a time when people were not that bad like today:), hence things went smoothly, especially in those days and in a situation where everyone knows everyone.

Land Registration In India - Mistakes and Real Life Experience

So he bought land from one of the known people who lived very near to their home. e paid the money and bought the land (everything verbally).

It was a normal incident.

Their point was “Documentation will happen in a few days/weeks” . Both parties were fine with this, as the world was not going to end and there was ample time to things. Grandfather also started construction on the land and things started moving. No attention to proper documentation and registration even after many weeks and months. The land registration fees was also not that high. Few people kept reminding Vivek’s grandfather that Land registration is still incomplete and it has to be done. But he kept on delaying it as he was over-optimistic and never felt that anything can go wrong. He over-trusted the people around him.

From Future to Now

40 yrs are gone. Grandfather is no more, The guy from whom he had bought the land is also not in this world, he was a good guy. Grandfather’s vast properties were divided between his children (obviously daughters didn’t know that they are also legal heirs and claim their share as per Hindu Succession law). Now the guy who had sold his land took the money and is dead now, his children one day found out the property papers and saw that it’s on their father’s name.

You know what happened next.

They knew this is a bloody awesome situation and gave Vivek and his brother a choice. Either give 50% of the property back (without much fuss and delay) or 100% property with a court case. They knew the other party is totally weak (100% weak) from the documentation angle and legally they can not do anything. The proof that “land was sold and money was paid” does not exist anywhere. Knowing how badly they are stuck with this situation, Vivek and his brother had to hand over 50% of the property to these people else they could have lost everything. The land cost was approx Rs 1 crore and the 50% part was worth Rs 50 lacs in today’s standards.

What is Land/Property Registration and Why is it Necessary?

Land or Property Registration refers to the registration to document changes in ownership and transactions involving immovable property. Whenever you buy a piece of land/immovable property, you need to register the same with the authority concerned, so that a legal ownership title is guaranteed to you. This greatly reduces the risk of fraud and helps solve disputes easily, in addition to creating and maintaining an up-to-date public record. While Land Or Property registration is not that easy, still there are some measures being taken for making property and Land registrations easy in recent times. Also, the registration process depends and varies from state to state, you can get the information about some state here

Is your Land Registration Complete?

A lot of instances like this happen in our life also. We make payments to people and do transactions and make promises verbally. If anything happens to us in between, neither there is any track or it, nor any information about it, our family will never be able to find out what happened, in fact they will not even know that “it happened” . So always refrain from doing anything which is not backed up by supporting documentation. Never!

Especially on the Real estate part, check if the documents are totally in place, see it from “What if I am not there” angle! Do you have any experiences like the above-mentioned example? Do you know someone who has not completed his Land Registration of Property Registration?

Under Construction vs Ready to Move Property – Which is better ?

Posted on March 12, 2012August 19, 2019 by Jagoinvestor

There is absolutely no confusion in saying that everyone wants to buy a house, a dream home which they can call their own. However, one big confusion among buyers is whether to buy an Under-Construction Property or a Ready to move in Property. Each of these options has its own pros and cons and it is extremely important to be aware about the advantages and disadvantages of Under construction and Ready to move property. Lets look at them:

Under Construction vs Ready to move in properties

Negative Points of Under Construction Property

1. Delay in project & Dispute of the Land & Permissions

If you know of any project which was delivered on the exact day that it was promised, its rare! Delay in the project for various reasons is one of the top most issue with under construction properties. On an average 2 years is the deadline given by the builders, but it gets delayed and further delayed most of the times. 2 yrs can turn out to be 4 or 5 yrs of wait in a lot of cases and this adds to the frustration of buyers.

This delay is caused mainly because of the dispute on the land, cash crunch and most of the times incomplete permissions from authorities. Builders start the construction after obtaining most of the required and most important permissions, but at times there might be few permissions which are still going on, but builders start the construction. So it becomes very important thing for a buyer to check all the required permissions and the ownership details of the lands. This is very true for small builders especially.

One important point to note is that even though the house is delayed by just 1-2 yrs and finally comes in your hand, but in a lot of cases promised amenities are given after a long period and some people are still waiting for that swimming pool which was promised in 2001 .

2. You don’t get what you see

The biggest issue, I repeat – the biggest issue of under construction properties is that you never get what you are promised or have seen as sample flat . Sample flats are built-in a way and decorated in a manner that your heart will met down and you will sell your self to grab that opportunity, and over years you will build so much expectations from your under construction house. But when you really get the possession, you will realise that a lot of things are not up to the mark and not as per the promise done. Sometimes layouts are changed & you may not like the new one.

Another issue is over promise in many things. For example – Some builders give false promises that Municipal Corporation Water Supply will be made available in the society after 3-6 months of completion of construction of society, but some builders never fulfill this problem once all the flats in the Society are sold. The builder’s objective of selling the flats is fulfilled and then he is not interested in the problems that people face. A lot of times oral promises are done on many things like cost of parking, extra facilities like swimming pool, gym etc and then they are not fulfilled. And at the end, you are in a situation where you can’t do anything. Either take it or fight a case against the builder and many hassles that come along. Hence please never agree to any oral agreements under any circumstances – Always insist on written agreements with clear delivery milestones etc. One bad experience from T. Ashok is like this

The builder did not construct shelfs and almirahs as promised. He left the house only with walls and lafts. So, I had spent more than 2 lacks for wooden works in kitchen and two bed rooms. Really that was a big burden for me apart from loan amount. So, here after anybody buying house, must ask the builder to mention all in agreements like painting, shelfs, windows, doors,etc., otherwise they may suffer like me.

3. Quality of work may be compromised

Another issue is the quality of work that gets done. The quality of the construction material used, Doors and windows fillings can be compromised with, electrical sockets and switches can be of cheap quality, plumbing can go horribly wrong and even the facilities like parking space, children playing area and other amenities might be below the mark or what you expected and when you complain about all this, there will be all sort of explanations like losses in other schemes, cash flow issues and the cost increase by builders and a new series of promises that it will be done soon. For an example watch this video experience for bad quality of construction and unkept promise by Unitech

4. Income tax claim is headache unless you get the possession certificate

I hope you knew that you can avail for tax benefits only after you get the possession of the house. Saving tax on the EMI’s is one of the big reason why many people plan their house buying, only to realise later that they never thought about this aspect. So if you are going to buy under construction property , be ready to pay rent + EMI and not getting any tax benefit unless you get the possession certificate, and incase the construction gets delayed by few months to 1-2 years, it will be frustrating.

Positive Points of Under Construction Property

1. You start paying slowly & conveniently

The best part of Under construction properties is that it is affordable for most of the people through a home loan. When I say “affordable”, all I mean is that from payment perspective life is easy. You make a down-payment which is generally 20% of the property price and then start making the monthly EMI’s each month and this is how a lot of people are able to own the house. Later after few years , a lot of people feel comfortable as their salaries go up, but the EMI’s value is very much the same. Even if one is not taking a home loan, they can pay the money in parts as it can be construction linked payment.

2. Choices of floor or location are much wider

There are various locations where new projects come up, so the choice in terms of location or which floor you want are generally high. If you are not happy with 12th floor, you can pay more and take the 3rd floor, but in case of ready to move apartments, if 12th is available, then that’s all you have. No choice!

3. Good scope of Price Increase

Under Construction properties are generally in the outer area’s or the non-core part of the city and hence the price appreciation due to future development is good in under construction properties. However this is not true in each and every case. You still have to look at the location and future plans around that area. But the point is that compared to ready to move in apartments, under construction properties have more potential for price increase.

Negatives Points of Ready to Move Property

1. A lot of legal work and documentation

Generally there is a lot of legal work and documentation required in case of Ready to move properties compared to Under construction, because there are no fresh documentation, but a lot of “transfer” documentation.

2. You need to arrange all the money in one shot for down payment, registration etc

In case of Ready to move in properties, all the payment has to be made upfront and all at one time. There is no stages in payment like you have in Under construction properties. So even if you are buying it on home loan, you have to pay all the down-payment, registration charges, stamp duty etc all at one go.

3. Chances of getting duped!

In case of ready to move in properties, there is a big risk of getting duped. You have to make sure that you investigate things very properly. There are cases where same property has been sold to more than 1 person. Make sure you hire a good real estate consultant or a good lawyer who can study the documents well and the fine prints.

4. Inflated Price already

The price appreciation in case of Ready to move properties is generally lower than Under Construction properties from percentage increase point of view (not absolute increase). Most probably the ready to move in properties which are much older than 5 yrs, a lot of development around them has already happened and the price appreciation has taken place for most what is deserves.

Positives Points of Ready to Move Property

1. You buy what you see

When you buy Ready to move properties, you exactly get what you have seen. There is no chances of getting duped at least in those things which you can feel and experience. This is not in the case of Under construction properties , because you never see the actual thing , you see samples or the “projections”. It’s a good idea to talk to the people around or the neighbors about the water/electricity and other things and take their feedback.

2. Immediate relief from Rent & travelling cost

A lot of people who are paying very high rent or travelling very far for their work tend to buy the ready to move houses because they want immediate relief from the high rent or travel cost and one can get it in ready to move properties.

3. You can know what kind of people live around you

This is one big advantage of ready to move houses. You can already see who your neighbours are, what community they belong to , what income level they have and if you would like to be with them or not . In case of under construction houses , you are never sure what kind of people will be around you.

Conclusion

So the final conclusion from various experience is that if you want to buy the house from investment point of view, then buying an under construction house makes sense. However if its mostly from living purpose and you want to consume it for your own purpose, then buying a ready to move house makes more sense. Also all the pros and cons discussed can vary from case to case and the points discussed here are based on a general information and feedback.

Can you share what are your experiences and pros and cons of under construction vs ready to move property !

Noida Extention Flats in Problem

Posted on July 31, 2011August 19, 2019 by Jagoinvestor

Is your under-construction flatin Noida Extention in danger? No! But there are thousands of buyers who have invested their hard earned money in flats that are being constructed at Noida Extension. In this article I will talk on the issue of Noida Extension and what learnings can we take from this whole issue. For people who are not aware on the recent Supreme Court decision to stop construction in a part of Noida Extension and give it back to farmers from whom it was taken by the Noida Authority in the name of “Land Acquisition”. Now thousands of buyers who booked their flats are in danger of not getting their homes which they had booked.

Background

So the whole issue goes back to 2005-06 when Noida Authority snatched land from farmers saying that the land will be used for “Development” purposes, Industries will be put in, there will be factories which will further help villagers and their future generations get employment and their life will be “great”. They were given pennies for that land. Then later this land was given to Builders for construction purpose and thousands and lacs of investors bought their dream homes in these projects.

The land was under dispute and after a lot of construction has already happened and people have put their hard earned money in lumpsum or through EMI’s. Now Supreme Court says that the land acquisition was illegal and was not done in the right way, so the land now should be given back to farmers. This is only for one part of Noida Extension issue which still affects thousands of buyers and later again there was a judgement passed in favour of farmers for another village.

Now this has given farmers the confidence that even they have a big say in this issue and someone is there to listen to them. All villagers now want a revised compensation at high rates (which I feel is totally right and it should always have been that way) or they want their land back. The builders have already spent crores of rupees in construction buyers have already paid the money for flats or have taken a home loan and paying the EMI. Now if all the land is given back to farmers what will happen to builders and thousands of buyers who bought the homes? Who will bear the loss of the mental agony and financial setback which will come as part of this package?

Recently, the judgement has been postponed till mid Aug 2011, when Allahabad High court will decide on the final judgement for the dozens of villagers land. If it says that the land has to be given back, the situation will get uglier. This whole issue is now engulfing whole of Noida and Greater Noida.

Who is to be blamed ?

Now assuming you have understood the situation, who do you think is the real culprit here? Is it the builders lobby who are known (or I would say secretly known) to manipulate the land acquisition part and then do construction there? Or is it only Noida Authority (read Mayawati Sarkar) and their policies for land acquisition? Or if you allow me to say, is it buyers who didn’t spend too much time to foresee the future of their houses if legal dispute gets uglier later? Who among all took things for granted?

I personally feel that there are two main parties who are really suffering here and those are Farmers and the home buyers. Farmers plight is from long time who are fighting for their rights from years and not even living a life of dignity even after feeding me and you and the whole country. Buyers are those who had spend their life earnings in their dream homes and now are seeing chances of delay, in their dream to own a house. More than financial loss, I see it as a big emotional breakdown. No one is there to hear and address their issues. They are skipping their work and business to give Dharna’s and by showing their outrage in masses.

What do you think is the solution in this case? Do you think incident like these are going to change the way people look at real estate buying? Can this Noida Extension issue teach people to pay more attention in what they are buying?

What do you think about this? Open your heart on comments section and let’s discuss it?

3 thought provoking questions before you buy real estate

Posted on September 5, 2010August 6, 2019 by Jagoinvestor

We have discussed Buying vs Renting in previous articles. This post is not about saying which method is superior. While buying a flat/house is everyone’s dream, there are some very important questions one needs to think about before buying real estate property. Most buyers aren’t putting in enough thought, about some critical points (which they need to). One reason could be that they are far too obsessed with increase in value, are overconfident about the returns they can generate in real estate in long run or probably because these critical points haven’t yet crossed their mind. But if you are thinking about buying real estate, you should be aware of these points…

House in India

Image source

1. What is the Construction Quality of the house & what will be its condition after decades ?

If a property comes from a great builder, does it mean it will be in existence or in great condition after 40-50 yrs? What will be the condition of the building or how much it will be in demand by others at that time? Most of the buyers think about immediate requirement and may be 10-20 yrs hence. But should your vision be just 10-20 yrs when you are putting such a huge amount in Real estate? Also real estate construction is going to continue for next 20-30-40 yrs for sure given the amount of demand in our country . So who all are going to invest/prefer in your house which is 30 yrs old in 2033 ? Will there be a situation when the prices instead of appreciation, actually starts depreciating because of bad condition ? To understand what I am saying just look at some building/flats which are constructed before 20-25 yrs in your city , look at that and ask yourself “At what price are you ready to buy it? , or do you at the hand want to buy it or not?”

How many of us have seen houses which are 50 yrs old today? Not many; houses which are 50+ yrs are a handful. I know when I say this, it’ll cast a pall on the quality of builders in these times. Already there are enough instances where quality construction is compromised and owners do not get the property in the same condition as they were promised! . (Learn some tricks of understanding construction quality here and here)

Another thing which happens is when a person gets a house in possession the house is all well-built, its shining and everything looks perfect. But is a healthy looking person also with high stamina? Can we judge a houses’ stamina and internal strength on how it looks, how jazzy its tiles are and what a wonderful balcony it has? No! . We really need a long time like 30-40 yrs to really have a good insight in how strong a house is. Anything will last first 10-20 yrs . Here is a video which shows how a real estate buyer got his Flat in bad condition from one of the most reputed Builder and not at all in what they were promised . Looking at the video , I don’t think the house will last for more than 30 yrs .

2. Where are you going to be there after 20-30 yrs ? what are your future plans ?

Most of the people keep changing our jobs in starting of their career . An average situation would be that a person changes his job in atleast 3-4 yrs (in the software industry at least). But at the time of buying a property, a lot of people do not think much about this. They make believe that this, is the final job or at least a “long-term job”. Then, once they buy the house, they are almost stuck (Link) .

A lot of times, they don’t take risks in career and don’t want to take up another exciting job or a better opportunity in other city or much far place in same city, because of the “Comfort Zone” they have created for themselves.You have to be really clear about this point. A lot of people travel back from abroad to start their new life/business in India and the first thing most of them do is buy a house. I would recommend better get settled properly first, start your new work, make sure the stability is there and then go for commitment of a house. (Read this comment)

Not just from career viewpoint, you also have to think about retirement and the post 50+ age point of view . If you are age 30 today, are you going to work for 30 yrs in Bangalore/Delhi/Mumbai etc and then live in same city to enjoy your retirement? Do you think your retirement life would be wonderful in City of Mumbai or Bangalore? If yes , then go ahead.

But personally I think I will be working in a bigger city and then post retirement. I would like to settle in a smaller city or may be my home town. So if you also think that come coastal region or some smaller town or home town village is your post retirement destination, then not buying a house can be your choice.

3. Compromise on Living style and Mental Fear ?

You also have to be clear on what kind of life style you want to live in your life, because after you take Home loan , then comes all kind of issues like

Fear of losing the job and not able to pay off the loan

Not able to live your life comfortably and not doing all the things in life which needs more money as you are committed to your Home loan

Not able to take high risk and satisfying job in life because of the commitment , One reader who owns a company told me that a lot of talented people do not join his company even though they have better work and opportunity to do what they truely love , just because of the uncertainty a startup brings with itself .

The finding of an exclusive CNN-IBN poll on the economy reveals that one out of two Indians is scared of losing the job. The poll, conducted across seven metros, also shows that Mumbaikars are one of the most worried about their job prospects. Link

A lot of people take more risk than they can handle and it leads to traumatized life , which effect health, Strainful life at Home, unejoyable life for many . Though on extreme end, but some cases might also end in Death .

Pune: A 31-year-old man allegedly committed suicide by hanging himself from a ceiling fan at his residence in Indrayaninagar in Bhosari. The incident came to light only on Wednesday morning.The Bhosari police have identified the deceased as Piyush,alias Kishore Muralidhar Mahajan,of Indrayaninagar,Bhosari. The Bhosari police said that Mahajan had been disturbed ever since he had lost his job.

He was finding it difficult to pay the monthly instalments for the flat he had recently bought.The police have recovered a suicide note which said he was committing suicide because no one was coming forward to help through his bad times, the police said.

Source : TNN

How to Save if you are living on Rent ?

Incase you are not planning to buy the house, you can always invest the money in a way that you can buy it later after some year or at the time of retirement. Long term returns from real-estate have been in range of 10-12%, but even if we take it to be 12-15% , We can invest our money in some equity which can deliver similar returns . You can put money in ETF’s or Index Funds and let your money grow overtime and buy real estate at some later point .

Conclusion

As I said previously, it’s not a buying vs renting debate. It’s all about thinking well in advance about your decision and knowing all the aspects of buying a house. If you are clear about all the points mentioned , then you can go ahead and buy anything.

Tips while Buying House, Real life experiences

Posted on August 7, 2010August 6, 2019 by Jagoinvestor

Are you thinking of buying your dream house? If yes , then you must be having a lot of questions and you must be looking some guidance from everyone you know, Why not utilize the knowledge of readers here.

Buying House in India

Over the last couple of days I was tying to catch up with readers who have bought flats or other real estate property and asked them 3-4 questions which could give you good understanding/points of what all you should take care while buying real estate.

You will also get to know some basic tips and tricks given by our readers here which they learnt or heard from others while making their purchase in Real estate. Overall see this article as a real life experience’s of readers on real estate and their learning out of it for others.

I hope you had a look at the debate on Buying vs Renting

Tips while buying house in India

Ankur Lakia Experience

Most important thing to take note of while buying the home :

Costs other than quoted per square feet rate. Few of costs like floor rise, parking, stamp duty and registration are fairly well-known. However, I was surprised when asked to pay for value added tax liability and service tax.

Since I bought under construction property and with all payments by cheque, I did not have much option but to pay for these costs. These are substantial costs and buyer needs to be aware of these additional costs while budgeting for the property purchase.

Biggest advice of caution will you give to new buyers :

While buying under construction property, buyer needs to do a thorough due diligence on builder’s track record on completion of property on time as well as quality of work. It is better to buy from a big name builder like Raheja, Hiranandani, Lokhandwala like (as far as Mumbai is concerned).

Even though one might need to pay a bit higher rate, it is worth it as it gives peace of mind when someone accepts all payments by cheques and abide by contractual terms. A good read from Subra on Mumbai vs Navi Mumbai Real estate .

One trick/idea which can help new buyers :

One thing which helps, is to buy little old / used property, may be 3-5 years old property. 3 to 5 years do not make much difference in usable life of property. However, usually one can get such property at much better rate than normal market price for new property.

More important though, buying little old property has several advantages:

1. One gets good idea of available infrastructure like nearby groceries, shops, availability of household help, situation regarding water supply etc which matters more to the lady of the house.

2. One can see whether building is being maintained or not. When I visited a building just two-year old, I was quite surprised to see its shabby look. It turned out that many members of society were quarreling and not paying their dues. One can easily skip such headache if buying slightly old property.

3. You can very well see the neighbours. It might be good idea to just meet them and greet them even if for only little time. It gives good idea on what standard of living is maintained by residents and whether one can easily fit-in.

For example:

my brother skipped a building which was really well maintained, with quite good location and flat available within budget. Surprised, I asked him the reasons. It turned out that almost every one of the residents was having more than one car in family and holiday trip abroad was fairly common.

My brother did not want to be part of such residency as he thought it would not be possible for him to fit in with people having such life styles since he could not afford such life style and, then, he would be odd man out.

4. There are some buildings where there is only one flat occupied on a floor, others being bought by “investors”. One can avoid possibility of living on a ghost floor by buying little old property..

Any other learning :

I am quite amazed by people stretching themselves on floating rate loans while buying property. I think people need to be aware that rates could be headed much higher, and higher enough to make material difference in their EMI obligations.

I think there are a lot of people who do not understand risks of floating rate loans or loans with first couple of years of very low-interest rates.

Meena Sivaram Experience

I will definitely give my inputs based on my experience. My advice will be more geared towards those who want to buy a house for the first time for self-occupancy and NOT those looking for immediate gains and make a killing in the real-estate market.

I am not the right person to advise those people as there are experts in that area. Here are my 2 cents:

Affordability – Do not go for over-priced properties which are beyond your means. Do not be impressed by those fringe attractions that builders dole out to impress the potential buyers like club, swimming pool, golf course, gyms, landscaping and what not…All these so-called benefits inflate the price of the property.

More important than these are the quality of construction and the basic facilities provided by the builder like earthquake-resistance (the richter scale it can withstand), the ratio of super area:built-in area, quality of material used within the apartment, 24 hr backup of electricity etc.

If you can manage your cash flow by reducing some other expenses, go for a size which is bigger than required i.e you need 2 BHK for now, go for 3 BHK and so on.

Location – This is important. I know most people cannot afford to buy a property on a prime locality like South Mumbai or South Delhi but when you are house-hunting in the suburbs, look for the development activities in the surrounding areas.

If there are metros, malls, highways, office or commercial and residential building being constructed in the vicinity, such properties have the potential. Choosing a right property in a right location is like picking up a good stock.

Buy when prices are low but has a potential to go up in the medium to long-term.

Words of Caution to New buyers

The land on which the property is being constructed is not under any legal dispute and the papers are clean
Make sure the builder has taken all the necessary approvals from the municipal and other bodies required for the construction of property. Any slack here will delay the possession.
Previous track record of the builder on the completion of projects on time. Most builders do not adhere to the schedules. Of course such a risk is not there when you are buying an already constructed property but they are more expensive.

One last piece of wisdom:

Go for your first property when you are around 30 years of age and do not DELAY it. Go for a 15 year loan tenure and aim to repay it within 10 to 11 years. So by the time you are 40-42 years, you are out of the loan liability. CAGR % for Meena house is around 12% and Tenure is 14 Years , She lives in Delhi-Ghaziabad Border

Wasim Sayyadd Experience

1. After identifying the property, look if the builder has constructed any apartment nearby/surrounding that is already occupied. Go..talk to people find out how genuine this builder is.This gives you a feedback how genuine and chalu the builder is.

That way be prepared based on your questionnaire.

2. Read Agreement carefully before signing it. Eventually, in the process of purchasing Flat we built mutual trust and the builder promised me to give parking, but this was not included in my agreement. He called me to sign at registration office without handing over a copy of agreement in advance.(I also didn’t question being a good relation)

I got the copy after a registration..same day I read carefully all the lines..and noticed parking is not included..called builder he assured to give parking. Am still waiting..as parking is not yet alloted to the Flat owners yet.

Ratio of parking available to the owners is less. And I am following it up..to get my part.

Manish Jagtap Experience

I am assuming the target audience to be the end-user who will stay in the house, and not a Real Estate speculator.

Put max possible down payment. Otherwise Bank interest over long tenure will eat up all price appreciation of the property.Also do not keep EMI more than 40% of husband’s salary. Ladies are most likely to take breaks for kids. Do not consider their income while planning for EMI. If wife continues her job, you can user her money to do partial pre-payments. (Compare different home loans)

Check Builder reputation. Also, if possible go for ready possession. These days builders show some garden, play area in brochure (you consider such things at the time of buying) and later on build something else on that land. You don’t want to see a balcony of some other building that the builder pops up on such land, to stare right into your leaving room/bed room.

If possible go for group booking since it gives you a negotiating power. Lots of IT guys do these now a days. Mistake I did was to go for 95% loan even though I had money to pay for the flat. Price appreciation was eaten up by interest on the loan amount. Also, keep in mind the rising cost of children education, your retirement funds.

Robin’s Experience

I will start from the first step instead of the zeroth. A buyer has an option to choose from a ready-to-occupy apartment or an under-construction project. Ready to Occupy projects are priced much higher as the risk associated is far less.

The unit is all ready. An Under Construction on the other hand is cheaper but other than the risk you also have to wait for the unit to be complete. If one has enough fund for the Ready to Occupy option, people prefer it. In our case the Under Construction works better.

We did not have enough funds to actually buy a Ready to Occupy unit. A 2 BHK from a reputed builder was priced upward of 50 lakhs, It would have required a loan of more than 40 lakhs. An EMI of 45k per month was in the uncomfortable zone, plus it meant very little monthly savings.

Remember we had a car loan too.

Under Construction plan has a silent benefit which most people tend to neglect in their calculation. While the project is under construction, we are also drawing our salaries. Since the payments are construction linked, initial EMIs are quite low. This has an advantage.

By the time we get the possession of the flat we would have easily saved more than 10 lacs (we are considering 3 yrs time frame), something which would have been difficult in the Ready to Occupy plan.Other than the financial aspect we also have the legal aspect to take care off.

The project should be clean and should have all the necessary permissions from various govt. bodies. SBI seems to have the most stringent legal policies. So if a project is rejected by SBI, one should show extra caution. If one is looking for a flat which is Ready to Occupy type, one should consider the second sale option also.

This should be used just before the registration in the original owner’s name. Most of the original buyers are investors, they would like to sell the property before the registration to avoid paying registration fee.

Check Your EMI

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Vikram Experience

Most important thing to take note of while buying the house :

The location of the house is quite important. Are their schools nearby if there what are the standards of the school.What are the standards of my neighbors and so on are also. How far are the groceries or provisional stores and other amenities.

Biggest advice of caution for new buyers :

Look before you leap. Think a million times before you buy a house. Check the EMI and see if you have enough on your hand to survive.

If you are on rent and going to pay EMI for an unfinished house, check if whatever you are left with is sufficient for you to lead a decent life. People with kids especially should tirple check before they commit to a 30 or 40 lakh EMI options. The market never remains the same. Have a backup plan just incase you are not able to pay an EMI.

Any other learning you want to share :

If you are planning to buy a new house by selling an old house, ensure that you have the new house papers in place before you sell your old house. I personally was affected by this issue or risk or whatever you wanna call it. Dad had a house and it was planned that that house will be sold and we will buy two new flats for me and my sister.

The sale of the house happened but we never were able to buy a house because of market boom. It was the worst decision of my life agreeing with the sale but I am repenting for it and the things I have to do get some extra money to buy a house is making me die everyday.

With an 8 month old baby now I am really not sure how to make things happen. A single bad decision ruined a lot more than just my finances.

Ashutosh Tewari’s Experience

Most important thing to take note of while buying the home :

Connectivity and basic infrastructure (grocery stores, road/ rail connectivity, safety), Consider re-sale property (less than 5 yrs old construction is the ideal bet) as there are several advantages of it :

More carpet area: In most of the new construction the super-buildup to carpet area ratio is barely 60-65%
Better Infra : Most of the older construction already have shops and amenities established around them
Lesser Maintenance : This is fixed monthly outflow that most people don’t take into consideration while decision-making. Newer constructions (especially the ones with exotic “themes”) can have a pretty high Maintenance outflow. There are some in Mumbai, where it’s as high as 10,000-12,000 per month.
Ready to move : You can move into it right away, as against waiting for 2-3 yrs in case of newer construction. If you stay on rent then this can be an important consideration.

Biggest advice of caution for new buyers:

Before making the buying decision decide on the budget and strictly stick to it.Do not get tempted by up selling.
The net EMI outflow should not exceed 35% of your net monthly take home, this will help reduce the stress level substantially. Also set aside a contingency fund which can cover 6-8 months of EMI.
Do not get over excited and limit your spend on furnishing and interior designing. This is an emotional decision in which usually tend to go overboard very easily. Also for people living in metros there is a high possibility of their moving to a bigger apartment or a different city, in that case there are things which may not fetch returns while selling.

Sunil Jaiswani Experience

What is the most important thing to take note of while buying the home :

Keeping apart the finance / affordability aspect because it has already been discussed, one important aspect while buying a house is the maintenance expenses,basic amenities and cost of living in the area.Not all places have good water / electricity availability + distance from workplace.

Biggest advice of caution will you give to new buyers :

To be very careful of the person you are dealing with in case of non branded flats/homes because a new buyer can easily be caught in the nexus of land mafia which are obviously gundas and if something or the other goes wrong you cannot do a thing about it.

In small towns we even have instances of some properties being sold multiple times and also illegal land grabs/kabjas. I was lucky enough to escape such a condition but only after facing a lot.

One trick/idea which if implemented properly can save some good money :

New to this process but if you plan to sell the investment flats or homes in some short time you can save the registration money by holding a POA ( power of attorney ) in your name and save the investment on registration.

Later when you sell you can directly transfer the registry to buyer saving you a good amount. + in case of small town purchases more u bargain ( and more the upfront money ) more the price reduces.

Other learning :

Other than flats /duplex which yield a return of 12-15% CAGR the land prices in tier 2 and tier 3 cities offer much higher and brisk return sometimes.Thus if you are looking to invest irrespective the location , small cities are a good option to consider.

Moreover having been to all major cities and small towns , trust me that living conditions and resources are still much better in small towns with respect to electricity , basic cost of living , proper water and food availability.

Raja Panda’s Experience

Check out the individual flat plan and match it with the actual size of the flat. Take extra care to match(measure) the size of balconies. This is where most of the builder do plan violation by increasing the size of balconies to get extra money. That’s because the expenditure on the balcony for construction is the least but the customer pays the price as part of the Super Built Up Area.
Again measure the exact size(carpet area) of the flat. Most of the customer take the word of builder as sacrosanct when it comes to stated size of flat, but on calculation one can many times find a 2-5% shortfall. Remember that can mean a difference of 80 k to 2 lac rupee difference in a 40 lac flat. Now you get it! right ?
Check out your undivided share of land. Very simply put an unit of undivided share of land equals (total super built area of all flats in the complex)/(total size of land for the complex). So, to reach at the undivided share of land allotted for your flat it should be (your super built up area) * (the unit calculated above). Lot of times this is overstated by builder to attract customers. But remember, if there is a natural calamity like earthquake,fire etc and the building gets destroyed it’s only the undivided share of land which you really own. Don’t leave it for later. Builder which do not allot undivided share of land to buyers are a strict no-no (yes there are such builders).
For under construction flats it’s very common for the builder to give possession of the flat once it’s occupation ready. But the amenities (if any) are given after long gap and hassles. My suggestion would be simply hold the money for the amenities part until it’s really completed.
For ready to occupy building’s insist on occupancy letter which is issued by the authorities. This ensures the plan violations has been checked and regularized by authrities when the consturction got over and it’s really ready to occupy.

My Comments

First thing I would say is dont rush, learn about things, buying a house is one of the biggest decision (atleast financial) you will make in your life and you will commit your lifetime of cash flows in it. Planning things well in advance and doing your investigation will lead to smoother and successful execution.

Your chances of making wrong purchase or a bad purchase will be minimized if you take time and do your investigation well enough.

Just for an example :

You buy a house , you do your basic investigation and the house was available at very very attractive price, and gives you a hope of making 100% profit in 2-3 yrs and suppose later you come to know that everything was fine, however the construction quality is not that great and have been compromised.

You really don’t want to get into that situation because first point is that if its your first home , you probably be planning to get settled there and wont move out once you are in your comfort zone and once things settle down like your office is very near, your children schools are there and you feel good there.

Every decision you take is your decision. Just like Wasim Sayyadd (One of the above), we Indian’s are emotional, we shy away from talking direct and think too much about feelings, relations and how others will think?

We make oral promises and also rely on them many times. There is nothing wrong in asking straight questions and questioning each and every step when you buy anything, because Damn! , its my money and its me who will suffer if things go wrong . So make sure you go through a detailed checklist because you buy a house or any other real estate property .

Here are some from my side.

Patta Verification
Guideline Value
Demand at least EC for minimum 15 years
Check the Property Tax recipt till date & name
if the Seller is a power Agent check weather he has all the rights to sell the property
Check that the plot is approved by Panchayats/CMDA/DTCP/MMDA
Check that the property belongs to which zone (Resi/Agri/Comm/Aquifier/Non-Resi/industrial/Special)
Check that the property had undergone any heir purchase, mortgage, loan, if so NOC from the concern department
Check that the plot can be approved for residential purpose in case of unapproved
Verify the documents with a legal Advocate
Check the documents with a Banker for Loan Possibility (without patta & Approval loan is not possible)
Dont agree for any Oral Agreement , Never !
Check that the Layout has been allotted OSR Area ( temple, school, park, shop ) or else the owner has to pay 10% of the land value to the Government for approval. Only if the layout exceeds 3000 sqm, 32258 sqft, 74 Cents .
Insure that the Plot is minimum 500 meter away from National Highway, Sewage Canal, Sea Shore, River, Pond, Lakes, Dam, Airport, Bus stand, Railway station, Nuclear Power Station, industries.
The Registration Stamp Duty charge will be 8% of land value and 1% as Registration fees and Misc Charge extra
The Road Width defines the no of floor you can build, in case there is Airport near by you can get only G+1 permit
The Zone type and the Road Width defines how much area you can build, in case Aquafier Recharge Zone you can get only 0.8 FSI wherels in residential Zone you get 1.5 FSI
Check the frontage length of the plot.
Check the type of ground soil.
Check the type of ground water.
In case of corner plot check the shortage area
Check the road level height and rain water stagnating
Check for Vastu (it will be better if it is east facing and rectangle in shape), if you believe in it.
Check weather Drainage faculty is there.
Have a detail conversation with the landowners near by and always have touch with them
It is Mandatory to have the complete details of the property seller including his photograph.
If the plot is near by Burial Ground the value will get low.
Other Essential Facility Nearby & Need to Know are Schools , Collages , Bus stand , Railway Station , Ration shop etc. Understand that you need all these for next many decades , so are they 2-3 Km away or 10 Km away can become one of the biggest deciding factors 🙂
Make sure you have address and phone numbers of all the relevant and concerned offices like Panchayats Office , V.O Office, R.I Office, Tahsildar office , Register Office, EB Office , Court , Police Station, Post Office

Source : Indianrealestateforum.com

Question: What was the biggest or most valuable learning you take out from this Article, If you also bought a home, please share your learning and we can add them in the post.

Controversial Debate on Buying vs Renting a House

Posted on July 11, 2010December 24, 2019 by Jagoinvestor

There is a very good debate going on in the previous article I wrote about EMI and how it can change your decisions regarding Home loan and other Loans. A lot of readers have put their thoughts about the Home loan and whether they prefer Buying or Renting, we got a lot of readers who supported Buying and some said renting is better, the conversation went so in the flow that It was worth mentioning here and getting everyone’s point of view.

So please go through these views on Buying Vs Renting and put your comments and views on why you support Buying or Renting. The main points discussed where the opportunity cost, Emotional satisfaction and what are the prospects in return over the long term in real estate.

Should we buy our own house or live on rent?

#Conversation 1

Meena Says’s

I liked this article immensely and echoes my sentiments exactly. I agree with you regarding the way people go overboard on car loans and personal loans to satisfy their craze to keep up with their friends and neighbors. But I would differ on the home loans. For most people, buying a first home is an emotional decision especially if they want to occupy it for personal use. Even if the value of a self-occupied house appreciates substantially, it is only notional as you don’t want to sell it.

I want to relate my personal experience on the home purchase. We are a joint family and about 14 years back, we (my husband and I, both working and earning) purchased a 2 BHK flat in a Delhi suburb for 11 lakhs. We wanted 3 BHK flat badly but could not afford the EMIs although it cost only 2-3 lakhs more. But a few years down the line, both our incomes increased and in hindsight, we repented the decision of not going for the 3 BHK flat.

Now the cost of the same 3 BHK flat is close to 80 lacs which is quite unaffordable. So my point is, while deciding on the home purchase, look for present affordability as well as future earning potential. Also buying a house is any day better than renting it out if you have no plans of relocating to any other place.

My Reply

I agree that the decision would depend on the current affordability and future earning potential. However in your case as you said that you were not able to afford the 3 BHK that time, does it mean that you were not able to pay any EMI if you took 3 BHK or for the next several years. I think the mistake happened in not able to factor out your earning potential of the future? Correct?

I would like to hear your views on why you said that “Buying a Home is anytime better than renting out if you are going to stay at the same place? “. Under what assumptions do you say that? Will it be true for any case, do you also consider the other alternative of investing your money somewhere else? Are you biased towards emotional attachment related to this overall buying home issue?

Meena’s Reply

Hi Manish,

We anticipated that after paying EMIs for 3 BHK flat would have resulted in a liquidity crunch for some time. So we did not take the risk at that time. But what we did not factor in, was that the liquidity crunch would have lasted only for a very little time as the incomes also increased.

When I said that buying is better than renting, is not an emotional decision but a pragmatic one. 1. For one, investing in a house is good for your asset allocation – you are spreading out your investments in Equity, debt, real estate, etc. 2. I do not buy the argument that the money spent on EMIs are better deployed in other investments like MFs or stocks.

At least in metros like NCR, the real estate gives decent returns over the years (a CAGR of 12-15% in 10 years as in my case). 3. Also renting a house has many hassles: Rents increase @ 10% p.a. and you are at the landlord’s mercy as he may ask you to vacate anytime. 4. You get very good tax breaks when you own a property. All these are good arguments for many people to invest in at least one property.

My Reply

Meena

I will agree with some of your points.

1. Asset Allocation: Yes, you achieve asset allocation by investing in Real Estate, but in the early phase if your debt and equity is not high, then even asset allocation is stretched on real estate side much, for example, if one has just 2-3 lacs in Debt and 4-5 lacs in Equity and buy a real estate of 50 lacs, that 85% Real estate, 5% Debt and 10% Equity, though there is some asset allocation, but still most of the portfolio is in Real estate, However, what you say about allocation makes sense when there is good balance between all the 3.

2. This can depend on what kind of investor you are and your concept about “owning home”. For an investor profile like yours, it will actually not makes sense because your priorities are much different, you feel more satisfaction in “owning home” and that your priority, however, there are many readers I have interacted with and know them who are more comfortable with the option of renting out and that makes them more comfortable, It might make sense for them to deploy the EMI – rent money in other investments, at the end if you know what you are doing makes sense.

Also regarding the returns from real estate, there are 25% returns, 15% returns and even 5-6% returns also in the last 10 yrs depending on the location and timings. In the last 10 yrs, the situation has been very different and the next 10 yrs will be different than those, What you get in returns as % terms at the time of selling the property will actually matter and not for the time when you actually Hold. So it’s my rough guess that if you live in the same flat for the next 20-30 yrs and then sell the flat, you will find out that the returns over the period of times will be in single digits, maybe 10% max.

Historically real estate has never given more than 9-10% over the very long term (very long term again) in the last many decades (even centuries), so I dont see why it should be different now. Real estate runs in cycles and they are long, a 10 yr return in real estate can be very different than very long term returns figures, while I say this, I will also say that real estate in India is promising and next 1-2 decades can be exceptional and give returns on the higher side of average till date.

3. Renting has hassles, but has advantages too, just like owning our own house has hassles and advantages of its own, so what you call as hassles might not look like hassles to someone else. It’s different for different people, and everyone is right for themselves.

4. That’s very temporary and introduces some years back only, in the DTC earlier there was a proposal to take the tax breaks out, but with the updated draft, I think it’s still there. no one knows if that will remain or go away in another few years. So tax breaks is not a criteria to decide if one wants to go for real estate or not. You should read subramoney.com real estate articles, you will get a clear picture of what I am saying

Conversation 2#

Pramod Says

Manish, This is absolutely right. There is a big industry flourishing on “how to get you into debt trap” mantra. The best remedy against this trap is self-discipline. The temptations are high which tends to divert your attention. My wife is asking me to buy own house but I have only one answer that is expensive.

She asks, Property has been expensive for the last 100 years, it will never become cheap. Right, but for me inexpensive means within my reach. The house I want to buy should not come bundled with Headache, High BP and insomnia. What I tell her is that we will buy a house when –

The total cost of the house is not more than my 4 years’ income.
have enough savings to pay a down payment of at least 30-40% of the price.
EMI must not be more than 10 years long.

So now for me to buy a house either prices have to come down or my income has to go up. BTW I am betting on the prices to be stagnant and my income to be growing for at least the next 3 years looking at the supply that is coming up in NCR. In Greater Noida alone where I live, more than 70000 units will be available within 15 km in the next 3 years.

For a car, I prefer a second-hand car from Maruti, It is always good. Most of the depreciation takes place in first two years so let someone else pay for that and you enjoy the ride.

My Reply

Haha, Wife is a very scary word when it comes to the decision of buying Home, I have already talked to several people here who’s wives are bugging them like anything for owning house. You are correct on the “industry working on getting everyone in Debt trap” . over the pricing of real estate, the bubble is strong and I can’t say when it will burst, but whenever it does, it will be very bad day to see.

However, even if it does not burst, Still living on rent is so affordable in today’s times that we can do it for next several years .. after all, if everyone will buy and buy only, who will live on rent?

Pramod Says

Yes, Today I am residing in a flat with a rent of 7000. If I were to buy that it costs 30Lacs. At 80% loan which is 24lacs the interest @ 5% (flat equivalent to 10.5% reducing) comes out to be 10000 a month. Remember I am only talking about interest here so that comparison should be only in the costs. Add society maintenance, maintenance (paint, pest control, seepage repair), property tax, etc to the cost & surprisingly you will find that rent is cheap.

Also if I add the opportunity costs i.e. investing the EMI and front cost minus rent in an MF with only 10% return it will become 1.32 Cr in 15 years so if the flat in which I live today is available for 1.32 crore after 15 years, it’s OK, nothing to worry.

Secondly, detach emotions from house & treat it like a commodity. I often ask people when you dont have a car do you whine about using public transport or do you feel embarrassed about hiring a taxi. If no then why the hell you shy living on rent. Just pay that cheque & save all the bothers of becoming a landlord. One more benefit of the rented house ” You can always change it easily when your astrologer tells you that it is not VASTU Compliant, Will you ever get such wonderful chance to enhance your luck so easily in your own house

My Reply

Pramod, you are one of the rare found die-hard fans of renting. While your views are more biased about renting, which I fully agree. You have taken out some of the things which drive people to own home and that can be pure emotional reasons and its fine.

Some people will feel suffocated enough to live in a rented house and the idea of not having their own home will kill them each day, this idea of renting if better than owning and blah blah will not work on them no matter what one does

While I am with you on renting, the point I want to make is renting vs buying has its own positives and negatives and nothing wrong about it, just that a person should understand which boat he wants to sail in. What do you say Pramod? Read Meena’s comments above, you will get what I am saying

Pramod Says

Manish, I am a fan of renting as long as the rent remains within the 3-4% range of the property value. As I shared with the group I am also planning to buy a house but only when it is affordable. I do not want to spend the next 20 years of my life in stress & sacrifices.

As far as Meena’s points are concerned, I am 120% in agreement with her on-point no. 3 and that is the single most reason that provokes many to buy a house.

But in these days of apartments you can negotiate well as owners know that an empty flat is going to cost him the maintenance and it always depend on your relations as well as the demand-supply situation.

Coming to the other 3 Point –

1- House as an investment, An investment by def. is something which you are going to encash upon value appreciation. So your first house is never going to fit into this axiom. Are you going to sell it after 20 years? 99.9% of people won’t, so what kind of investment?

2. The investment in MF vs Real estate depends upon your kitty. Till the time I have 5-6 lacs accumulated can’t even dream of buying a property even on loan so it always depends on your net worth and no arguments on this point as it is very personal.

3. On this point I agree but again it is emotional and depends on the market. In Gr Noida where I live 50% city is empty so no dearth of flats on rent and I can negotiate.

4. This is one thing that comes as the ultimate logic for buying a house. Let’s see. The principle amount is incl in 80C so after PF, Children fees & insurance what the hell is left. For interest, you can claim tax 1.5 Lacs. Anyone who can buy a house worth 30Lacs must be earning 50K & in this salary, the HRA usually is 10000 approx. so if you take benefits of 1.5l interest payment you have to forego 1.2 lacs benefits of HRA which brings it down to 30k.

Is it worth to buy a house to save a maximum of Rs.9000? Better not watch some crapy movies and save 200 rs on popcorn which is available for 10 Rs outside the cinema hall.

Finally indeed renting and owning has its own pros and cons but here we are discussing these things from personal finance angle not emotional otherwise nothing can replace the joy that I can see on the faces of my family if I take them to Switzerland but can I afford it And also we have seen many old people who spent their life savings owning a house and are still struggling to meet life’s basics in the last stage of the life. Is the house really an investment?

So remember 1st house is always a commodity that you are going to use and 2nd, 3rd …nth property is investment only so do not buy the argument of returns however use these “returns” to check the affordability factor for you say X years down the line if you will still be able to buy that flat.

My Reply

You have made some excellent points . However on one point, I would like to comment. You said

“Are you going to sell it after 20 years? 99.9% of people won’t, so what kind of investment?”

Yes, you are correct that most of the people would not like to sell and will not sell. However if the price of the house is a lot and one has got some good returns like 15-16% CAGR in the last 20 yrs, one will be sitting on a very expensive house and it can act as an emergency fund to them.

If a person house is costing say 2 crores and they can buy the same kind of flat on the other place at 1 crore, maybe in another city, in the times of job crises and loss of income, one has an option of selling the first home and moving to the same quality/size house at other place and cash on the rest in some instrument which will act as a monthly income to them.

So overall I would say, even if a person does not sell a house, he/she has some good unused advantages.

Meena Says

I totally agree with Manish’s views that even if you have no plans of selling your house, you are sitting on a wealth which would give great peace of mind when you have repaid all the EMIs and the house is all yours. My father bought a house in a prime locality in Delhi 40 years back for Rs 30,000.

I calculated the CAGR of the property keeping the current market value in mind. It is a cool 18% return that we see here. If my father had thought like Pramod and other fans of renting, he would have a tougher life as a retired person living in a rented accommodation in some outskirts where rents are cheaper.

I also agree with Pramod that the first house is more a commodity than an investment. But if you are not going to buy the first house, where is the question of buying a second property as an investment. The tax benefits of the second home (if you can afford) is even better. You can get the deduction of the entire interest amt from the taxable income.

So by totally ignoring this avenue of wealth creation, you are missing out a vital component of your asset building. Mind you, I am not discounting the importance of PPFs, MFs, etc here. I am still a great fan of owning the house in spite of very persuasive arguments put forth by Pramod, Manish, and others in favor of renting

Raja Says

Wow!! that’s really an interesting conversation going on here. I just would like to add my 2 cents here.

1. Rental price as we discussed, is a function of demand and supply. Essentially meaning that the renter is not so much in control of how much he might have to pay for the same accommodation on a future date. Just calculating it as 3-4% of the current property price and ruling out the future rental price appreciation doesn’t sound too prudent to me.

When a person buys a house on loan he basically locks in his outgo in form of EMI to a certain extent. Of course, drastic interest rate changes on the upside can alter his calculations.

But I think in the mid to distant future India has a better chance of seeing interest rates softening like so many developed nations than it moving drastically up from the current 10% range. Whereas when someone is depending on the rental mode of accommodation he is exposing himself to drastic future variations in rent.

Take for example the case of a tier-2 city like Bhubaneswar. Not so long ago (around 5 years back) the rent for a decent 2 Bhk used to be in the range of 2-3.5 k. In just 5 years’ time it has skyrocketed to the range of 6-8k for the same accommodation.

The rise is mainly attributed to a rerating of the city as a small IT hub and the factor’s like a growing number of IT professionals employed with Infy, Wipro, Satyam, etc…Now someone who had the affordability to buy a house 5 yrs back but didn’t do it is surely ruing the decision. Of course, property prices too have risen in similar fashion so buying now is even more difficult.

2. I am not aware of the statistics but I guess most of the new houses are bought by people when they are of marriage age. So, probably the age profile will be in the range 26-34. This means the main cash outgo in form of EMI will be over by the time they in the age range of 41-49 (Assuming an average 15 yr loan).

There are a good 16-24 yrs of life left after that (Assuming a life expectancy of 65 years). What are trying to say is with buying a house one will be done with most of the hard work in his prime working years. Whereas rent is a never-ending story, one has to keep on paying the rents for his lifetime.

3. Reverse mortgage – Even if one were to see some bad time during old age reverse mortgage can come to rescue.

4. If the roof over the head is assured it’s easier to live off one’s savings for a few months/years if one were to see bad times in the form of loss of income. isn’t it ?? I mean it’s not impossible to live with just food-transport-communication expenses in the bad times. Add the rental expenses to this list of expenses and suddenly it would seem a little difficult to manage. Of course, the assumption here is the bad times are after one has paid off the EMI’s

Conversation 3#

Rahul Says

Dont quite agree, Manish this time.

Let’s take the example of the couple with the 3-BHK flat. Recently married, they will need a 2-BHK (AT LEAST) in the next 3-4 years, as they will start a family. If they have frequent guests, like parents, (of both husband and the wife), relatives, friends etc., they will need at least 1 bedroom extra, making it a 3-BHK, which is the minimum requirement nowadays.

There can be several other cases requiring such a flat. If either parents’ stay with them, or they plan to have 2 children or they have relatives/guests/friends staying over, a 3-BHK becomes a minimum requirement. Also. once they buy a bigger flat, they will pay it off in say 15 or maximum of 20 years, if not earlier. It takes off a big headache, once you have your roof over your head. No tension till you retire! With property prices rising, it is a good investment too.

On the other hand, if they buy a small flat, in addition to daily problems of staying in a small place, they will have the constant headache of looking for a better, bigger property. And with increasing process, it may not be in their reach too. So, better buy it now and finish it off.

What do you think? Do you have better ideas?

My Reply

Rahul

You have not taken the article in the right sense. I am talking about people who buy beyond their capacity just because EMI is available. I have clearly stated in the article that people who have a requirement and can’t do without buying something have to buy it.

What about the family (only 2 people, married) who can not afford a 3 BHK and can only afford 1 BHK. Dont they get guest or dont start a Family? They do. They make adjustments and how many times do guests come, it also depends on that. I am little crude on this, but I personally would not like to buy a 3 BHK because my guests come for 4-5 days in a year. I rather sleep on the floor and offer them the room. That’s a better choice, at least for the initial years till I am capable of affording a bigger house.

Another point you made was that if the couple is starting a Family soon? Wh y is it necessary to assign a separate room to kids till they are 7-8. You can manage things somehow. We are talking about cases where a person can not afford a bigger house. Dont you think so?

Rahul’s Reply

Manish,

I think if you buy a smaller house and then go for a bigger one after 6-7 years, it may get out of your budget by then, especially the way India is progressing and infrastructure is developing. Practically all Indian cities are bound to expand as more and more people move to the cities and our country becomes an urban country from a rural one.

In such a scenario, it makes sense to accumulate as much land(flats etc.) as possible. It is almost certain that land, flats’ prices will keep rising for the next 20-25 years. Besides, practically speaking, paying off steep EMIs just beyond your reach inculcates a habit of savings too. One has to pay the high EMIs to come what may, so expenditure is automatically checked.

I have seen this in numerous real-life examples I have also seen that having 4-5 residences gives one a feeling of financial security and achievement too! Keeping all this in mind, I’m all in the favor of paying steep EMIs, just within your reach (leaving just enough for daily expenditure and a 5% room for emergency exp.) to accumulate as much land/flat as possible.

and Manish you said about sleeping on the floor when a guest arrives. Really, that is taking it too far! I mean, the house you have should have some spare capacity. Homes in which we live is the best indicator of our financial status. What point is served to be a crorepati, if one has to sleep on the floor if a guest comes in !! And what if by chance there are 2 guests staying overnight?? really embarrassing!

What do you think?

My Reply

Rahul

You took it too literally. Sleeping on the floor means sleeping on the mattress, not “on the floor”. Dont we do it? There will be instances when you have it no matter how big your house is, even if you have 3 BHK, It can happen that you have many guests which can be accommodated on beds and in different rooms, That is the time you always shift on the mattress on the floors, That’s what I meant.

And it depends from person to person what is embarrassing for them or not, I personally would rather be embarrassed squeezing my financial life and being in debt up to neck rather than sleeping literally “on the floor”. Its a personal choice, nothing wrong . What do you say about this?

A close look at Real Estate Returns in India

Posted on December 6, 2009August 19, 2019 by Jagoinvestor

Real estate is one of the largest employer after agriculture in India. It is also a globally recognized sector which is witnessing a high growth in recent times because of increasing demands of offices and residential places.

One of my friend has shared his own experience about real estate, let me share it with you.

Real estate in India

One of my friends experience about real estate:

“The current market value of my flat in Mumbai is close to 1 crore, I bought it at 28 lacs in year 2000. The returns have been Mind boggling 72 lacs in 9 years, i.e. 8 lacs a year approx. , more than my current salary and now I am planning to invest more in real estate instead of Equity, What do you think”.

A not so close friend was discussing his Real Estate portfolio with me.

He belongs to first category of common sense deprived idiots, who do not understand mathematics well. 28 lacs flat became 1 crore in Value in 9 yrs, the returns are great, but not exceptional enough to make someone eyes pop out.

Simple math’s will tell you that its 15.2% CAGR return over 9 yrs.

Now what’s so great return about this 15.2% Return?

15.2% return over long term is desirable and great and what’s normal return from Real estate in last decade in our Country, The only thing irritating is how people make fuss about it.

Even Gold has outperformed, Gold was $300 per ounce in 2001 and now it’s close to $1100 ounce, that’s 15.5% return, 0.3% more. On the top of that Builders are not keeping their promises of Delivering Projects on Time and with same quality Promised.

Real estate investments have caught everyone’s attention in the past decade and every Tom, Dick and Harry with 5 lacs salary tries to grab a 40 lacs flat. I will try to throw some light on Average Real estate returns in past 8-9 yrs in India.

Coming back to my Friend:

I told him that it’s been a very good return, and I appreciate his timing, good job. But definitely he is bragging more than it deserves. A second person (his friend) suddenly comes to his rescue and challenges me.

“But Manish, I bought a flat in 2003 @20 Lacs with 3 lacs of down payment and rest a home loan. I spent total of 7 lacs till date and the flat is already quoting around 60 lacs, that 40 lacs of profit in just 3 yrs through investment of 7 lacs, that’s 78% return on annual basis”, showing off his fast calculations skills and giving me a “anything-else-you-young-financial-planner” looks his face .

These people are from another category of “common sense deprived and mathematically challenged” people. It is worse than first category. The problem with these people is that they do not understand “leveraging” .

What is mean by Leverage?

A situation of sitting on huge profits by just investing a small amount as down-payment and rest with home loan is pure example of leverage and very common in India, This gives a feel to people that they are very smart.

These people never consider the case when their house value drops by a big margin like say 15 lacs and they have just invested 5 lacs from their pocket, then they are in loss of -300% (absolute). But as you know, investors like to consider a rosy picture; they somehow believe that it can’t be the case with them.

When Real Estate broke in US:

As US citizens who bought Real estate in the middle of the Bubble just because credit was cheap and they could have made a lot of money by taking a Home loan and almost nil Down payment, When Real Estate broke in US, people who has put $10,000 from their pockets for a $4 million house were in losses of $1 million, because they had to pay $4 million as a loan money for something which is now costing $3 million.

That’s an unrealized loss of $1 million in a short time. That’s the problem of Leverage. Investors never think about this, India is a success story and housing is scarce, that’s enough for them to take a chance.

With my amazing quality of self-control, I kept all this in my mind and didn’t argue with him, sometimes your skills of explanation is limited to blogs only.

What is RESIDEX?

Don’t feel amazed if I tell you that there is an Index for tracking Real Estate in India. Its called Residex and maintained by National Housing Bank in India. It’s updated once every 6 months.

It covers all the major cities and the sub-areas in that city. The index Value over time will tell you how real estate prices are doing in some area or city.

Please understand that these prices are average real estate prices and not some general case which would negate what we discuss here today.

I don’t know how that is calculated but a common sense way of calculating it is to take a sample of real estate plots/flats in an area (for example 1000 units) and calculating the appreciation in value from last 6 months .

Lets see the RESIDEX values for 5 cities

Here is the chart of the same table

What is the mistake people do when they calculate Returns?

The beautiful mistake which everyone does is that they calculate pure absolute returns from Real estate which is in many lacs of rupees obviously.

So, if a person invested 30 lacs in a flat and it becomes 60 lacs in 5 yrs, they are sitting on a 30 lacs profit.

That’s a lot of money and people are excited to see that much money, but you also have to see that they invested damn 30 lacs !! for that, which is not every one’s cup of tea and the returns are normal 14-15% return/year on investment if you compare it with Gold or Equity.

You could have made more returns if you had invested in Equity (SIP in mutual funds in some top funds) . If you consider the risk taken for the return people have got in Real estate , personally I am not very much excited then, Investors forget the risk taken to get some return and only concentrate on Return part.

See an Article on GFactor , A tool to find out if an investment suits you.

What you have to see is how much return you got from something after adjusting the risk taken for that . So given a time frame of 1 year .

If you do a FD and make 9%, it’s amazing !!
If you invest in Real estate and make 10%, its ok
If you invest in Equity and make 11%, its just fine.. not a big deal
If you speculate in Options for one year and make your money grow by 500%, I would be personally disappointed a lot .

Some smart (second category people) people think that they can buy Real Estate on loan and make 30-40 lacs in 4-5 yrs from house value appreciation, While that is possible and has happened to a lot of them and definitely the return would be amazing.

But this exposes them to a great amount of risk which they don’t understand, its pure leveraging. There are better ways of leveraging than this. This kind of Leveraging is still nothing in front of Options trading in Nifty or some Stocks.

Not that I discourage people from taking a home loan and invest in real estate , but don’t overdo it , and understand and accept the risk involved, be ready for it.

“Risk happens when you have no idea what you are doing”. If you pre-calculate it and consider it, then it’s called Speculation, which is my favorite 🙂 .

An option trading is something I would recommend who have great risk appetite and dream of millions in short span of time, better than real estate.

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What is Average Real Estate Returns in India

IF we see the above chart of RESIDEX Values (for 8.5 years), you can find out the CAGR return of Real Estate in different cities. Let me show that for 5 cities in India.

Chart f or the same data

Note : I have assigned Index value for “India” by assigning weights of 25% , 25% , 25% , 10% and 15% to all five cities in same order .

What Should you Do ?

First of all, understand that Real Estate is important and you should always invest in it for Diversification of your Portfolio (If you can afford it right now). But that does not mean compromising with your Risk Appetite and investing just for the sake of Investing.

If you want to buy home, make sure you afford it, Buy a 1 BHK which you can afford if you want to live in it. If you want more than 1 BHK, plan for it, take it later. There is no rush. Real Estate is not the last thing in the world.

Don’t feel left out when you see others minting money in Real Estate, believe me they are making similar returns which you can make from Equity, just that the magnitude of profits they are making is high, not the returns on average. So Chill !! .

Note: Understand that whatever we have talked here is based on the RESIDEX index and there will be many specific cases which would make this all talk a nonsense, but we have to look at general case and not a specific case.

Download More data on Residex from HERE (From 2001-2007) and after 2007 at NHB website. Note that you can’t get all data of Residex at one place.

I combined the data from NHB from 2001-2007 and combined it with data on their Website to construct all 8.5 yrs of data. There was a shift in Base year because of which I had to do so.

What do you think about the Real Estate Prices at the moment in India?

I do not feel they are justified and the prices are mainly driven because of unnatural demand created by easy access to Loan. People buy it, but cannot afford it, If things continue for some more years. I would be surprised to see a big bubble burst in India like we saw in 2007.

Leave your Comments and let me know you are reading this blog.

Disclaimer: I have not invested in Real Estate, I am not very much excited about it and I don’t have money for it.

How Builders are Not keeping their Promises in Real Estate

Posted on July 31, 2009August 19, 2019 by Jagoinvestor

Deepak Shenoy came up with a very nice article on How Builders are not keeping there promises while delivering the Residential Properties. He shares his views on Why it does not make sense to buy Real estate currently at idiotic prices level currently .

He also links to another article of this where he compares Renting Vs Buying a Flat. I am embedding the same video here which he has on this Excellent article. Have a look.

My take on the Subject

I am not a big Real Estate expert my self , but from Financial Planning point of view I have to say that Buying Home is an Important decision and we should look forward to it , but never at the cost of putting our self in a situation which can become disaster for our self. If you earn 50,000 per month, it does not mean you go next day and buy a Flat where you EMI is 40,000 .

Most of the people do not concentrate on Long term and have a short term view . Buying House needs planning and consideration of various factors . You need to find Value in the property which you are buying , just don’t see the value . A property worth 40 lacs may look Cheap , but its worth still be less than its price . Do you know the Formula to calculate the EMI on home loan ?

Given the uncertainty of Stock Markets in near term and no big improvement in Real – Estate sector , I am myself still not excited in Buying anything in real-estate (the main reason is that I don’t have much money).

Mohit Satyanand says

“I wouldn’t put money into real estate unless it fulfilled three conditions—

It is a property I would be happy to live in.

I could put down at least 25 per cent of the total cost;

The EMI is less than half of my monthly savings.

With those conditions, it would be unlikely that I would exit the investment; not finding a tenant wouldn’t upset me; and with the balance of my surplus income, I could continue to build a nest egg of other assets. Read full Article“

This view can look like a pessimistic views at first, but in the long run, these things pay off. Don’t take much risk that you are not alive next time to take another is the Funda you should Remember.

Please comment on what do you think about the Real – estate sector currently in your City. Also do share what is the most important thing one should look at before buying a Flat?

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REMF (Real Estate Mutual Funds)

Posted on May 30, 2008February 6, 2019 by Jagoinvestor

Finally many people like me have chance to take take plunge in the rising and booming Real estate sector , Any one who does not have Crores and Lacs to invest in flats , plots etc , to earn the capital appreciation will to be able to invest even small amounts like 5,000 or 10,000.

What are Real Estate Mutual Funds ?

They are simple close ended mutual funds which will invest in Real-estate , as simple as that … The lock in period will be 3 yrs. These REMF will invest in properties and they will be owners of those properties , they will also rent out these properties and pass on the rents to the investors as dividend. And when the mutual fund matures , it sells its holdings and pay us the returns.

REMF’s will be listed on Stock Exchanges and they will be traded just like shares.

How do they work exactly ?

Lets take simple example :

You invest Rs 20,000 in some ABC REMF and one unit costs Rs 10 at the start , so you get 2000 units. many people like you will also invest and Suppose the total money they get from investors in 10 crores. Now they invest this money as per the laws defined for them. Suppose they receive 50 lacs as rental income from their investments in a year and the total investments has grown to 12 crores (because of rise in value of properties and other factors).

From this 50 lacs they will distribute dividend and you will recieve your share for 2000 units and the unit value will be around Rs 12.

Rules and Restrictions for REMF’s

– They will have to invest atleast 35% in completed projects , ready flats , shops , houses etc.

– At least 75% should be invested in real estate and related Securities.

– They can partner with real estate developers and invest maximum of 15% in the project (not in company).

– The NAV will be published on daily basis.

– Most probably they will be in category of debt funds. Tax treatment not clear at the moment.

– Further caps will be imposed on the fund on investments in a single city,
project or securities issued by associate companies and sponsors. Funds are not allowed to invest in assets owned by the sponsor or the asset management company or any of its associates during the last five years the aforesaid entities hold tenancy or lease rights.

– The cities for investment by real estate mutual funds would include 35 cities in million-plus urban agglomerates and 27 under the million-plus category as per the Census 2001

They are still to be launched , keep a watch !!!

I would be happy to read your comments or disagreement on any topic. Please leave a comment.