Buying a property is one of the most critical investment decisions. Whether the decision will pay off depends on several factors. Here are a few things to bear in mind before you take the plunge.
One, don’t take the plunge just yet if you dream doubling your money in the next two-three years. Sure, sales have started picking up and prices are looking a lot better in 2018 than they were in 2017.
Yet , my take is that unless you can lay hands on a sweet deal through a distressed sale, which essentially means the property is 10-15% cheaper than the market rate, don’t bother. Type in your budget and location on any of the leading online portals. The flats listed for sale on these sites will give you a pretty fair idea of the going rate.
Different Story for Genuine Homebuyers
Two, it’s a totally different story if you’re buying a home to inhabit. Get going right away. For the exact same reasons as above. Inventory of unsold units is slowly but steadily falling, with new launches down 70% from the peak of 2013-14. Prices across the top eight top cities have started recovering.
It’s wise to buy when the price curve starts improving because you don’t want to catch a falling knife. Plus you get a decent tax break of Rs 2 lakh every year on your housing loan.
Three, for those of you earning up to Rs 18 lakh a year and looking to buy your first home, my recommendation is — act now! Government-sponsored CLSS (Credit Linked Subsidy scheme) knocks off another Rs 2.4 lakh from your EMIs and there is a straight-up subsidy available on home loans until March 2019.
Beware of the Splendour
And who doesn’t love villas and independent homes? But my take is stick to high-rise projects in gated communities with smart basic amenities – a club house, swimming pool and sport facilities such as a tennis or badminton court, a nicely laid-out walking or jogging track.
Don’t swoon over glitzy facades, elaborate landscaping, fountains, Jacuzzi, spas and fancy fittings. Spend your budget on the largest carpet area or space between the four walls you can possibly buy.
Apartments are easy to maintain and are socially more fun. Your kids will find plenty of playmates and leave you in peace for binging on Netflix. And if you don’t have kids, even better. You will find plenty of likeminded people to hang out with.
Four, what about buying a property to rent out? I’m going to stick my neck out on this one and say it’s not a bad idea. Financial planners recommend this kind of investment as a portfolio diversifier, citing property rental income as an inflation hedge. Except in India the rental returns on residential property in the most sought after localities don’t stack up today. At best you will get 2-3% of the capital value as annual rent.
Over the next four to five years though, as demand and supply mismatch goes out of the system and more and more younger population joins the workforce, rental yields should improve, especially if price rise remains under check, which I believe it will. If you are the patient kind, buy a smart one or two bedroom apartment in a tier-I city with high employment potential. Stick to the big cities and avoid smaller ones.
Five, if you’re one of the erstwhile heavyweight real estate investors sitting on a few flats hoping to get your dream price one day, do smell the coffee! A home to live in, another to rent out is all you should own, unless you’re seriously rich.
Genuine homebuyers are back, especially for ready-to-move-in property. So sell now if you find a buyer, at the going market rate and switch to a well performing equity or balanced fund. Your net worth will look a whole lot better, several years from now.
Manisha Natarajan is Group Editor, Real Estate & Urban Development, Network 18 and has been watching real estate closely for 7 years.