Dhruv Agarwala & Kartik Varma:
There is no substitute for the joy that one
experiences in buying the first house.
Most Indians have never bought a home before; and are actually first-time
buyers. Buying a home is going to be the biggest investment that you will make
in your life. Here are some tips to give you a lasting experience
Don't budge from your budget
There is too much choice in the market; you must understand what your budget is
so that you can narrow your search into a manageable process. Otherwise , your
real estate broker will spin you around. Give the broker your budget and tell
them that it's not movable. Don't believe them when they say your budget is too
low. There are properties of all types available in India today.
The budget is not just the cost of the property — it must include numerous
non-obvious costs such as broker fees, lawyers fees, stamp duty, registration
fees and home insurance premium. If you are buying a new home, you will also
need furniture, fittings and gadgets for the home. Alternatively , if you are
getting an old home, there might be renovation or redecoration costs involved.
There is no point in searching for the house of your dreams if you cannot afford
to live there, you must also think about whether you have enough cash flow to
support your lifestyle, after you have paid for the property.
Do not stretch yourself and take a personal loan to fund the down payment
towards the property. This will only increase your risk exposure. Ensure that
you can naturally afford the down payment through your savings. Additionally,
don't stretch your budget to get a more expensive home because that will mean
stretching your EMI payments. Remember to keep your EMI manageable so that you
can continue to afford the lifestyle you are accustomed
This is the key that will affect the quality of life that you have in and around
your home. Additionally, a better located property will get a much better resale
value if you decide to sell.
Before you put in your life's saving into a property , you might want to
consider renting in your desired location for a few months. It will give you a
good flavour of what life could be like in the area. When thinking of a
location, you must consider the following: proximity of schools, your commuting
time to and from work, modes of transport around the property, local amenities
and shopping convenience.
Finally, the traffic and noise situation might often be very different from
weekdays, so do check the desirability of the location at different days and
times of day.
Define your specifications
Prioritise what is important to you. Otherwise, smooth-talking real estate
salesmen will take advantage of you by showing you too many different properties
on criteria that will not be important to you.
Is a large kitchen important to you? Do you need an attached bathroom for every
room? Do you want lots of storage capacity? Do you need a study for your home
office? Do you want to buy an old construction and aged plumbing, or will you
only look at new modern homes that will come at a premium?
The home-buying process can be time-consuming and complicated. If something can
go wrong, it will. But, if you are mentally prepared for it, then you will not
be surprised when delays happen. Budget at least 3-6 months for the process,
especially keeping in mind the timing of when you absolutely need to move into
the new home.
Do not get frustrated if you do not feel fully in control of the process.
Remember, that you are going to be at the mercy of real estate brokers, the
developer, home loan lenders, lawyers and other intermediaries . Money,
documents, contracts and agreements need to move around all these different
players in the process. Things will not always move at your pace, but at the
pace that these intermediaries choose.
View it twice if you like it
Of course you are not going to buy the property without seeing it. But, don't
make the mistake of taking your entire family with you the first time around. If
they get over excited, the real estate broker is going to sense this, and then
will exploit this to his advantage.
You must also visit the property at least a few times. Note how you
instinctively feel about the property. Why do you feel this way? Can you really
call this place home? Maybe at your second or third visit you can take the
extended family with you to get their reactions as well.
Maintain a viewing checklist, on which you can rank the different properties you
are visiting on the criteria that you have prioritised. Remember, you do not
want to regret that you were forced into a decision to buy under pressure from a
real estate broker or because you had very little time to view the property.
Learn how square footage can magically disappear
Get familiar with the language and conventions used in real estate. When some
one gives you an area for the property, always ask them what definition of area
they are using. Here is why this is important:
Typically, the area that you pay for is higher than the area that you actually
get. For instance, you will pay for a 2,000 square feet flat, but your usable
area might only be 1,500 square feet. You will face a reduction in the area. In
this example its 25%, but it could even be more in actual cases.
The square footage that you have lost is your share of the floor space of common
facilities like walls, corridors, lifts, etc.). But, you will have to pay for
the entire area, including the area that is lost.
Always ask what is the carpet area that you will get, i.e., the area over which
you can actually spread carpet across the entire floor if you so wanted to do
it. This, effectively , is the area that you will have for your end use.
Review your financing options simultaneously
Just finding the right home is of no use to you if the deal falls through
because you have not organised your funding. Often you will need to demonstrate
that you have access to the funds to finance your purchase. Therefore, organise
the money before you need them.
If you are self-funding your purchase, ensure that you have enough funds that
you can access at short notice if your deal comes through and you are required
to pay immediately.
If you need a loan, file an application with your chosen lender and get it
approved. You can get approved even if you have not yet identified the property
. This will save you time and emotional hassles later on in the process.
Typically, such approvals last for six months which should give you sufficient
time to identify a property.
Buying directly from the developer versus the investor
These are boom times for real estate development in India. Developers are coming
up with new projects all the time. Many investors have bought properties for
investing purposes. You need to understand that there is a difference in buying
directly from the builder versus from the investor in a property.
If you buy property directly from a developer in a project, it is likely that
you will not have to pay any cash component and the entire payment can be in
On the other hand, if you buy from an existing owner of the property (even if
its under-construction ), the owner will expect to earn a return on his/her
investment , and might expect a large part of the payment in cash. You need to
be aware whether you are capable of making cash payments. This is a reality in
India and in many cases
Your current buy doesn't mean game over
As you and your family grow, so will your needs. You might get married, have
kids, your parents might move in with you. Some unplanned events might also
occur; for instance, you might get transferred to a new city. Don't see your
current purchase as a dead end.
You can upgrade to a different property in a few years. Maximise what you need
to fulfil over the next few years. Remember, you can always sell this property
and use the sale proceeds to get another property.
Finally, with a little bit of attention to detail and awareness, you can become
more confident even before you start the process. There is absolutely no
substitute for the joy and pride that you will experience at your first home
(The authors are co-founders of iTrust, a financial advisory )
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