The Hindu Business Line : ‘You can make a counter-offer to the builder’

Investment World - Interview
Industry & Economy - Real Estate & Construction
Columns - Young Investor
‘You can make a counter-offer to the builder’

Never be afraid of the developer being offended by the price or terms quoted. If enough time has been spent in doing research and pre-qualifying the property, a homebuyer should never hesitate to make a counter-offer.

MR RAMESH NAIR, MANAGING DIRECTOR, JONES LANG LASALLE MEGHRAJ, CHENNAI.

Vidya Bala

When buying property, analyse the price of competing projects in the locality and use rental yields, to judge if a property offers value or is expensive, says Mr Ramesh Nair, Managing Director, Jones Lang LaSalle Meghraj, Chennai. In an interview with Business Line, Mr Nair addresses some questions frequently asked by homebuyers.

In a booming realty market such as the present one, should a homebuyer wait to purchase a home? How can one identify a good time to buy?

It is important for a homebuyer to first interact with local real-estate agents, neighbours, developers, investors and housing finance companies in their city or area to get a better picture of the past and present price scenario in the area.

Second, one should keenly look at the average price in the particular neighbourhood and the changes in capital values from the last year to the present one. Do not panic about a potential real-estate bubble but exercise caution and good financial judgment before buying real estate. The timing of the purchase will also vary depending on whether the homebuyer is buying it for end use or for investing. The market scenario may play a more important role in timing the purchase made by an investor than by a homebuyer.

With the soaring property prices, how does one ensure that his/her purchase is not overpriced?

Homebuyers should always take time to consider what type of property they would ideally like to own and, preferably, adhere to those localities they have knowledge of and are comfortable with.

If the price of competing projects in the locality is analysed, it will quickly become evident to home buyers as to whether a particular project is expensive or offers good value or is priced at a fair market price.

One can also approach real-estate agents to seek information on the property value on a formal or informal basis.

Another clue to know if the price is reasonable is by calculating the rental yield (the expected annual rent divided by the total purchase price of property). The buyer should make sure that the annual rental yield is at least be 3.5-4 per cent of the total purchase value before he buys the house.”

What should be the proportion of debt and own capital that a homebuyer should invest?

Income earned by a family and repayment capacity are two key factors to be considered before deciding on what proportion of the cost of the home can be routed through a loan.

Apart from the cost of the home, the buyer needs to take into account funds needed for stamp duty, registration charges, brokerage and so on. In other words, he or she needs to arrive at an all-inclusive budget first.

The next step is to find out the loan amount for which one is eligible. This is calculated based on income and liabilities and other commitments such as a car loan. If the spouse also has an income, one can make him/her as a joint applicant, so that so as to be eligible for a higher amount of loan.

Generally, the maximum loan amount given by banks and housing finance companies is between 80 per cent and 85 per cent of the cost of the home. While an applicant may be eligible for the above amount, one should avoid the temptation of immediately borrowing the whole amount (that he/she is eligible for) as a loan.

Unless confident that one’s income will undergo a sharp increase in the near future and the same will also remain sustainable, do not accept a home loan that is more than 80 per cent of the maximum that lenders are willing to provide.

Normally, the Equated Monthly Instalment (EMI) of one’s loan can go up to 40 per cent of their monthly income. However, it needs to be ensured that the EMI never exceeds a person’s monthly savings after all expenses.

Are builders open to price negotiations? Should individual buyers attempt to negotiate?

A homebuyer should never hesitate to make a counter-offer on the property if enough time has been spent in doing research and pre-qualifying the property. One should go ahead and make the offer, even if the asking price is more than what a buyer wants to pay.

Never be afraid of the developer being offended by the price or terms quoted. Let the developer know why the buyer has made the offer, and highlight the deficiencies in the property or location.

Could you broadly suggest the legal aspects that an investor should verify when buying a property from a builder?

The investor should get a written opinion on the title from the builder’s lawyers. A lawyer can then be appointed to cross-check all relevant documents, irrespective of the size or value of the property.

Some of the key documents which need to be checked are original copy of buyer’s agreement with the builder, patta from the revenue authorities, encumbrance certificate, search and title report (with the details of documents) for the last 30 years, development agreement between the owner of the land and the builder, copy of approved plans and planning permits sanctioned by the competent authority, building completion certificate (if available), demolition of existing building to be approved by local authority and Urban Land Ceiling clearance certificate, if applicable, are some of the key documents.

Latest receipts of property taxes paid, approval by housing finance companies, status of water connection and electricity supply, clarity on undivided share of land and floor space index (FSI), property tax demand notices and receipts, water and sewerage tax demand notices and receipts, electricity meter cards and receipts for security deposits and additional deposits, urban land tax assessment, if applicable, are other documents. The above list is not exhaustive; the nature of documents can also vary in different cities.

More Stories on : Interview | Real Estate & Construction | Young Investor

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page