Breaking news! Buying a home is often the biggest investment decision any individual makes. office fitouts Melbourne Over the last decade or so, higher income levels have lowered the average age of the Indian home-buyer. Though, with rapid growth in the economy, property prices have also shot up significantly over that period.
For an average single-income family, buying a flat or a house within the limits of a big city has become a difficult task, what with soaring property prices. For yet others, their budgets do not match their aspirations. What are some strategies that investors can adopt to make the property buying decision? Here are a few FAQs.
Is this the right time to invest in real estate?
In the Indian context, just like stocks, real estate too has always moved only in one direction — upwards. However, buyers need to be aware of the pitfalls of bad timing. When the market is upbeat, transactions take place well above the guideline value and property may quote at fancy prices. Investors chasing deals in such market conditions have usually to pay premium to execute the deal.
Before entering into a property deal, one quick way to check market conditions is to evaluate the gap between the guideline value and the market value of the property. water damage restoration If the divergence is high, wait for consolidation in the realty market before you buy. If the gap is less than 10 per cent, you can go ahead with your investment. This may be justified by the current inflationary trends.
All property purchases require margin money. How do I save enough?
While the bulk of the value of a piece of property (70-80 per cent) can be funded by a loan, meeting the margin requirement is often the most difficult part for a retail investor.
Some take the investment decision and then try to find funding sources. Others may even take a personal loan to bridge the gap; this is a very expensive means of finance. It is always better to restrict loan component to 40-50 per cent of the property value. So, buying a flat or plot should be planned much ahead of time. Put away a portion of your savings regularly to fund your property purchase.
Invest in a plot of land. Usually, because of scarcity, land prices tend to appreciate faster than prices of residential flats. This may give a land-owner the edge and help bridge the gap in margin funding when buying a flat. One drawback in buying a plot is that land is quite illiquid and, therefore, you should try and sell the plot at least six-twelve months prior to your investing in property.
Property prices are expensive in my neighbourhood but I am keen to buy in the same location. What is the way out?
The best way to resolve this problem is to purchase property first in an upcoming area in the suburbs as an investment. home extensions Property prices in upcoming areas usually appreciate much faster than those in the city limits. After a reasonable interval you can sell that flat/plot and reinvest the sale proceeds in your neighbourhood. Any long-term capital gain arising out of the sale proceeds can be offset by redeploying them in new property.
Investors keen to buy a flat only in their own neighbourhoods have been mere spectators to the astronomical growth in real estate prices. Consider this: Five years ago, my friend could not afford property in his neighbourhood, where the going rate for a flat was Rs 4,000 per sq ft; at the same time, the rate in an upcoming area was Rs 1,300 per sq ft. Beside his savings of Rs 8 lakh, had he availed a loan of Rs 12 lakh and bought a flat measuring 1,500 sq ft; his total outgo would have been Rs 20 lakh. While buying in upcoming area it may be wise to buy bigger flat to take advantage of future growth.
The square foot rate in the upcoming location has since shot up to Rs 4,000 per sq ft, while that in his neighbourhood has soared to Rs 7,500. If he had taken the decision five years ago and sold the flat today, it would have fetched him Rs 60 lakh, reducing his loan requirement substantially. Goal-setting is a powerful tool and can make the difference between success and failure.