Rain alert: Homes are cheaper

Publication: Business Standard, New Delhi;   Date: Aug. 1, 2010;   

A proper recce of the house and area may help clinch a great deal

During the monsoon, construction activity slows down and very few projects are launched. Every year, between March and September, builders find themselves in a situation when buyers are few. Reason: Many people consider it inauspicious to buy during this period. This adds to the existing inventory. The builder, on his part, wants to get rid of this so that he/she can start a new project in the upcoming festival season. As a result, many of them hold property shows in foreign countries to attract buyers. On the other hand, buyers use this window of opportunity to get the right place, and at least a 10-15 per cent discount.

This year, there is an additional advantage: Many builders are stuck with high debt. Many are already raising money at 16-18 per cent a year. This means they are borrowing against existing real estate assets at these high rates from high networth individuals and groups. Cash has once again become king and you might be able to strike a good deal if you have enough upfront money. As a potential buyer, you could use this increased supply of property in the market, to bargain with an owner or a builder who is desperate to sell.

RAIN, RAIN DON’T GO AWAY
The monsoon reveals a lot of things about the property. For instance, 

# Does it flood in and around the apartment complex? Wading in and out of the building is not an option. Some areas are low-lying and it often helps to do some due diligence during the monsoons. Even the high profile suburbs suffer from this problem. For example, Juhu in Mumbai is a low-lying area and several bylanes get flooded during the monsoons.

# Water seepage in the homes is another serious problem. And rains help you to gauge the actual extent. Until the rains, since the seller carries out minor repairs and paints the house.However, repair and maintenance of flats with water seepage can prove a burden on your pocket.

# The traffic on the roads reaches its peak during the rains. It would be helpful to check the situation near your preferred location. You will get a fair sense of how much time it would take you to commute.

GETTING A DEAL
The rules are mostly same. Considering that you have already identified a location, the first thing to figure out is your actual cost of acquisition. Among the things to check are the super built-up size (SBS), carpet area size, price per sq ft for the super built up and carpet area, floor rise cost, parking charges, stamp duty, registration, brokerage and allied charges.

There is no correct loading figure but on an average it is not above 35 per cent. It must be calculated on the base carpet area. Some builders have also included the concept of a usable carpet area, which includes your dry balcony and flower beds. There is no regulatory help or any other available but you can negotiate on this point. For instance, calculate the loading on the carpet area and not on the super built-up area. Find the exact cost of the carpet area per sq ft if you are serious about buying the property and can make upfront payments.

Smart builders generally pre-sell a major portion of their projects. Check the prices in surrounding areas for similar-size flats. Though there will be a difference between a new 3-bedroom-hall-kitchen (BHK) flat and one built 15 years earlier, it will not be huge.

Find the rental yields for residential flats. A fair value is when the rental yield is between 5-6 per cent. For instance, if a flat costs Rs 75 lakh today and if you are getting a rent of around Rs 3,00,000 per annum, this is a yield of four per cent and means the price is high. If, on the other hand, the yield is six per cent or higher for residential property, then the price is reasonable and you must grab this property.

Don’t fall for the redevelopment stories and buy properties at exorbitant prices. The redevelopment process takes long since there are often a lot of thorny issues involved within the members that need to be settled.

Many people end up buying houses simply because they are worried they will not get it five years down the line. But while buying a house, a lot of other practical issues like availability of transport, local amenities and development of the area have to be looked into. So don’t give in to undue pressure of rising demand and buy in a hurry.

The writer Amar Pandit is director, My Financial Advisor

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