Anytime is a good time to buy a house to live in

House purchase is a major financial decision
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House purchase is a major financial decision

Text: Vidyalaxmi, ET Bureau

Buying a house is a major financial decision with an emotional quotient. More so, if it's your first purchase and you plan to stay in it. You just need to keep the emotional strings under tab to make a financially sensible decision. Rahul Sanghani, a Mumbai-based chartered accountant, has been looking forward to buy a house for 4-5 years. Every time he thought he had coughed up enough money to buy a house, he eventually realized he fell short of the target. This is the dilemma of most Indian urbanites.

Finally, after building a sizeable corpus, legwork and the right homework, Sanghani bought a house for 48 lakh in Kharghar, Navi Mumbai, Maharashtra. The price was much lower than those of the houses he had seen before, which were in the 55-60 lakh range. "I bought a house on secondary sale from the owner, who was moving to a bigger house.

Big builders are able to withstand the slowdown
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Big builders are able to withstand the slowdown

It's not a major township or a building with lifestyle amenities. The lesson I learnt is big builders charge a premium on the amenities they offer. Many even insist on club house membership and advance payment of two years of maintenance charges, which adds to the overall cost of the house," says Sanghani.

The lesson Sanghani learnt in the real estate market is that the big builders are able to withstand the slowdown, unlike smaller builders or homeowners. Home buyers have been on the edge because of the adverse impact of the prevailing macroeconomic factors such as rising interest rates and surging inflation. The spate of hikes in interest rates by the Reserve Bank of India led to a steep rise in EMIs of home loan borrowers.

Rising costs of construction
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Rising costs of construction

On the other hand, the rising costs of construction and debt have constrained the developers. "Rising input costs caused developers to slow down construction and new launches. Most of the new launches in 2011 were in the mid-income and budget homes segment," says Om Ahuja, CEO - residential services at Jones Lang LaSalle India.

Does this imply that the developers will finally bring down the real estate prices in the New Year?

Prices to remain stable
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Prices to remain stable

Real estate consultants don't expect any downward correction in property prices. On the contrary, they expect a marginal increase due to pent up demand. "Generally speaking, capital values will increase only marginal in the early part of 2012, largely because of low sales and unfavourable interest rates. That said, there will be project-specific price increases in all major cities, especially in near-complete and complete projects," says Ahuja.

If investors and home buyers can afford to wait for some time before they get to walk into their new houses, they should look at projects that are under construction. "Newly-launched projects in the primary cities are already being price-tagged at lower rates, since developers need to generate operating capital," Ahuja adds.

Prices to remain stable
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Prices to remain stable

But near-complete projects or ready for possession houses have a ready demand for them, which means developers can hold on to their prices.

The real estate market has witnessed a sluggish year in 2011. But the incremental supply, or fresh supply, has been lower than the demand. Gulam Zia, national director, research & advisory services at property consultancy Knight Frank (India), says: "Specifically, in Mumbai there hasn't been a fresh supply of new real estate projects in the past one and a half years. On the other hand, there's a huge pent up demand, which will exert upward pressure on real estate prices."

Residential capital values will remain stable
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Residential capital values will remain stable

Here is what Enam Securities says in its Realty Monitor: "There has been lower incremental supply in real estate in Mumbai as against absorption. Hence the prices are holding on." This simply means there are fewer new houses on sale compared to previous years. Even as the demand for buying a house has stagnated, or even declined, in certain pockets, it's still far higher than the supply.

Hence, for a majority of the cities, residential capital values might remain stable. "Some of the peripheral locations which witness a lower demand may see a marginal fall in prices. But the greater chance in these locations is to see stable values for a longer period," says Shveta Jain-director, residential services, Cushman & Wakefield India.

For home buyers and self users
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For home buyers and self users

From a financial planning perspective, owning a house for your residential purpose should be one of your top priorities, if you don't already have one, say financial advisors. "With increase in the cost of property and home loan interest rates, house rents are also going up. Considering this, in my opinion, any time is a good time for you to buy a house for self-occupancy," says Pankaj Mathpal, CFP, managing director, Optima Money Managers.

There's a definite risk in waiting too long for the perfect opportunity. So, if you get a house that fits your budget and requirements, just go for it. "It's impossible to predict the point of lowest ebb in the real estate market, just like in the stock market. You shouldn't time the purchase of the house based on the real estate prices but on the basis of your affordability. In fact, the danger in delaying a purchase too long is the buyer losing out on the best properties, especially on the secondary sales market," says Ahuja.

For investors
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For investors

Investors can adopt a wait-&-watch strategy before making their final purchase. But the underlying risk of missing out on a good deal always remains. It makes sense for investors to buy an under-construction property. This will ensure you lock into the property at a lower price. But ensure that you opt for reputed developers with sufficient funding to rule out uncertainties on the house completion front. "The under-construction property won't yield any cash flow in the first few months. Hence, an investor should borrow prudently, as they can't expect any financial support from this investment to fund their EMIs," says Mathpal.

Do enough homework
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Do enough homework

Also, an investor should do enough homework on the location of the property. You will pocket bundles of cash if, for instance, you have bought property in suburbs where you expect infrastructure development. Ideally, the locations should witness some big infrastructure developments such as launch of new commercial spaces, an airport, IT parks, etc. Such developments have the potential to offer you a good return on your real estate investment.

For example, there are a plethora of property options coming up on the outskirts of Bangalore and Chennai. In Chennai, properties along the OMR Road are fetching a good value because the location is nearby to several IT company offices. If you buy a house in such locations, you'll see good capital appreciation. Besides, you stand a good chance to get a personal or corporate lease on such properties.

Flipping in property prices
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Flipping in property prices

Often, investors try to profit short term by buying at a lower price and selling at a higher price. This is called flipping. But it's best left to seasoned retail investors, who of course would know the developer very well. Such investors don't go through the regular exercise of paying stamp duty or registration, as it involves additional cost and paperwork.

Now, why flipping isn't advisable for a regular retail investor is because he or she wouldn't know the builder. Besides, it involves big money. Financial advisors say real estate delivers a decent return only in the long run. Ideally, an investor should look at a horizon of 5-7 years to compute actual gains, experts say.

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