The purchase of house is one of the important decisions of our life. We always aim for buying a best house within the limited resources and time that we have. If you are a first time buyer, the current scenario, where real estate prices are subdued and interest rates are declining, offers you a lot more options than in the past. Buying a home is the most exciting and at the same time, tedious task for people. However, you should not ignore doing the due diligence as it can cost you big in the future. Let’s take a look at the options that are available to home buyers.
Under-construction house
This is the most popular way of buying a home. A builder announces a new housing complex through newspapers, TV , or any other media. This option would be benefit both the buyer and the seller as the builder gets customers even before he starts laying the foundation while buyers get the cost benefit. This option is cheaper compared to buying the one that is already built. An under construction house with two bedrooms would be available at 20 to 40 per cent discount to the ready-to-move in house and would give you higher returns than other models.
The risks are:
* High returns always come with high risks. There have been cases where builders could not complete the housing complex due to some reason and the buyers lost the money.
* On the other hand, the market outlook may also change, thereby affecting the demand. For example, Shamshabad was supposed to host the largest Infosys campus, a chip factory, few engineering and medical colleges, banks, but most of it did not materialise due to the the economic crisis.
* Another risk factor is that you may not get what you are promised. In some cases, carpet area may be smaller, while in some the illusory swimming pool may never come up. So you always need to clarify the past history of the builder.
If the builder has done great in the past, chances are high that he will repeat the same. Also you need to check as to how the bank would release payments to builder. Ideally, it should be linked to the progress in the construction.
Ready-to-move house
This is a new trend observed in the recent times as buyers try avoid risks associated with the under construction model. The reason is not hard to guess. Since the economic slowdown in 2008, there have been many cases where builders could not complete the housing complex and buyers had to wait helplessly.
In this model, the buyers can just pay the money and move into the house, unlike the under construction model, where you wait for months for the project to be completed. Though the price of a ready move house is costly, it is easy on your pocket in the initial days as you don’t have pay both the rent of your existing house and the pre-EMI. The risks are:
* In the ready-to-move house, there is no way you could know what kind of material was used in construction. If the material was substandard, the hou-se can look old in no time!
* The price of ready-to-move home is about 25 per cent higher than the under-construction home.
Group buying
This is a new concept wherein a group of persons come together with an intension of buying their houses from one builder. Many new companies such as www.groupbookings.in [1] have encouraged home buyers to form a group and thus increase their bargaining power.
Once the group is fairly big, the group buying companies will negotiate with builders on their behalf and get extra discounts. These companies act as a mediator between the builders and home buyers. For builders, giving extra discounts is not a problem because they are saving big in advertisement and sales force. The risks are:
* An individual buyer doesn’t make much difference and hence group’s interest takes priority over individual’s choice. The down payment usually is higher.
* You should study the documents carefully. Don’t assume that someone else is reading these documents.
* Group buying of homes take time and hence you have to be patient about it.
Buying run-down houses
This option is not yet popular in India but it is slowly picking up. Essentially buyers choose to purchase a rundown home at dirt cheap prices. Once the house is yours, you can fix it and spend some money to get it up to date. This can fetch a better value and the investor can make a killing in profit. The risks are:
* The look of run down houses can be deceptive. The cost of repairs may exceed your estimation. So unless you have experience in this field, you should not venture into it as you may end up buying a worthless property in an area, where people are migrating from.
What should you choose?
If you are ready to wait, can take medium to high risk, and do not care much for location in terms of being near to the market, you can go for an under-construction home. You can even go for the group booking, if your requirement is to stay with people of your social standing. If you cannot wait and take high risks associated with under-construction homes and need to be near amenities of your choice, try to find a ready-to-move home.
(The author is CEO of BankBazaar.com)
Links:
[1] http://www.groupbookings.in