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Buying a home for the short-term?
Shreyans Chopra
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January 30, 2009
Buy land, they've stopped making it,' Mark Twain once said. And it's indeed true; almost everything else worth investing can be produced. By this logic land supply will be severely squeezed in the coming future as population keeps multiplying and demand for housing keeps increasing.

Real estate, hence, can be considered as the safest investment today despite a gloom surrounding the sector globally. Despite financial turmoil, realty stands against all odds by showing lesser ups and downs (compared to stock prices, oil prices, etc) as it is tangible.

With a large number of young Indians migrating to all corners of India in search of livelihoods and jobs demand for homes -- either on ownership or rental basis -- will always exist. But then most of these young job seekers feel lost when it comes to making a decision: Buy a home or stay as a tenant.

Should I buy a home or stay in rental homes?

We first need to think if rentals can build an asset. For the youth, renting may look as the most obvious option because of the nature of their jobs which takes them from one place to another in a couple of years. In this situation if you want to buy a house then one of the key factors should be the choice of location.

Identify pockets which have a potential to appreciate quickly, and a profitable situation will be to even out your rentals with Equated Monthly Installments, EMIs.

Just as a thumb rule, when paying rentals which account for 10 to 12 per cent annually on actual value of home, it is better to consider buying a home. Even if property rates do not appreciate it is a profitable deal; you have an asset to bank on even as you pay EMIs that equal the money you pay as rent.

Considering a long investment horizon (10 years) this is always a good option.

What should I do when I need to buy a house and I have a shorter investment horizon?

If you are buying a home then considering the worst (a shorter investment horizon with property rates going down as they are doing currently), the following points must be kept in mind:

  • Consider buying a home in localities which have planned infrastructure development around it like metros, shopping malls, offices, airport, etc.
  • Consider buying a home on or near the main connecting roads than in the interiors. Even a well-decorated, well-furnished house in the interiors can fetch lower valuations when you want to resell the property.
  • Buying a home from a reputed builder will always be a plus as you are assured of the quality and on-time delivery if the project is under construction. It also helps if the property that you are buying has an approved file number (or APF as it is called in banking parlance) from a reputed lending institution as lenders quickly disburse home loan money in such a situation.
  • Do a prior valuation, legal check before buying. This will help you understand if you are paying the right price and the risks involved. No doubt the bank does this for you, but since this is a lifetime investment, it is advisable to conduct an independent check as well.
  • Consider flexible loan repayment structures. Most banks now offer a varying number of home loan products, the most popular being the fixed rate home loan, floating rate home loan and a combination of the two wherein a borrower can have a part of her/his loan on a fixed rate basis and the rest on a floating rate basis. Depending on your views on the interest rates five years from today take a call.
  • You should also consider factors like economic growth in your region, your personal long terms plans of settling down, good schools, hospitals and entertainment amenities planned in that area. After all, we human beings are social animals and having these facilities in the vicinity not only help you and your family socialise and entertain yourselves but can also give you a good return on your investment if ever you plan to sell your property.
  • Finally, we are into a buyers' market. Remember that everything in this market is negotiable. Hunt for the best deal, best price, best discounts as even a small discount can save you a lot of money. A 5 percent discount (which is very common if you bargain hard) on a Rs 25 lakh property can save you Rs 125,000, which you can then use to redo your new dream home.
  • When planning to buy your home, do keep in mind that home concepts are changing rapidly; there is a huge shift in the way people live today as compared to a decade ago. Today, homes fall more under the lifestyle category than a necessity (this, of course, is a moot point), people are fast adopting new concepts called intelligent or smart homes.
  • Wi-fi connectivity, automated access controls, security gadgets, HVAC (an acronym that stands for heating, ventilation and air conditioning) systems and remote home management systems are some of the new features which are being seen. If you wish to go with the times, ensure your selection has such future options or have options to install these in future.

    Happy home hunting!

    Shreyans Chopra is the chief executive officer of Suksh Technologies, the parent company of pan-India portal

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