My First House

Every individual has a dream of owning one day his own house.The motivation to invest in property will vary from one investor to the next. Though certain property investors place an emphasis on capital growth, others focus on a property's ability to secure a rental and a market related yield.For most investors the challenge lies in securing a total return that incorporates both capital growth and yield.

The expertise acquired by an investor may also influence the type of investment undertaken. Such expertise may reflect the investor's knowledge of a specific geographic market or a particular market segment - for example retail property.

No matter what route an investor takes, an investment in property is different to an investment in the equity or bond market. A property investment encompasses certain unique characteristics.

Every person wishes to one day own his or her own home. The reasons for investing in real estate differ from one investor to the next. While some property investors are more concerned with capital growth, others are more concerned with a property's capacity to obtain a rental and a market-related income. The objective for most investors is to achieve a complete return that includes both capital growth and income.

An investor's experience might also impact the sort of investment he or she makes. Such information may represent the investor's understanding of a certain regional market or market niche, such as retail property.

An investment in property is distinct from a stock or bond market investment, regardless of the method taken by the investor. Property investment has its own set of qualities.

These include:

  • Large individual value. Commercial and residential properties are generally of large individual value and few investors have the equity (cash) to cover the entire value of the property. This means property investments usually rely on a high level of debt funding and the desire of the financial sector to lend. Yet the very characteristics of property means that it provides collateral that can be used to secure debt funding.
  • Not a standardised investment. Property, unlike many other investments, is not of a standardised nature. No two properties are alike and every building is located on a unique erf with specific legal and geographic characteristics. Also, the investor has to understand the unique qualities of a property as well as the specific risks and opportunities that it can provide.
  • Low Liquidity, extensive documentation and due diligence- property unlike bonds, mutual fund and equity cannot be liquidated on demand. The investor also needs to be careful on the documentation, clean title, regulatory clearances etc.

In this section, we attempt to make life easier for a young investor who is putting his life savings and taking large mortgage to fulfill his dream of owning his house.

  • Individual worth is really high. Commercial and residential properties have a high individual value, and few investors have enough equity (capital) to pay the total property value. As a result, property investments are frequently reliant on a high degree of debt financing and the willingness of the banking sector to lend. Property, on the other hand, by its very nature offers collateral that may be used to secure loan financing.
  • This is not a conventional investment. Unlike many other assets, real estate is not standardized. There are no two properties similar, and each one is situated on a distinct erf with distinct legal and topographical qualities. In addition, the investor must be aware of a property's distinct characteristics, as well as the dangers and possibilities that it may present.
  • Property, unlike bonds, mutual funds, and stocks, has low liquidity, requires substantial documentation, and requires due diligence. The investor must also be cautious about the documents, clear title, and regulatory permissions, among other things.

This section aims to make life simpler for a young investor who is investing his life savings and taking out a huge mortgage to realize his ambition of buying a home.

1. You buy what you see

When you buy Ready to move properties, you exactly get what you have seen. There is no chances of getting duped at least in those things which you can feel and experience. This is not in the case of Under construction properties , because you never see the actual thing , you see samples or the "projections". You can know what kind of people live around you.This is one big advantage of ready to move houses. You can already see who your neighbours are, what community they belong to, what income level they have and if you would like to be with them or not.

When you buy a property that is ready to move in, you get exactly what you see. At least in those things that you can feel and experience, there are no chances of being duped. In the case of under-construction properties, this is not the case since you never see the finished product; instead, you get samples or "projections." You can learn about the individuals who reside in your neighbourhood. This is a significant benefit of ready-to-move-in homes. You can already tell who your neighbours are, what community they belong to, how much money they make, and whether or not you want to live with them.

2. Immediate relief from Rent & travelling cost

A lot of people who are paying very high rent or travelling very far for their work tend to buy the ready to move houses because they want immediate relief from the high rent or travel cost and one can get it in ready to move properties.

Many people who pay expensive rent or travel long distances for work choose to acquire ready to move houses because they desire quick relief from the high rent or travel costs, which may be found in ready to move properties.

3.Keep in mind Delays in project & Dispute of the Land & Permissions

If you know of any project which was delivered on the exact day that it was promised, its rare! Delay in the project for various reasons is one of the top most issue with under construction properties. On an average 2 years is the deadline given by the builders, but it gets delayed and further delayed most of the times. 2 yrs can turn out to be 4 or 5 yrs of wait in a lot of cases and this adds to the frustration of buyers.

This delay is caused mainly because of the dispute on the land, cash crunch and most of the times incomplete permissions from authorities. Builders start the construction after obtaining most of the required and most important permissions, but at times there might be few permissions which are still going on, but builders start the construction. So it becomes very important thing for a buyer to check all the required permissions and the ownership details of the lands.

It's unusual to come across a job that was delivered on the precise day it was promised! One of the most common problems with under-construction properties is project delays due to a variety of factors. The builders often offer a two-year deadline, but it is frequently postponed and further postponed. In many circumstances, a two-year wait might evolve into a four- or five-year wait, adding to the purchasers' aggravation.

This lag is mostly due to a land dispute, a finance shortage, and, in many cases, insufficient clearances from authorities. Builders begin building after acquiring the majority of the essential and most crucial permits; nonetheless, there may be a few permissions that are still pending, yet builders begin construction anyhow. As a result, it is critical for a buyer to verify all needed rights and land ownership information.

4. Income tax claim is headache unless you get the possession certificate

You can avail for tax benefits only after you get the possession of the house. Saving tax on the EMI's is one of the big reason why many people plan their house buying, only to realise later that they never thought about this aspect. So if you are going to buy under construction property, be ready to pay rent + EMI and not getting any tax benefit unless you get the possession certificate and incase the construction gets delayed by few years, it is frustrating.

Only when you have taken possession of the house are you eligible for tax benefits. One of the main reasons why many individuals plan their property purchase is to save tax on the EMIs, only to discover afterwards that they never considered this issue. So, if you want to buy an under-construction house, be prepared to pay rent plus EMI and not receive any tax benefits until you receive the possession certificate, which can be irritating if the development is delayed by a few years.

5. Thorough investigation , getting documentation checked and due diligence

Your hard earned money deserves attention to detail. Visit site multiple times , meet neighbours and keep asking direct and tough questions to builder / seller . Get the documents verified from a bank / mortgage company.

Your hard-earned cash needs to be treated with care. Visit the site many times, visit the neighbours, and keep asking the builder/seller straight and harsh questions. Verify the paperwork with a bank or mortgage business.

6. Service tax

Buying under-construction property comes with the liability of service tax which is now 3.50 per cent of the total property value or 4 per cent if the property is larger than 2000 sq ft or costlier than Rs 1 crore. The service tax is levied on properties which do not have Completion Certificate at the time of purchasing.

Purchasing an under-construction home entails paying service tax, which is presently 3.50 percent of the entire property value, or 4% if the property is greater than 2000 square feet or costs more than Rs 1 crore. The service tax is applied to properties that do not have a Completion Certificate when they are purchased.

7. Rental Yield and calculating loan cost?

Before we get into where you can invest, let’s be clear on what rental yield is. Sample this: If you earn an annual rent ofRs.1.8 lakh on a property which is priced at Rs.50 lakh, then the rental yield is 3.6%. It essentially measures the return you make on the asset without considering the expected capital gain or loss. Rental yields on residential property in India are lowest in world. In case property does not appreciate, the real return could be negative. (2% rental yield - 10% mortgage cost)

As an investor, knowing that capital appreciation is harder to come by compared with the last decade, it is now time for you to also consider rental yield. Balance your property investment and look for deals which get you comparatively (depends on location) higher rental yields to safeguard against declining capital values. In case of residential property, it may be worth your while to just do a check of relative yields across locations before buying.

So the final conclusion from various experience is that if you want to buy the house from investment point of view, then buying an under construction house of a reputed builder makes sense. However if its mostly from living purpose and you want to consume it for your own purpose, then buying a ready to move house makes more sense. Also all the pros and cons discussed can vary from case to case and the points discussed here are based on a general information and feedback. People buy house for investment without any consideration on rental yield , borrowing costs and most importantly estimated time of delivery.

Before we go into where you may put your money, let's define rental yield. Consider the following: The rental return is 3.6 per cent if you earn Rs.1.8 lakh in annual rent on a property valued at Rs.50 lakh. It effectively calculates the return on an asset without taking into account the predicted capital gain or loss. India has the lowest rental returns on residential property in the world. The real return might be negative if the property does not appreciate. (2 per cent rental yield - 10% mortgage payment)

Knowing that capital appreciation is more difficult to come by than in the previous decade, it is now time for you to consider rental income as well. To protect against deteriorating capital values, balance your property investment and hunt for bargains that provide you with greater rental returns (depending on area). In the case of residential property, it may be worthwhile to compare relative returns across several locales before making a purchase.

So, based on many experiences, the ultimate conclusion is that if you want to buy a house as an investment, buying an under-construction property from a reputable builder makes sense. Buying a ready-to-move property, on the other hand, makes more sense if it's largely for living purposes and you want to consume it for your own purposes. Furthermore, many of the advantages and disadvantages described might differ from case to situation, and the points discussed here are based on general knowledge and comments. People buy houses as investments without thinking about the rental income, borrowing fees, or, most crucially, the projected delivery time.

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