Home / Money / Personal Finance /  Four things to consider before rushing into a real estate deal

Sahil Makhija bought a house only recently and is already suffering from what can only be called buyer’s remorse. The 34-year-old sales manager decided to buy a luxury apartment in the outskirts of Hyderabad after the lockdown was lifted. “We were on the lookout for an apartment before the pandemic hit, as both, me and my wife work here. Since we were working from home, we decided to go for a property a bit further from the city centre. We were also getting a great deal on a house we couldn’t otherwise afford," he said. Makhija had assumed that the work-from-home situation would continue for a long time, but his employer recently asked him to join office. So, he is repenting his decision to buy a house at the outskirts, as his travel time has increased.

While sales had dwindled in the immediate aftermath of covid-19, according to data from various real estate consultancy firms and real estate platforms, sale of residential units have started recovering. “Analyzing the latest sales data shows that in the third quarter of 2020, there has been over a 100% jump in average housing unit sales across major cities over the second quarter. The Delhi-NCR market, which is well-supplied across all segments of housing, has been the most resilient, and the other cities, following closely on sales-rebound are Hyderabad, Bengaluru, Pune and Mumbai, which have witnessed a rapid growth in housing sales post the lockdowns," said Kanika Gupta Shori, founder and COO, Square Yards, a proptech platform.

In Mumbai Metropolitan Region, the cut in the stamp duty by 2-3 percentage points for a specific period has helped pick-up in sales. Attractive discounts from developers have also helped in increasing the buying interest. Although it may look like a good time to buy a house, you shouldn’t rush as it’s a long-term commitment. Let’s understand what needs to be kept in mind while buying a house.

The lure for buyers

Why are people buying homes again so soon after a major economic setback?

Discounts and low rates: Builders are rushing to offer discounts and payment schemes (read more here: bit.ly/3dbhMKf).

According to Anuj Puri, chairman, Anarock Property Consultants, “States like Maharashtra have given a stamp duty cut, developers have pulled out all the stops on offers and financial schemes," he said. Low home loan rates are another factor that is driving buyers, he added.

Parag Munot, managing director, Kalpataru Ltd, a Mumbai-based real estate developer, agrees that discounts and offers are luring buyers. “Residential sales have progressively improved from August, touching near pre-covid levels in September, particularly in Mumbai Metropolitan Region and Pune. The festive season is likely to serve as an additional demand driver," he said.

The stability factor: Owning a house to ward off uncertainty in the future is another aspect that is appealing to buyers. “The pandemic has put homeownership front and centre on many Indians’ priority list. There is now a lot of urgency among those whose jobs are still intact to get off the rental treadmill and to secure this asset as a hedge against future uncertainty," said Puri.

Factors to consider

As with any financial decision, it is a bad idea to rush into buying a home just because you think you’re likely to get a good discount or a great deal.

Perceived price correction: Another factor that is encouraging buyers is the general perception that since sales have been muted due to the pandemic, real estate prices have dropped.

But, according to Puri, property prices have not really dropped in the primary sales segment. “Some developers in exceptional financial distress are offering significant discounts, but this does not mean that prices have dropped across the board," he said.

Considering the various discounts and incentives, your overall cost for acquiring a property can come down by 10-12%.

According to Shori, price correction is not across the board. “Average housing prices dropped by about 4-5% in the July-September quarter across Delhi-NCR, Mumbai, Chennai, Pune, Kolkata, and Ahmedabad, owing to the pandemic. However, housing prices increased by 3-4% in cities like Bengaluru and Hyderabad during the same period," said Shori.

Affordability: To start with, you will have to assess your affordability capacity.

Makhija found this out the hard way. “We went a little over our budget since it was a luxury apartment. Even though neither of us lost our jobs, my wife suffered a pay cut because of the pandemic and I have not received performance bonus, which is why our finances have become tight because our EMI is a lot higher than the rent we were paying," he said.

According to Rishad Manekia, a Sebi-registered investment adviser, and founder and managing director of Kairos Capital, a wealth management firm, for those trying to make the switch from paying rent to paying EMIs, the difference can be quite steep. “When we look at residential realty, annual rentals in major metros are between 1.5% and 2.5% of the property value. Even with home loan rates coming down, they are still above 7%. There is a substantial gap between the EMI and the rent a person would pay for the same property. And this does not take into consideration the other costs that are associated with owning real estate," he said.

Other financial goals: You also need to assess if this financial commitment can affect your other financial goals. “It is critical, especially for those facing pay cuts, to re-evaluate how much of an impact such a large commitment will have on other financial goals," said Manekia. A property owner should ensure that his EMI is less than 30% of his take home income, added Manekia.

Location: Consider if the location suits you, or you may feel stuck like Makhija. According to Gulam Zia, executive director, Knight Frank India, aside from the need for financial stability and confidence, the location is also critical when buying a home. “Homes should be bought with a few considerations such as distance from the economic activity centre, accessibility to social infrastructure and the overall growth of the location as an economic centre. In the current scenario, buying a home with a futuristic approach is not wise, since the growth potential of underdeveloped locations may not be understood correctly," he said.

Whether the pandemic has kicked your desire to own a home into high gear or you simply feel tempted by the many offers and discounts that builders are advertising, avoid rushing into such a huge financial commitment, and do your due diligence first.

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