Several issues weigh heavily on the minds of first-time investors, with the first being how to overcome their own misgivings about buying a property. Then there are other serious concerns relating to property search; legal and financial nitty-gritty of buying a property; and the long-term implications of owning and maintaining a property. While these may seem like enough reasons for a newbie to bolt, with proper planning and research, the process of purchasing a property could become quite smooth and stress-free.
To take some pressure off potential buyers, we have put together a handy guide of practical tips to help them make the right investment decision. Here are some important tips for first-time buyers:
Think long termBefore buying a property, a potential investor needs to ask himself this question: “How much am I prepared to wait before this piece of land starts giving me some serious returns?” There should be no doubt about the fact that real estate is a long-term investment instrument and an investor will have to wait at least 5-10 years before it can yield significant returns. So, it is important to determine one’s financial goals and capacity to remain invested for a longer period before taking the decision to buy real estate . Investors also need to factor in the mortgage burden and other expenses they would have to shoulder, if they decide against letting out the property after its purchase.
But despite the many challenges of becoming a property owner, in the longer run, the returns far outweigh the cost of investment.
Do a thorough market researchThere is no alternative to good market research before zeroing in on a property for investment. Potential investors need to gain as much insight into issues such as the prevailing realty rates, market trends, and interest rate movement among others. Once they decide on buying a property in a certain area, they must do an extensive research on the area; visit it personally to see the location, infrastructure and transportation facilities; talk to investors who have bought properties there; and consult property agents to understand the pattern of realty rates in that area before taking a final decision. This kind of research would give investors a near-accurate estimate of the expected rental yields from a chosen property and future returns from its sale.
Prospective buyers must also know that there is a possibility of expenses -- interest, repairs and taxes, exceeding the rental income. They could, however, consult their tax advisor to understand how to offset expenses against taxable income and optimize your investment returns.
Explore and understand all loan finance optionsThere are now a number of home loan options to suit your needs. Let’s take you through some of them:
Standard home loans can cover the entire amount you require to buy a home and can be repaid over a 25 or 30-year term, on a fixed or variable rate of interest. You would, however, need a substantial deposit and a good savings record.
Home equity loans allow you to use the capital equity you have accumulated in your home which can be used as security against the purchase of an investment property.
Reverse mortgage/Reverse home loans allow you to draw a cash advance against the equity you have built up in your home.
Debt consolidation loans allow you to combine two or more loans including personal loans and credit card debt into a single loan with the convenience of only one monthly repayment.
Shared equity mortgages are offered by mortgage lenders in partnership with an equity provider who would have a stake in the ownership of your house. This kind of mortgage can allow you to invest in expensive property which otherwise would have been out of reach.
Family pledge is a kind of instrument where the family serves as a guarantor for investors or home buyers, and helps you fund the purchase of your property.
Find a good buyers’ agent to broker the dealIt is important to find an experienced agent who knows the market well and can offer sound property advice as well as negotiate on your behalf with the seller or his agent. He can also help you navigate the maze of property laws and ensure that all legal documentation is in place before the purchase of a property. A good agent could thus be instrumental in optimizing your investment return.
To buy properties in India,
- Demand a clear title deed from seller
Before you purchase any piece of property in India, make sure the title is clear and marketable. If it is not, no financial institution would agree to finance the property. You also need to determine that the property adheres to relevant municipal/planning authority norms, has no tax dues or pending bills, has no tenants and is not mortgaged.
- Seek allotment letter & development agreement for property under construction
Before buying any property under construction, seek an allotment letter and development agreement from the developer. The allotment letter contains details regarding the agreed price, payment and construction schedule, house plans, delivery date and builder's liability in case of late completion or problems after possession. The development agreement is forged between the builder and the landowner and contains details regarding the terms and conditions on which the landowner has permitted development of his property.
- Ensure stamp duty is paid
The stamp duty is levied by state governments, on every registered property sale. It is usually paid by the buyer, to get the property registered in his name in the land revenue records. The final sale deed should be stamped and registered at the appropriate local area office in the presence of both the buyer and seller.
Quick tips for Non-Resident Indians (NRIs) & Persons of Indian Origin (PIO) NRIs and PIOs are legally permitted to invest in real estate in India, other than agricultural land, a plantation or a farm house. They can use their own funds to acquire it, or even take a housing loan for the purpose.
They could use funds from their NRE, NRO or FCNR accounts to make the purchase. NRIs & PIOs could also seek loans from authorised banks, subject to certain conditions. Although the loan terms are on a par with those extended to Indian residents, the loan amount cannot be credited to an NRE/FCNR account; it has to be fully secured by equitable mortgage of the property proposed to be acquired, and if necessary, also by lien on the NRI’s/PIO’s other assets in India.
The payments toward loan installments, interest and other charges will have to be made by NRIs/PIOs by way of remittances from outside India through normal banking channels, or out of funds in their NRE/FCNR/NRO accounts in India. They could even repay the loan and interest out of the rental income of such a property.
An NRI or PIO could even earn rental income from a property which would be credited in his NRO/NRE account. Also, he is permitted to transfer such property to any person residing in India, or even to another NRI or PIO, without RBI approval.
Property sale returns can be repatriated out of India by an NRI or PIO provided the amount does not exceed, either the amount paid for acquiring the immovable property in foreign exchange received from overseas, or the amount paid from an FCNR account; or the foreign currency equivalent of the amount paid from funds held in an NRE account for acquisition of the property.
In relation to residential properties, NRIs and PIOs can remit sale proceeds outside India of up to two such properties without any RBI approval. Remittance for the third and subsequent residential property requires prior approval from the RBI. The sale proceeds or rental income of such properties can be remitted outside India through normal banking channels, after obtaining an appropriate certificate from a chartered accountant certifying that applicable taxes have been paid. (source: Economic Times)