Check Project and Builder Rating Before Buying a House
Pranay Vakil, Chairman (India), Knight Frank answers queries from MoneyQuin readers:
I want to own a holiday home at a hill station. I hear there is some restriction on buying land or house in hilly areas. I also fear local brokers may dupe me. How should I go about it?
-Ramya Kaul, Dehradun
Pranay: It is true that on slope of hills, construction is not allowed if the gradient is very high. Also, it could fall into what is called the Forest Zone which is a no development zone. Now if you are buying a second home in one of the hill stations, make sure your titles are okay because when you want to sell it, you won’t find a buyer because you don’t have clear titles. Titles means whether the property is pending in your name, whether the property conforms to the zoning regulations and everything else about the property is legit like a house constructed on an agricultural land is not legit. You can only have a farm house but not a building on an agriculture land. So this is part of state law on what use land can be put to. Zoning means designating areas as residential, industrial, commercial and no-development zones.
I live in a rented accommodation in Gurgaon and plan to move to a home of my own. But prices look unaffordable. My salary is Rs 1 lakh per month and I pay a rent of Rs 15,000 per month for a 2bhk. Will it make more sense for me to buy a house, which will not come for less than Rs 50 lakh in Gurgaon?
-Sarika Sarma, Gurgaon
Pranay: As long as you are buying a place which is not exceeding your 5 year’s gross earning, it’s fine. The second criterion is that the EMI that you are required to give, should not exceed 50 percent of your take home pay. Now I don’t know your age, which will determine how many years you have to repay the loan. Let’s assume that somebody’s 50, then the loan has to be repaid by 58 or 60 years. If somebody is only 35 then he gets 15 years to repay the loan in which case the EMI will come down substantially. If these two criteria are met, then you are ok.
I'm planning to buy a house in Noida, which has several upcoming projects. What do you think will be better for me: booking a house in an upcoming project or buying a ready-to-move-in apartment?
-Aastha Kumar, New Delhi
Pranay: In Noida, there’s an oversupply of residential projects. There’s also a little bit of speculation and a lot of investor buying. So if you like something, negotiate very hard and buy. But there’s no need for you to bend over backwards and agree to any terms.
I would always recommend something that’s ready even if it is slightly more expensive.
In the past two years, we read so many reports on builders not delivering on their promises. In many cases, the projects ran late by 3-4 years, while buyers continued to pay rent as well as interest on home loan. In some cases, the developers turned out to be just fraud. How can one distinguish between a good and a bad builder or a good and a bad property?
-Rakhi Dutt, New Delhi
Pranay: As far as the delays are concerned, every developer that you can talk about, delays the project, not by 3-4 years but by one year. There are very few developers all over India who really deliver on time. There is also a rating agency ICRA that rates builders and their projects. Now as long as you are going in for a AAA -rated project with a AAA-rated builder then the chances are that you will not be cheated.
What some of these developers do is they apply for a rating. If they get a good rating they talk about it in the brochures. If they get a bad rating they just don’t talk about it, which is not fair. So at the time of buying you have to ask the builder concerned if he’s got his project rated or if he is rated as a builder. Don’t rush into something. You are not missing anything!!
I'm currently negotiating with someone through a broker to buy a ready-to-move-in home in Mumbai. How can I be sure that the guy I'm talking to is the actual owner of the house?
-Niharika Pandey, Khandala
Pranay: My recommendation is that you go to a good property lawyer. I don’t expect every buyer to know the legalities of what an FSI is or what the titles are made up of or whether the builder has built according to the approved plans. Going to a lawyer may cost you about 20,000-25,000 rupees but its money worth spent. I think it’s really essential that you spend on the lawyer who understands these legalities. Make sure you go to a property lawyer. Not just any lawyer.
I have booked a home in one project in Gurgaon, but two banks I applied for loan didn't sanction my loan saying they haven't approved the project. I have already paid 20 pct of the total apartment cost. What do I do now as builder is not willing to refund my deposit?
-Rajinder Kaur, Sonipat
Pranay: If the project is not approved that means there’s something wrong. See whenever you want to take a loan there are two aspects which are important. One is the project approval and the second is the approval of the person who’s writing the loan. Project approval is done by lenders such as HDFC, ICICI and LIC quite in advance. They look at all the papers, the zoning, and the construction before they approve of it. Most of the reputed builders’ projects are generally approved. If something is not approved, it must be really bad. Now you have already made a mistake by paying for an unapproved project. I wish you luck. What else can I say?
I'm planning to buy a Rs 60-lakh home. How much home loan can I get for this?
-Mandira Sawhney, Chandigarh
Pranay: This depends on the age. How many productive years you’ve got to repay the loan? If you are 55 years of age and you are buying a Rs 60 lakh worth of house, you may not get very good loan. But if you are 35 years old you’ll get good loan.
I have about Rs 15 lakh surplus and want to invest in property. I can also take home loan as I have no other loan on me. What would be the best investment opportunity in real estate in India at present?
-Shiba Mehta, Indore
Pranay: As far as investment opportunity is concerned, I’m assuming you have your own house and there’s surplus money you want to invest and you want to deploy that property on rent. In such case I would recommend investing into a commercial space more than a residential space because the yields on commercial, office space and shops are between 10 and 11 percent whereas if you rent out a residential space the yields are between three and five percent.
How much loan you get will be determined by your income or repayment capacity. The Rs 15 lakh of your surplus will be treated as equity. Your own contribution in a loan is your equity. Generally the loan percentage is 75 percent and equity is 25 percent. But in some cases like when the builder is not of good repute, banks may agree to provide only 50 percent of capital.
