Reading between the lines

Reading between the lines

The festive season is at its peak and it’s raining offers for real estate buyers across the country. Be it a small two-bedroom apartment in a Mumbai suburb or a luxury villa in the Himalayas, real estate developers are going all out to lure the elusive buyers. What stands out this year is that freebies are being doled out not only by developers but also by the brokers and dealers who are trying to liquidate more than 11 lakh housing units lying vacant across the country.

From luxury cars and gold coins to foreign trips and home appliances, free-floor rises to no pre-EMI payments to the waiver of registration charges and GST, the offers are tempting. But this being the buyer’s market, one should read between the lines before taking the plunge.

Tough times

The real estate sector in India is going through a difficult phase. Demonetisation, RERA and the GST roll-out have proved to be a triple whammy in the sector. Maturity in the financial markets has seen investments in gold and real estate drop from a peak of 90% in 2008 to about 10% in 2016. It has been a buyer’s market for the past few years, and the recent imposition of the bankruptcy code has the over-leveraged developers running for cover.

As a buyer, it is very easy to be enticed by the new car while deciding on your dream house, but one should be careful and not let these freebies sway their decision. Do these freebies actually make sense for the buyer/investor, or are they just a window dressing?

Irrespective of the offer, one needs to first look at and understand the true value of the property. Does the property meet all the criteria of location, delivery time, quality and amenities? No amount of amenities can compensate for the bad quality of construction, design, location or inflated price.

The other popular freebie on offer is waiving of pre-EMI or the popular 10:90 or 20:80 schemes, where the buyer is supposed to pay the balance amount only on delivery. This is a particularly misleading scheme: here, the buyer is supposed to take a home loan which the developer promises to service till the time of delivery. The biggest caveat here is the loan is the liability of the buyer — so, if due to some unforeseen circumstances the project is not delivered, the liability rests with the buyer and not the developer.

Furthermore, the RBI has prohibited any banks to take part in the 10:90 or 20:80 schemes. The only ones offering them are the housing finance companies (HFC) or non-banking financial corporations (NBFC), which typically have a higher rate of interest than the banks. On a 50-year loan with a tenure of 20 years, every percentage point increase in the interest rate increases the total interest payable by six lakh rupees.

Brand matters

The key in real estate apart from location and product is the brand; with brands like Godrej, Oberoi, L&T or Piramal Realty, one is assured of quality and on-time delivery. Even if they might be at a premium and do not offer freebies compared to the other lesser-known entities, one is not only assured of a stress-free experience but also of a much better resale value going forward.

The unsold inventory in the top eight markets in India is 5.96 lakh units, varying from 24-plus months in Bengaluru to nearly 60 months in NCR. Under such circumstances, the buyer should show discretion and identify a property that best suits him/her irrespective of offers.

Look for value, which the secondary market might offer as older investors try to exit. Look beyond the advertising, read the fine print and do your research — you are likely to save much more than any freebie a developer can offer. Make smart choices and make a stress-free deal in this matter!

(The author is founder and MD, First Home Realty Solutions)

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