Monday, January 24, 2011

Home Truths:- When to buy? Work profile! Peripheral expenses! Marital status! Culture clash!!

The Reserve Bank of India is most likely to increase bank lending rates, considering the immediate need to curb inflation. On its own, an increase in lending rates would probably not have a very significant effect on the residential property market. However, there are already a number of negatives at play such as overpricing in large cities.

Also, there is a dearth of appropriately priced projects in the low-to-mid income segments, though there are a huge number of projects in the pipeline.

The RBI move to raise lending rates will add to the stress already building up and hasten a correction of 15-20 per cent in the pricing of residential properties.

In such a scenario, the question is whether you should go in for buying a house of your own.

When to buy?

There is a school of thought that would encourage you to buy a home as soon as you can afford it, or as soon as your loan application is approved. In fact, the only question one tends to ask is whether property prices and interest rates are manageable at the time of buying a house. On the surface, this makes sense. But not always.

From an investment point of view, buying a house is often like buying gold and putting it in the bank. This is true to some extent.

Investments in real estate, historically, have given very good returns, if held for a long period. Buying property today, therefore, does make a certain amount of financial sense.

Buying a house means security, and security is important to any family of any generation.

It is one of the few long-term investments with practical utility — after all, you’re not going to put the house in a bank for it to appreciate in value. You’re going to live in it. But also keep in mind the fact that an investment in property needs time to yield good returns.

Before utilising your loan or putting your own money down, calibrate the options well to judge whether your investments today will yield the desired results when you plan to sell them.

With the social structure in India decaying slowly, there are a host of factors that need to be kept in mind before making such a huge investment.

Work profile

The reason why a home loan company digs so deep into the nature and situation of a client’s job is that they need to gauge how reliable a risk he is. There are certain jobs that inspire more confidence because of the stability they offer.

This stability is not judged by the take-home income but the potential consistency. Therefore, if you are applying for a home loan, it would be best to make a personal evaluation.

If you are a frequent job-hopper, suffer from poor health or have a long history of dismissals, you will do well to first set your career in order before applying. Even if your application is accepted, how well are you equipped to pay the EMIs (equated monthly installments)? With the loan granted, you will be able to utilise it more productively only when things are a little more stable on your professional front.

Peripheral expenses

Another factor to consider are the peripheral expenses. If you are using the services of a real estate broker, you will be liable to pay him a certain amount of money once the deal is finalised.

There are also various legal formalities, including property and registration taxes. See for yourself whether you are in a position to take care of these expenses when they arise.

Marital status

There are both practical and less definable reasons for assessing your marital situation before contemplating the purchase of a home. A shaky or troubled marriage is definitely not conducive for buying a home.

The contemporary Indian psyche assumes that marital problems will get ironed out once the decisive step of buying a home is taken. The facts, however, suggest something else. Let us consider the purely financial point of view.

Many couples take joint home loans. When a marriage is stable, this has many advantages. When it is not, the consequences can be quite disastrous. Payment of EMIs in the case of separation or divorce can become a major legal issue. Even in the case of outright purchase, actual ownership of the property will become a subject of dispute if a couple choose to separate.

So, it is erroneous to think that by buying a home one can put a troubled relationship in order.

Culture clash

A sudden change of geography is another factor you should consider before actually investing in a property. A major mistake repatriating NRIs usually commit is to buy a home arbitrarily without considering the cultural clash they might face once they start living in India.

After spending a few years in a foreign nation, people tend to assimilate that country’s culture and adopt a certain lifestyle. Such a lifestyle may be hard to replicate in India, no matter how progressive the city of choice is. The same feeling of alienation and displacement can overwhelm property buyers who decide to settle down in an unfamiliar city.

If you ask a financial consultant about whether the time is ripe to buy a residence, he will probably raise only one point — will you be able to keep the property long enough to make it pay as an investment? All these factors are worth thinking about before taking the plunge of buying a home.


Source:- telegraphindia.com

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