HOME LOAN STRATEGY


Home buyers are today facing a double whammy. On the one hand, the house prices have gone through the roof and on the other, interest rates have risen to unbearable levels. And since up to 90 percent of home loan takers have borrowed on floating rate, they are feeling the pinch as floating rates have touched a high of 12 percent. On top of that, there are fears that those of floating rates may go further up. So in these circumstances, the big dilemma before home loan takers is to stay floating or go fixed.

Home loan expert Harsh Roongta does not advocate shifting from floating to fixed rate for the existing customers. "This is not advisable as very few banks provide real fixed rate. Moreover, you need to pay shifting fee and fixed rate loans being not available for less than 13%, you need to pay higher EMIs. And since interest rates will not remain high for ever, unless you are totally risk-averse, you should stick to the floating rate loan". For new loan takers, experts suggest hybrid rates (part floating and part fixed) to ensure immunity from steep hikes in the future. Since fixed rates are very high, those choosing long tenures should go for floating or hybrid rates as rises and falls can be evened out over long periods. But those interested in short tenures and have the capacity to pay high EMIs should opt for fixed rate of interest. For existing home loan takers, Roongta suggests shifting to a new lender offering a lower floating rate loan despite pre-payment changes that one has to pay.

BUILDER'S TRACK RECORD

At a time when property prices are unrealistically high and there are many new developers in the market engaged in malpractices, the background check of developers for investment purposes assumes greater significance in the present context.

The track record of the developer refers to the maturity of the developer in terms of delivery of projects in the past. This is basically a combination of various factors including completed projects and compliance to statutes, promised delivery schedule and actual delivery time, transfer of titles, transparency in providing rates and charges to the customer overall customer service and litigation history of the developer. The market reputation and management capability of promoters should be taken into consideration while making a buying decision. For a buyer, it is also important to look at the financial strength of the developer, since it is crucial for completing the project within the contractual schedule.

Farooq Mohammad of Silverline Realty advises that in order to play safe one should not hesitate to spend even a little extra if the builder has a good standing and reputation of timely delivery. Chopra emphasizes that in the current scenario when there is a slowdown it will be advisable to go for those developers who have a good track record of completing their projects even during recession or slow down.

REALTY STOCKS

Following slowdown and market correction, there are investment opportunities in realty stocks. Some stocks at present values are good buys, especially in promising sectors like construction and infrastructure, where there is frantic activity. From the long-term investment point of view, infrastructure stocks have good prospects, particularly as investment in infrastructure that currently stand at 3.5 percent of the GDP is expected to touch 7 percent by the year 2010. The recent measures by SERI to rein in developers by tightening realty IPO norms will also benefit investors. Earlier, realty stocks were overpriced due to exaggerated land bank valuation by developers. Now SEBI's new guidelines will ensure realistic valuation of real estate companies on the basis of their land banks, which in turn will result in realistic pricing of the realty IPOs in future. Nevertheless, those who wish to invest in realty stocks should play safe by looking at the history of the real estate company's promoters and quality of its management.

PRE-LAUNCH PROJECTS

In the overheated market where speculation was rife, many investors made fortunes on short-term investments from the booming business of pre-launches.

Investors booked hefty profits by buying properties before the developer got LOl or other requisite permissions and offloading the same at the time of the project launch.

As long as market was buoyant, it was profitable for buyers to offload, because they were sure of selling at a rate higher than at what they bought but lower than the rate quoted by the developer. But now with property slowdown, some investors have badly burnt their finger. The advance money (35-40 percent of the total investment) paid to the developers has got stuck. In few cases, the promised projects have not taken off even after more than a year of advance booking.

Then there are others who find to their dismay that the rates at which they booked property have gone down over a period of time. And now they're desperately looking out for the exit route in the cooling market where actual buyers are not coming forward to bail them out.

In this backdrop, the number of pre-launch offers have come down considerably. Property experts say that it is advisable to stay away from pre-launch investments. Such investments are advisable only if the pre-launch offer is from a reputed and trustworthy developer and it's a good deal from the price point of view.

GROUP INVESTMENT


Group investment, according to Subhash Lakhotia, is the success mantra in a situation when there is uncertainty in real estate market due to overheating and subsequent slowdown in some parts of the country. It not only provides the benefit of bulk buying and diversified investment portfolio but also ensures that investor's money grows through risk minimisation. Farooq Mohammad cautions that one should not look for advantages of collective investment like better deals with better located and large property and good tenant at the cost of unknown investment partners. "Nevertheless, if one has like-minded and trustworthy partners, one must go ahead and reap the benefits of group investments", he says.

According to him, it's easy for say, four people to get together and buy a joint property. "Suppose they together buy a total of 20,000 sqft of office space with a share of 5000 sq.ft. each. There is one common tenant and rental cheques can come in the name of the holding company which has bought the property or can even be bought on individual names but collectively. If one wants to avoid company name due to taxation and other problems, then the property can be purchased in individual names because tax difference between an individual and company is miniscule. In a way it is better in individual names and the company can issue four different cheques in the name of four persons, " he suggests.

GOOD -BARGAINS

This is the time when you should not rush through buying property. Instead go slow and wait and watch for good deals. Now that there's a property slowdown with a slump in transactions and developers are feeling the funds crunch, they have to offer good deals to property buyers by redesigning packages in order to make housing affordable. "Developers have to offer better deals with improved facilities and lower prices. And it is time for buyers to grab good deals in terms of price and payment terms", says Pradip Chopra.

Rakesh Purohit. General Manager, Jaipuria Group feels it is good to look for distressed/motivated sellers. "Investors with short term planning may well settle for lesser margins to keep their money rolling. As such, one may get some good deals", he adds.

In fact developers have already started doling out freebies to sustain their customer base. These offers range from subsidized power back-up or subsidy on electricity bills, interest rate subsidy, free property insurance etc. A Faridabad developer has introduced special EMI scheme at concessional rates under which the customer pays only the principal amount of EMI while the developer pays the applicable interest till the consumer gets possession of the house. So property buyers, who are reeling under the impact of higg, real estate rates and increasing interest rates, should make most of the good offers/ deals. But they should do due diligence about the deal to ensure that the property is not overpriced and market conditions are favourable from the point of view of future potential.



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