How to invest in a real estate property?
There are a lot of options available in the market when you are looking for investment in 1bhk, 2bhk and 3bhk flat, you have multiple builders to choose from and each builder has a variety of projects to choose from and hence buying real estate can get quite confusing and overwhelming. No need to worry.
We have prepared a carefully researched guideline to help you get started. Follow the points listed below and learn about real estate investment dos and don’ts.
1. Location of the property
- Make location your first shortlisting criteria as it is a very important aspect for any real estate investment.
- You may already have a preference for a particular location in a city of your choice not just out of cost factors but with affinity for a location like East, North or South of the city. You should also take into account your preferred locations proximity from city center and from your place of work.
- If your spouse is also working or any other family member then take their workplaces proximity into account as well. If you have any children, check the distance of their school from your preferred location.
- Estimate the distance for other important facilities like – a hospital, Railway station, bus stand, and airport. Also make not of travelling time to these places from your project.
- Other town planning factors you should check are Water supply, livability of area, security and future expansion before buying real estate property.
2. Appreciation of the Property
- Appreciation is an increase in the value of an asset over time.
- Various factors affect the appreciation of any property like Location, future development plans, the physical structure and the economy. Take into account the overall appreciation of the project you are shortlisting for purchase.
- Appreciation is very important as it leads to higher rate of return on your real estate investment when you will sell the property in future or even help with the increasing rental income.
- Evaluate the property or the piece of land you want to buy on the basis of basic rate/sq.ft cost and total cost you will need to purchase the property.
- Most real estate websites will give you the basic cost. You can find out the final cost when you go to the real estate developer and inquire about it.
- There is no need to go overboard and spend more than what you can afford when you are thinking of buying through home loans and EMI’s.
- Include future expenses for the next 3 years when you shortlist a project with affordable EMI.
- You need consider the increasing cost of education, healthcare, insurance premiums, travel and vacations, job security etc. to decide a suitable EMI option and the period of loan you can afford.
4. Builder Reputation
Important Factor to look out for in the background of the builder
- The number of projects the real estate developer has launched till date, and among them how many are completed projects and how many of them were delivered on time?
- Verify if there are any pending litigations against the real estate developer in public domain? Check the RERA website link of the project and find out more details on the topic.
- Make sure that the title of projects which the real estate developer has launched are clear or are there any land disputes over them?
- With the introduction of RERA all buyers are entitled to right to information so make sure how transparent the real estate developer is in giving out details related to property documents for verification?
- Read about the real estate developer on public forums especially for construction flaws or other issues highlighted for any project of that builder?
- See if anyone you know has invested in a property by this real estate developer. Probe for problems current residents are facing in internal community groups.
Compare Master Plans and Floor Plans
- Analyze the project size, floor count and the number of towers and shortlist the project if it suits your liking.
- After that look if the project has your required unit configuration like: 1 BHK, 2 BHK or 3 BHK Flats, Apartment Penthouse, Row House or a Villa, etc.
- Based on your preference check for sufficient number of bathrooms, study room, balconies, servant room, etc.
- Check the percentage of Super Built-up Area being given as Carpet Area. Higher the percentage better it is.
6. Compare Amenities
- List out the must-have amenities for you and your family and thoroughly inspect the quality of amenity construction.
- Families with/without kids: Fitness and Sports amenities like a Jogging Track, a Gym, Badminton and Basketball Courts etc. A Crèche, Swimming Pool for Toddler and Kids Play Area etc. are some good ones to look out for.
- Families with parents: Yoga/Meditation area, Garden and Reading Lounge etc. are good amenities for elderly and even youngsters as well.
- One of the most important amenity is parking spaces. Look out for a well-planned parking area with adequate parking spots for 4 wheelers and 2 wheelers
7. Compare Authorized Banks and Payment Schemes
- Check for banks tie-ups with the project for home loans. An approval from PSB banks like State Bank of India (SBI) is a good marker as they carry out a comprehensive appraisal of a project than any private banks before approving projects for a home loan. Also look out for the set of payment schemes offered by the builder.
- Construction linked plan: Here the buyer can make payments in phases as per construction progress of the project.
- Subvention schemes: Such a scheme comprises of three parties the buyer, the builder and the Bank in a tripartite agreement. Buyer pays a small amount upfront like 10% of total price for booking while the Builder will bear the interest cost up until the subvention period which is usually 2-3 years. The Buyer will start paying EMI once the subvention period has ended. In some projects the Subvention period may last until final possession or for a fixed period. A delay in possession is a problem for the buyer though as he will have to pay both the EMI and rent after the end of subvention period.
8. Necessary Clearances
One the most important criteria for shortlisting a property for buying is necessary clearances.
Every project has a legal document folder which is updated after every new clearance or other receipts. Some of the important clearances/legal documents are:
Under construction projects:
- Land Registration or Title Deed of the property (This should be in the name of Builder)
- Plan Sanction Letter (This is a proof of construction plan being approved)
- Encumbrance Certificate (Very important as it certifies the property is free of legal dues)
- Agriculture to Non-Agricultural Land Conversion Certificate (given by town planning department as a NOC for using an agricultural land for non-agricultural purposes)
- Land Use Certificate (Certifies the land for residential use)
- No Objection Certificate (given to Builder from land Seller)
- Fire Department NOC (This is obtained before construction phase)
- Environmental clearance (Obtained from state Pollution Control Boards)
- Commencement Certificate (certifies commencement of construction)
- Khata (Account) Certificate/ Extract of the Property (represents current owner of a property, of prime importance when you go for khata transfer from Builder’s name to yours after property is purchased)
- Tax receipts of the property (Verify the past 3 years property tax receipts, which the Builder should have paid)
- Insurance premium receipts (proof of property being insured against unwanted events which delay construction or cause financial loss to the Builder)
For completed projects (in addition to above):
- Completion Certificate
- Occupancy Certificate
- Fire NOC (post completion)
9. Completion Date
Ask for the exact date of completion that will be mentioned in the sale agreement, do not fall for verbal commitments for completion dates in their sales pitches. Also look out for the grace period the builder will take for project completion in the agreement.
10. Cancellation Policy
For various reasons like financial emergency, change of mind, a better project or deal elsewhere you may decide to cancel after investing the booking amount. Ask the following questions first.
What is the penalty, mode of payment and in how many days will you be refunded your booking amount?
What is the interest at which you will be compensated if you do not get refund in time?