Will the unsold stock of Bengaluru impact property prices?

Although people are of the impression that Bengaluru has one of the most favourable real estate market conditions in the whole country that is not really the case. Bengaluru registered a stock of unsold inventory which was an all-time high since 2008 with more than 1.01 lakh inventory lying unsold. This stock collectively amounts to Rs. 85, 000 crores in terms of revenue. This is primarily the reason for the market to be stagnant.
 
The primary reasons for over supply

The market watchers opine that 85 percent of the unsold stock which tantamount to over supply is in with the upper and the midrange builders. The excessive supply and the fear of unsold inventory are perpetrating the builders to sell the apartments at lower prices. Broadly the reasons for the oversupply are; firstly the saturation of demand in the high and midrange markets; Secondly there is a high demand in the affordable segment for which there is a lower supply and the developers have been from mid and higher segments and thus many are forced to lower the prices and tailor make the projects for the affordable segment. An excess of new launches at this moment of time can worsen the situation remarks the expert realtor and the trend watchers. 

What’s the impact of over supply on pricing?

The expert realtor remarks that prices of luxury and the high priced segment will be mostly unaffected by this problem of oversupply. There is a huge demand for the affordable segment but simultaneously there is a demand for the luxurious segment too. Few projects at Jayanagar, Koramangala and Sadashiv Nagar where per square feet price is estimated at a range of Rs. 20, 000 to Rs. 30, 000, the pre-sales was fabulous with many enquires and fast sales. This signifies that there is an increasing demand in the higher segment with a simultaneous demand in the cheaper housing. 

Subsequent stagnation of projects:

There is a prediction from many market watchers that the prices are expected to drop and the market to stagnate. This will happen, opine the realtors as the market struggles to get back on track. The budget that was announced was primarily a remedial one. In such a situation most of the prospective buyers with affordability is hesitant to buy and are waiting for the market to stabilize. So, in such a situation it is expected that developers will revise the prices of the project with the introduction of attractive schemes to attract the buyers. 

A buyer’s market is expected very soon

The magnitude of the unsold stock makes the trend watchers predict that there is a possibility of the prices being pushed lower.  They say that there is a possibility that the market of Bengaluru becoming a buyer’s market where the buyer will be having the choices and all the options to negotiate. But Bengaluru real estate market is too complex to become a solely buyer’s market.
 
But the credit rating agency ICRA has stated that despite poor absorption rates, oversupply and unsold stock the prices are expected to remain stable for a considerable point of time or even there is a possibility to increase by 8 to 10 percent in short term. This may happen due to increment of prices, construction cost and the service tax increment. The infrastructural improvement like metro connectivity can make the prices steady in spite of the pressure of unsold stock. But still the expert notes that unsold stock will impose a higher pressure which is time bound which is unlikely to be offset by the infrastructural growth like Metro.

But even then few others state that unsold stock is really not a great problem and does not restrict the new entry so much as they cite the example of 2010 when there was huge pile up of unsold inventory and even then large scale real estate players like Reliance and Microtek infrastructure entered the industry.

Read More: On Selling the Property

Invest in emerging localities for higher return.

Bengaluru

A property is desired by all and is obviously is a long term investment option which one may need for various reasons. In terms of capital gains also a property is viewed as an indispensable asset. Property investment also comes handy as an option of increasing wealth which becomes useful even at the post retirement stage. Even as well a land plot or a site can serve the purpose of much needed cost of higher education of children. Not only higher capital gains are what a property yields but the property also helps in capital protection as well. For an investor who doesn’t want to take much of a risk, property is a much stable option that one goes for which can be encashed at anytime and any stage of life.

The tax deductions that an investor can avail of against the repayment of home loan gives an additional benefit and makes it more cost effective. If the amount of tax deduction against the principal repaid is within Rs. 1.5 lakhs per year the total interest paid on the home loan amount can be claimed as a tax deduction if the property is residential in nature or is rented out. It is also true when the house is self-occupied by the investor. 

The rapid pace of urbanization along with simultaneous sprawling of emerging residential townships and localities supported by proper infrastructure is leading to the increased demand of upcoming residential areas. Numerous residential projects are seen to be developed in these zones and few of them are even in the nascent stage of infrastructural development. Thus in these areas the properties can be a value buy as with the gradual development of the area and simultaneous influx of population the prices  of properties are sure to go up. But the advantage is that as the prices go up the rate of increase of prices in these areas will be higher, yielding a higher return on investment in a short span of time. The investors need to keep a close watch on these factors and can take advantage of such situations. 
 

Physical infrastructure and Connectivity

Investors can keep a watch on the localities near metro railway projects as these corridors gradually do increase in the influx of the population as the metro project is in progress with road widening and gradual increase of the density of social infrastructure improvement. 

 Social Infrastructure

The city of Bengaluru is high on increasing the state-of-the-art healthcare facilities and there are an increasing number of malls and retail centres that are burgeoning at a rapid pace. The property prices are bound to increase as the population increases due to spurt of the social infrastructure and slowly the neighbourhood turns into a self-sustaining area. The intelligent investor also needs to track the pace of social infrastructure which is an indicator of the higher prospect of the place in terms of return on investment. 

The advantage of the early movers 

The projects which are just launched are better opportunities for the real estate investors as the buyer can avail the lowest prices. With the gradual development of the locality and improvement of connectivity and social infrastructure these projects will surely pose to be even more lucrative and will definitely yield higher rental income. 

Choose the right builder for your desired home.

We all have a desire of a dream home in our minds and we toil for it day and night and arrange for the sufficient  budget. The expert says that’s is nothing. Many of the things go into building a dream home like architectural and Vastu design, cost estimation, plan of the interiors, etc. These are of course the ambit of the home builder and thus choosing the builder is certainly a crucial factor that affects your building the home.

 
All of us want to choose the type of furniture, upholstery,right colour for home interiors and the decor to be used as a part of building our home. If the home is built rather than chosen from already built homes then there is a chance that you build up the home as per what your heart longs for. The builders are surely many in number and there are of course many options to choose the builders from but before going to that step decide what kind of home you would like to go for. Whether it’s a villa, penthouse, bungalow or an apartment. This step is undoubtedly crucial as different structure of the home are unlike from the others and there are different builders who specialize in different sectors. 
 

Have a proper discussion with the builder about the materials, labour and the expenses involved. While estimating the cost you should keep in mind that cost is subdivided in to four elements like material procurement cost, construction and labour cost, interior decoration materials and labour charges and unforeseen emergency expenses if any. 
 

The blue print of the plan has to be first of all prepared and it should be figured out whether any amendments or changes are required and whether the land plot is suitable to go ahead with the proposed plan keeping in mind the Vastu compliance. If you plan of any changes it is wise to notify the builder at the beginning stages rather in the middle as that may cost much more money and time as well. 
 

Whether the builder will be able to carry out your plan is a criterion which can be made clear once you go through the achievements of the builder. This can be done by asking or going through the website of the builder.  It is always wise to consult many builders and take an estimate and go for the least after a background check of the builder. After you decide to go ahead you should keep in mind that as it is a matter of huge expenses and may be a lifetime investment, the best option is be safe or rather be sorry at the end.

Realty portals rule the roost with innovative ideas

If you think that a real estate portal means where you get the property listings once you key in your preferred area and the city, you are mistaken. A real estate portal means much more than that today in the web parlance. These websites gives the users a plethora of choices and options right from choosing a locality, comparing it, comparing the child friendliness of localities, nearness to school, colleges and infrastructures, calculate EMIs, provide real estate news and much more to aid the user in selecting and finalizing his or her home. 

Not only just few online extras the real estate portal companies extend personal help and services too to the potential and prospective customers to buy the property and help in all ways possible. Apart from listing the properties of the brokers and agents the portals are now offering and keeping a separate section for on new launches and luxury homes too. 

The market and the trend watchers say the real estate portals are doing all the things possible under the sun to keep the customers happy and meet their needs and they have walked many extra miles in competition with each other and started to offer innovative services to the audience at large. Few first and foremost things that almost all the portals offer are a mobile app which makes the portal reach a larger number of audiences and reach larger amount of people and this increase the ease of use too. 
The portals nowadays do not just offer or exchange information but are offering advice to the potential customers and buyers of property. For a live example there are many portals that help their clients with information as comparison of locality, child friendliness, criminal records and other such information about the neighbourhood for one to make an informed decision about the change of location. Few sites provide information and comparison from rent to ownership with EMI calculators too.

To enhance the customer experiences many sites have introduced 3D picture of the location and the property for a better visibility. The innovative customer services of these portals are of special mention with many sites offering advice right from property counsel to loan advisory services. There is a website which even sends a representative once a property is enlisted on the site within 90 minutes of hosting of the requirement. Other such ancillary services include providing assistance for home or land loan, legal assistance, preparation of loan agreements and community management software that enables smooth functioning of the maintenance and the functioning of the apartment communities.

This is especially helpful when the buyers are have a paucity of time to spend on one’s search for a home and that’s the reason the portals are walking the extra mile and coming up with innovative services to make the buyer’s experience of buying a home more hassle free and perfect. This is quite unusual as probably a decade or so back no one would have ever imagined buying a dress or furniture from web portals but now it has become the norm of the day. Few youngsters prefer buying from the internet rather than any other traditional ways. The day is not far off when homes will be bought and sold over the internet.

Peer-to-Peer lending in real estate is a better option.

For instance if you need a loan of about $ 5,000 which comes to about Rs. 3,00,000 for renovating your home or even buying a car you can avail it through these sites. This may be paid to you through 15 or even 50 members paying this amount to you. When you pay back the money with interest on every month these lenders who lent you the money makes a profit from the interest amount paid.

Well, the times have changed dramatically. If you think that banks are the only ways of procuring money then you are probably not updated. The times have become very desperate with 100 percent financing becoming a thing of the past and a new concept has come into vogue that is loan from a peer-to-peer network through the internet. If you need money for any miscellaneous purchase and are looking for cash you can post your requirement in any of the property sites  and you can avail a loan of about $ 30, 000 for personal use. This has been in vogue for about few decades and is called p2p network.

 
Out of all the peer-to-peer groups special mention can be made by property websites who are quickly becoming the leaders in the lending industry with other established organizations too. The market watchers opine that procuring money through sites like these and the peer-to-peer network is gradually becoming tougher. 

Not only from the borrowing perspective but from a lending perspective too it is a worth while investment solution that proposes to produce high yields in a relatively shorter period of time. These p2p networks through the internet is used to provide a creative source of finance that makes lending and borrowing more easier and more accessible too. The advantage is that the borrowers are able to access various capital sources and borrowing options without having to deal with the rigorous procedures of the lending processes of the traditional banks and financial institutions. 

A market place lender is able to make loan approvals by him and with the absence of rigid laws, rules or regulations the people are able to enjoy a speedy loan process in competitive interest rates. In the past the borrowers have been relying on the rules of the financial institutions to cater for their need of funds but p2p is relatively much easier and quicker.

 
Similarly for the marketplace lender it becomes much easier as he can have direct access to the borrower who is being determined about his or her eligibility from his or her credit worthiness. In this respect the real estate investment and lending has become a popular aspect of money lending though the networks.

 
Real estate investors also can be rest assured that they will procure faster financing for their projects compared to the banks and financial institutions and can look forward to investing or establishing their asset base through solid real estate investment. At times when people are ready to invest in properties it becomes beneficial if there is a quick access to the loan facility.

 
With the p2p markets lending, the interest rates tend to be reasonable and the investors are able to cut down on the cost of capital who are desirous of investing in the real estate industry. The lenders are pretty much clear on the criteria of making approvals of loans.

 
Borrowers also do not have to wait for receiving the feedback for their status of granting of the loans and the requests of funds. Using such an alternative source of funding is a safe way to become actively involved in the real estate industry. It does make lot of sense to get the money from sources which are so quick and which also supports one’s credit scores.

How much do you end up paying on a home loan?

In buying a home you do not only end up procuring more financial security for you and the family but you also save lot of money that would have otherwise being paid as rent to the landlord. Due to the rampant migration in the cities of India and many shifting their location for job and education there is a necessity of new homes which has further being boosted by the easy availability of home loans.

In an attempt to ride this wave the banks have simplified the procedure for home loan financing which had lot of borrowers in the last decade. Banks finance typically up to 85 percent of the property value and the rest 15 percent has to be borne by the buyer or the borrower using his or her own finances.

The home buyers look at the interest rate and the equal monthly installments as the major affordability factor. Even then a pertinent question that haunts all the home buyers is ‘How much did I end up paying for my dream home?’

This answer has two components one of which is the interest and the principal that the buyer has to pay and next is the tax implications. We will analyze the issue from both angles.

Mr. Sharma decided to buy a 3 BHK apartment in a posh locality of Bengaluru and he got the apartment comparatively cheaper at a price of Rs. 63, 00, 000.  He paid the 15 percent of the full amount as the down payment which is Rs. 9, 45, 000.  The remaining amount which comes to Rs. 53, 55, 000 had been borrowed from a bank by Mr. Sharma at a lower rate of 10.15 percent as the other bank offered him a higher rate of interest of 10.25 percent. The full tenure of the loan was twenty years and the Equal Monthly Installment (EMIs) for Mr. Sharma came to about Rs. 52, 210.

For a home loan amount of Rs. 53, 55, 000 at the rate of interest of 10.15 percent for duration of 20 years EMI will come to about Rs. 52, 210. At the end of the tenure of the home loan period assuming that the rate of interest is fixed Mr. Sharma will have to end up paying a whooping sum of Rs. 71, 75, 453 as interest which makes him pay 135 percent of the principal amount which is about Rs. 1, 25, 30,453. 

How could Mr. Sharma possible avoid this situation? This would have necessitated an extra surplus amount that Mr. Sharma needs to invest.

The first option with Mr. Sharma is to foreclose the loan amount by pre-paying it with some amount from his savings. By doing this he can invest the amount saved from the lesser EMIs in different portfolio till he repays the full loan amount.

The second option is, he can invest his savings or the surplus amount somewhere in a diversified portfolio and continue with the same EMIs that he was paying.

Let us evaluate both the instances and scenarios and do a comparative analysis.

The first instance:

If we consider that he prepays an amount of Rs. 5 lakhs by the end of the 5^th year, his outstanding principal amount Rs. 48, 17, 328 will be reduced to Rs. 43, 17, 328 and subsequently the EMI will get reduced to Rs. 46, 791 where he can save up to Rs. 5, 419 per month which Mr. Sharma can invest into diversified portfolios. This will make Mr. Sharma save an amount of Rs. 22, 64, 732 at the end of the loan tenure and will additionally save Rs. 4, 75, 420 on interest. In total this will make him save a total amount of Rs. 27, 40, 152 at the end of 20 years.

Know your investments here

The second instance:

In the second instance let’s assume that Mr. Sharma invests his savings and the surplus amount of Rs. 5, 00, 000 into diversified portfolios and continues paying the same EMIs for repayment of the loan amount. Assuming that the rate of return is 10 percent and he saves Rs. 20, 88, 642 which is still lesser than the amount of the first instance.  

As we see the first option is much more advisable out of the two options at hand which will not only allow to save more money but also reduce the liability of the loan to a great extent.

Home loan repayment also entitles one of tax benefits under section 80 C of the IT Act. which can be availed for the repayment of the principal amount. Section 24 B entitles one to get a tax benefit and a deduction of Rs. 2 lakhs which can be availed for the interest paid on the self-occupied home. Under section 24 B the interest paid on a loan for a second home is allowed for deduction.

Outlook:

Going for a home loan is a long term commitment of liability and thus one should go for a loan that is manageable in one’s finances. There are indeed lucrative offers given by the banks to increase the borrowers but one should be careful about the hidden cost. It is always wise to choose a home loan product that does not disturb one’s financial standing. 

Are legal checks mandatory for new properties?

Due diligence is an essential part of property purchase be it commercial or residential property especially in India where litigations are on the rise. When one thinks of owning or investing in a new property which is a crucial process and involves lot of money as well one should necessarily take precautionary measures just to avoid future litigations.

Few of the mandatory checks that a purchaser while buying property needs to do are:

• Check whether the title is clear.
• Check that there is no encumbrance on the property. 
• Check that the property is not mortgaged. 
• Check that the property is constructed according to the approved plans.
• Check the Completion Certificate (CC) and the Occupancy Certificate (OC) in case of newly constructed properties. 
• Ensure that there isn’t any builder’s loan pending on the property and if at all there is a loan, insists on a bank NOC. 

The realtors suggest certain guidelines and state that it’s legally not advisable to buy a property at the pre-launch stage although the offer may seem lucrative as the prices are low but there are no legal rights or interests being created at this stage. Even if someone buys a resale property one should still insist on the original legal deeds and should get a proper due diligence conducted on the property to ensure that there are no encumbrances. 

 
When the experts were asked about the ways of checking the authenticity of a property claimed by the builders the answer was to get a thorough due diligence done both from legal and technical point of view.

 
Regarding the credibility check of a local builder the experts feel that there is no steadfast way to do it. The ways are that one can get the financials audited by a Chartered Accountant if the builder allows. Although a good track record for the last three or four years may indicate that there was good financial standing. Searching on Google on the internet about the builder can be a better option. Different aggregator sites and review sites can be browsed by checking the reviews about the builder. 
The question often arises in the minds of the customers that whether they should trust reputed builders. The people who are already stuck in legal hassles can get recourse which depends upon the termination clause which is there in the agreement being entered into. In case the seller represents a clear and sellable title, one may adopt proceedings. In case the property is being bought with the knowledge of the legal hassles then negotiation and amicable and mutual settlement may be of help. 

 In case one is buying a land plot with the Gram Panchayat one should ensure that the proposed plot is properly demarcated and a separate revenue card is available for that particular plot. A thorough due diligence regarding that plot is strongly advisable. 

The expert’s advice to the seller is one should give the photocopy of the title documents to the proposed buyer. However the seller should collect a sum as earnest money deposit to ensure the authenticity of the buyer. 

Not withstanding all these hassles and the paraphernalia attached with the purchase of the property one must keep in mind that buying a property is a lifetime affair involving one’s life time saving. If one have to spend few more bucks in due diligence and investigation it is always advisable rather than getting stuck in legal hassles later.