Common Real Estate Mistakes: How Homebuyers Should Avoid?

Common Real Estate Mistakes: How Home buyers Should Avoid?

Ms. Binaifer Jehani, Crisil Research

Like in any asset class, with realty, too, property buyers are known to err in the face of ignorance Binaifer Jehani

Experience is simply the name we give our mistakes,” said Mr. Oscar Wilde.

Like in any asset class, with real estate, too, buyers are known to err in the face of ignorance, oversight or pretence.

Let’s look at a few common mistakes that home buyers should avoid so that their decisions are more timely & rewarding.

Binaifer Jehani, Crisil Research

Get misled by ‘areanomics’: Home buyers typically prefer locations within city limits and avoid the suburbs, mostly to save on travel time. But, in doing so, they often end up paying exorbitantly for properties in locations that are well connected to airports, Metro lines and railway stations, and having commercial and retail establishments close.

Buyers must assess whether the premium charged is well justified or if certain locations are plainly overvalued.

As offices move towards suburbs and city outskirts, and townships, malls and Metros also emerge in these areas, a second thought may benefit buyers.

Overlook the ‘livable’ space factor..!

To avoid paying for more area but ending up receiving lesser usable space, buyers need to check the final amount to be paid per square feet on the carpet area, which is the livable area of the flat.

So, even while comparing across properties, compare in terms of the final price per square feet to be paid on the carpet area.

Discount ‘invisible’ costs..!

The booking amount isn’t the final price; it is only one of the key cost components. The actual cost will also cover stamp duty & registration charges, clubhouse, society formation and advance maintenance charges.

Buyers also need to factor in costs related to setting up of gas and water pipelines, sewage treatment plants, internal service roads, and others.

Jump into the ‘brandwagon’..!

Buyers are often confused between local developers and builders with pan-India presence. Prospective home buyers feel that local developers may be a low-cost substitute for reputed, well-established builders, who may charge a premium for their brand.

Irrespective of brand power, buyers must check for track record of completed projects, possibilities of delays, quality of construction and overall finesse, before finalizing matters.

Borrow from Peter to pay Paul..!

Most home buyers prefer to select the property first and then seek funding assistance.

Ideally, a home buyer should first approach a lender and determine her eligibility for a home loan, based on her income, assets owned, and other factors. This will prevent her from exceeding the budget, and will also help in finalizing properties that are within her reach.

Buyers also need to check offers from alternative lenders (in terms of tenor, interest rate, foreclosure, processing rates, and other charges).

Get tempted by attractive schemes..!

Many prospective buyers have been attracted by “buy-now-&-pay-later” schemes - better known as 80:20 or / 70:30 plans.

Propery buyers perceive this as a mechanism to book properties with lesser funds in hand & buy sufficient time to arrange for the remainder.

However, one needs to consider delays in completion /or /  faster hand-overs, rise in interest costs and compare such schemes with the regular slab-wise payment structure.

Post-possession trauma..!
 Home buyers, under the impression that all expenses cease once they receive possession of the house, must know that interiors, furnishings and add-on amenities await their attention.

They must also have a back-up plan—via investments in securities, gold or /other assets—to meet any exigencies.

Concede to hearsay..!

Uninformed buyers often believe in hearsay and agree to pay a premium, based on just news of infrastructural developments such as a new Metro route or an airport in a particular location.

Little attention is paid to verify such reports and one might actually end up paying more for an amenity that would never materialize in the near future.

Get attracted by the ‘extra’ factor..!

A few builders offer incremental amenities such as premium sanitaryware, modular kitchens and air-conditioners.

At the time of possession, buyers must ascertain the brand, warranty period, servicing contracts, and other such details of these amenities to avoid trouble later.

Soften the hard copy..!

Tech-savvy homebuyers may go paperless rather than maintain documents in files.

However, documentation alone can serve as a strong back-up, especially in case of delay in handover or filing of income tax returns. Buyers need to record all important documents, including payment and tax receipts, agreements and occupancy certificate.

The gold in old..!

In large metros, buildings aged 25 and above are ready for “redevelopment’”. Apart from larger apartments, sturdier structures and better amenities, redevelopment offers residents an opportunity to benefit from an appreciation in value of the asset.

Residents must, however, pay attention to potential pitfalls such as choice of developer, legal issues, gaps in the agreement, location, amenities promised, and others.

Home buyers must check if essential clauses like the bank guarantee, provision for corpus fund, date of completion, timely payment of rent and allotment of parking spaces have been specified in the agreement.

Second-time lucky..!

Quicker possession and a lower maintenance bill may attract anyone, but even a resale purchase needs some checks in place. Keep an eye on illegal construction and extensions to a resale flat and verify the authenticity of the seller.

A keen eye on the documents will also reveal whether other parties (such as heirs) have rights to the said property, or / whether it is mortgaged.

About the author..

Mr. Binaifer Jehani is director at CRISIL Research.

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