In your interest.
Online Personal Finance Magazine
No beating about the bush.
As property prices are showing only a few signs of abating, analysts predict that a potential real-estate bubble is looming large. So how can you achieve your long-awaited dream of owning a house? Moneylife went into a huddle with some industry analysts to give you the answers
With real-estate prices continuing to stay on the higher side, what are the choices left for the average working-class person? Here are some unorthodox, innovative and out-of-the-box ideas:
Solution No. 1: Work hard, jump jobs, do anything to reach an annual Rs40-lakh salary.
Why? Because, according to a recent report, a person needs to earn at least Rs40 lakh annually in order to purchase a house in the financial capital of India. A study by Liases Foras, a property research firm, shows that the weighted average cost of a new house in Greater Mumbai is about Rs2 crore. As banks cover only 80% of the cost of the house, Rs40 lakh has to be funded from a person's own pocket.
If you think that this is impossible and unpractical, consider the example of Anand Singh (name changed on request) from Vashi in Navi Mumbai. When Mr Singh first came to Mumbai five years ago, he was earning a salary of Rs3.5 lakh per annum. But last year he did the impossible by purchasing a 3BHK in Thane, costing
Rs1 crore. Unbelievable, but true. Hear him narrate how he managed to make the biggest investment in his life.
"When I came to Mumbai from Kolkata in 2005, my salary was Rs30,000 per month. I couldn't afford to buy a house then. But Mumbai is a land of opportunities, I made rapid progress, switched a couple of jobs and my salary increased to Rs2 lakh per month last year. Property prices in 2007 were very high. I used the crash last year to book a Rs1-crore 3BHK house. Today the price of the same house has increased by 25%," Mr Singh told Moneylife.
So if you want that dream house, better start visiting your head-hunter soon.
Solution No. 2: Forget Mumbai or Delhi, there are a lot of other urban conglomerates in this vast country.
According to Sanjay Dutt, CEO (Business), Jones Lang LaSalle India, "When we talk of the possibility of a bubble, we're actually talking of property only in Mumbai and Delhi right now." So what's happening in other cities in India? Mr Dutt told Moneylife, "Real-estate prices have skyrocketed almost everywhere in the country, but the fact is that local people are still buying homes on an 'as-needed' basis in most Tier-II and Tier-III cities. Nor is the supply in most of these cities either overly constrained or curtailed."
If you are thinking how is it possible to live in a place other than in Mumbai or Delhi where your can supposedly climb the corporate ladder at a far more rapid pace compared to other cities, then take a cue from Nitin Naudiyal of Faridabad who works in a corporate in Gurgaon. He came up with this brilliant idea of buying property within a strict (shoestring, did you say?) budget of Rs30 lakh. "Most of the corporate houses are situated in south Delhi, Gurgaon or Noida. In these regions, prices of real estate are generally high. It was not possible for me to buy property within this budget in these prime locations. I chose Faridabad, to buy a 3BHK for Rs30 lakh - which would have cost me more than Rs1 crore in south Delhi. Faridabad is situated at a strategic location, equidistant from all these three corporate hubs and it is easy for me to commute to all these three areas. So, even if my office shifts from Gurgaon to Noida, it won't take me much time to reach my place of work from Faridabad," Mr Naudiyal said.
Aren't you asking yourself, "Why didn't I think of this first"?
Solution No. 3: There is strength in numbers.
Esprit de corps. Groups can command bulk discounts for any service. From time immemorial, some communities have been banking on this formula to purchase their groceries and household requirements.
Vikhyat Srivastava, former analyst with the Kotak Mahindra Group and co-founder of GrOffr.com, a real-estate site for group-buying, told Moneylife, "As a group, you can get a discount for any service. If a developer is selling 100 houses, and a group comes to buy 20 or 30 houses together, he would lower the prices for them as he would be able to do away with one lot. As a group, one can get a discount of about 20%-30% in real estate purchases."
If statistics bore you to death, consider this. Until now, buyers trading on GrOffr.com have been able to garner bulk discounts of Rs19.85 crore on a piece of real-estate which had a market tag of Rs93.5 crore for 88 flats. Do the math. That's a lot of money saved.
Shouldn't you be looking around for people who have exactly the same idea in mind?
Solution No. 4: The pre-launch phase is the best time to buy. But there is a caveat, though.
That's when the price of real estate will be at the lowest and developers would be more than willing to sell at reduced prices. Mr Srivastava explained, "A developer needs to do some pre-financing before a project is launched. He can get these funds through these pre-phase channels. That's why he is willing to sell flats at a lower rate at that time. When the project is ready and completed, the rates would be at a premium. But if you buy at the pre-launch phase, you'll be able to get the same house at 70% of the peak market rate."
Neelesh Patodi of Kanjur Marg, a Mumbai suburb, saved a cool Rs18 lakh by investing during the pre-launch period. He bought a 2BHK in a project in Bhandup (another Mumbai suburb) during the pre-launch phase at a cost of about Rs67 lakh. According to data available with Mr Patodi, the same house would have cost about Rs85 lakh after the launch. A 2BHK in a similar completed project in the area is on the shelves for Rs80 lakh, Mr Patodi told Moneylife. He said, "The pre-launch period is definitely a better way of investing. Just because I invested during the pre-launch, my saving is least around Rs18 lakh."
But, as always, it's caveat emptor (buyer beware) which should be your guiding motto. "There is definitely a risk I'm taking. If the project is not launched, what can I do then? Get your facts right, go through proper land documentation, speak to the developer directly and not an agent, before taking the decision to invest during a pre-launch," Mr Patodi said.
But after all, as any classical economics textbook will teach you, profit is the reward for taking risk. Just don't rush in where angels fear to tread.
Solution No. 5: Rent, don't buy.
If you are a guy on the move, with one leg in Mumbai and the other in Delhi, why not rent a house and postpone your buying decision? Mr Srivastava told Moneylife, "Staying in a rented apartment makes sense in a place like Mumbai, compared to buying, considering the current property rates."
Rucha Sane, who works for an IT company in Hyderabad, has been staying in a rented apartment for four years now. She told Moneylife, "I've to keep shifting from one place to another due to the demands of my job. It would be a good idea to have a house of your own wherever you want to settle. But real-estate prices have also gone up in a number of cities, in addition to metros. That's because the economy is slowly recovering from the global recession. So it's a wise decision for a middle-class person to hold the buying decision for another six months. Once the market becomes stable, invest your money in a house. Meanwhile, it will be better to stay in a rented apartment - as of now."
However, this option might not be viable for cities like New Delhi and Mumbai. Residential rentals are also creeping up here. According to a study by real-estate portal 99acres.com, residential rentals have seen an escalation of more than 20% in Mumbai. Khar, a western suburb of Mumbai, has seen 47% appreciation in rentals in the second quarter this year compared to the same period last year. Saket in south Delhi saw a 31% rise in rentals in the second quarter this year compared to the same period last year. South Extension, Safdarjung and Malviya Nagar followed at 24%, 22% and 21% respectively.
So what next?
Solution No. 6: Be patient, very patient.
When everything fails, patience prevails. According to real-estate analysts, a price correction may be on the cards. Pankaj Kapoor, founder and managing director, Liases Foras, a real-estate rating and research company, told Moneylife, "I expect a price correction but the focus has to come back to consumers. If the property price does not increase in the next three years, it in itself is a correction. There are chances that property prices may undergo correction by 10%. If it doesn't appreciate in the next three years, it's overall a 30 % correction."
If you don't believe him, hear what a real-estate consultant, Sunil Bajaj, has to say. According to Mr Bajaj, price corrections can happen if projects are not well-planned and balanced. "The projects that are not meant for the end user and are being built only for speculation will definitely undergo a price correction first. Projects which are not balanced and not planned well will also suffer."
So are you ready to put on your thinking cap so that you can hear the jangling of your house keys in your pocket? Do let us know if any of these ideas have worked for you. Of course, if you have any more ideas, do write to us at [email protected] to let us know.
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