How to decide when to rent and when to buy a house

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Rather than arguing over whether to buy or rent a house, the question should be when to buy and when to live in a rented accommodation

‘Fools build houses, and wise men live in them’. This British proverb is often used in arguments against buying a house. Investing in a house is a very important decision, as the amount needed takes up almost all of one’s savings. In my opinion, the question should be: ‘When should you buy a house and when should you stay in a rented accommodation?’ rather than arguing about the rationality of owning a house.

buy or rent

Why and when should you stay in a rented house?

Banks, normally, do not give more than 80% of a property’s cost as home loan, while the buyer needs to shell out the balance 20% of the margin money, from one’s own funds. Looking at the prevailing cost of residential houses in cities, you have no option but to stay in a rented house, till you are able to save enough to fund the margin money.

If you are an employee who has been posted in a place for a short duration, or you are working in a place where you do not intend to settle, renting a house makes better sense, until you decide on the city where you intend to settle. Real estate transactions have some costs that cannot be recovered, like stamp duty, registration charges and brokerage for sale and purchase of the house.

The size of your family will also affect your decision. You may need a bigger house, in case you are planning to expand your family. In case you have enough margin money and have already decided to buy a house, but you are unsure about the locality, then, you could take a house on lease in that locality to experience the stay, before making a commitment.

Why and when should you buy a house?

It is definitely a good idea, to own a house. So, in case you are able to arrange the margin money and are confident that you will be able to service your home loan, you should buy the house. However, even if you have sufficient funds, you should take into account, whether you intend to stay in the same locality or the city.

To base your decision to buy a house merely on the cost-benefit analysis of rental versus cost of funding the house, does not make sense because the rentals generally vary from 2% to 4% of the capital value of the house, whereas, the cost of borrowing is generally around 10% for home loans, thus, leaving a gap of 8%. Nevertheless, this comparison does not reveal other tangible and intangible benefits of owning a house.

You should never defer the purchase of your first house, in the expectation of a correction in prices. This is evident from the fact that everyone has been expecting a major price correction for the last five years. People who postponed their decision to buy a house, have probably missed the bus for good. Over the long-term period, property prices on an average increase by around 9%. You should take this appreciation into account, while doing the overall cost-benefit analysis. Owning a house also provides a certain mental and psychological satisfaction and creates a sense of security.

Should You Buy Property, in A City You Don’t Live in?

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property investement

While property investments in cities other than one’s own require a lot of research and preparation, they can definitely be extremely profitable. Here’s an essential checklist you should follow, before proceeding

The tendency of most property investors in India is to focus on the cities that they actually live in. This is because they are already familiar with the locations that have highest demand and who the reliable and reputed developers are. Also, most people will have a fairly broad network of people within their city, who can advise them on potential property investments.

However, the internet has opened up the real estate playing field in India. A simple online search involving the keywords ‘buy home’ or ‘buy property’ will yield thousands of results from across the country. This trend is no longer limited to people who own computers, as smartphone penetration has made access to the internet available to a staggering number of people. Consequently, property investors now have access to information on a large number of geographies. For example, Pune is a high focus area for real estate investors from Mumbai and Bangalore, because of its amenable property prices, favorable appreciation and the fact that properties in all budget ranges are available.

Demand drivers

The primary driver for residential demand is job creation. If an identified city, town or periphery is seeing a lot of demand for homes from people who are attracted by a good job market, then, it can be a good residential property investment bet. The other important variable is affordability. Quite a few non-metros as well as peripheral areas of larger cities, currently qualify on these parameters.

However, these areas have large organized builders with a strong market reputation, as well as unknown small-time players with no verifiable track record. This brings up the second important factor for an investor to focus on – namely, which projects to invest in.

Where to invest?

Buyers should fully investigate the reliability and market standing of developers active in such a market. Although the Real Estate Regulation bill may eventually weed out all fly-by-night operators, the fact is that many unscrupulous developers have historically been active in emerging locations. Such developers may not have obtained all the necessary clearances for their projects, or even have clear ownership of their plots. They may also engage in shoddy construction and often lack the capital to complete their projects on time. Such developers often offer lower property rates, to attract demand. Investors should only patronize reputed developers who have been delivering quality projects on time, so that they can avoid unforeseen risks to their investments.

To sum up, it definitely makes sense to consider other cities for property investment, especially if one’s own city does not yield very attractive returns on investment.

Home loans Longer tenure ones are the best bet

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A longer tenure home loan gives the borrower higher home loan eligibility, along with flexibility in repayment and income tax benefits.

Until a few decades ago, Indians were generally averse to taking loans to buy or construct their homes and would use their retirement funds for the same. However, with increasing urbanization, easy availability of home loans and higher earnings of the family as a unit, this trend has changed. Now, many individuals are buying their first house even before marriage, by availing home loans.

Nevertheless, most borrowers feel that that they should opt for short tenures on their home loans, to be free from debts quickly, without realizing the implications. On the contrary, one should opt for home loans with a long tenure of up to 20 years or 30 years.

home loans

Here are some of the advantages of doing so.

Higher loan eligibility

An individual’s home loan eligibility is determined on the basis of his/her ability to repay the home loan every month, in the form of equated monthly installments (EMIs). This, in turn, is assessed on the basis of your disposable income. So, for shorter home loan tenure, all things being equal, your EMI will be higher and thus, you will be eligible for a smaller home loan amount as compared to what will be available, if you opt for a longer tenure home loan. Consequently, with a longer tenure and thus, higher eligibility, you may be able to buy a bigger or better house, than what you can with a shorter tenure home loan.

Flexibility of repayment

As there are no penalties on the prepayment of home loans under a floating rate of interest, you can prepay the entire outstanding or part of the home loan, if you want to sell the house or just be free from any debts.

If you have taken the home loan under a fixed rate of interest, from any housing finance company, you can still prepay the home loan without any penalty, as long as you are not borrowing from another institution.

Moreover, if your home loan is under a fixed rate of interest, you can still repay a certain percentage of your home loan outstanding every year, without any prepayment penalty. Thus, you can become debt-free earlier, while retaining the flexibility of making payments according to your cash flow.

Income tax benefits

Section 24b of the Income Tax Act, provides benefits on the interest payment on home loans. The effective home loan rate of interest, after taking into account the tax benefit, is better than what one can earn on any other alternative investment avenue. Moreover, as there are no alternative tax benefits that are as efficient as that on home loan interests, it is advisable to avail of this benefit for as long as you can.

Section 80C also allows for a deduction of up to Rs 1.50 lakhs, for repayment of the principal component of a home loan. Nowadays, the quantum of home loan that is needed to buy a decent property is fairly large. The principal component, in the home loan repayment, will be higher for shorter home loan tenure, as compared to a longer-duration home loan. Consequently, a significant portion of the home loan repayment will be wasted, as you would not be able to claim the deduction under Section 80C beyond the specified limit, in case you opt for shorter home loan tenure.

Material Matters

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We weigh in on the different materials of a building’s exterior components, whether it’s windows, roofing or facades.

When it comes to building exteriors, a lot of attention is naturally given to the design. But one detail that slips by the casual observer is the material components of a building’s exterior. The materials used in the manufacture of the windows, roofing and facades play an important role in meeting the structural or energy objectives of the builder.

Wood Frames

Wood windows are warm, traditional and aesthetically pleasing. For years, wood has been a readily available window substrate, and the most common choice for homes. It could be painted a solid color or stained and sealed to show off the wood grain. Wood is also strong and easy to work with, and complements many forms of architecture.

Because it is a good insulator, wood does not become cold like metal and glass. But it also expands and contracts in response to weather conditions. Wood windows can be painted on the exterior or clad with aluminum or PVC profiles for better weathering and reduced maintenance.

Aluminum Frames

Aluminum windows are more durable than wood, and are thinner, lighter, and easier to handle. Aluminum frames are easy to maintain and are sometimes less expensive than other frame options. But aluminum is a poor insulator and in cold weather loses more heat to the exterior than wood. Most recent aluminum windows are manufactured with a thermal break, a vinyl or rubber strip that separates the exterior and interior aluminum parts of the window. The thermal break reduces the movement of cold air from the outside to the inside of the building.

PVC Frames

PVC windows are relatively new compared to wood and metal frames. These windows are extruded from high impact resistant polyvinyl chloride (PVC). PVC windows have excellent weathering characteristics, are almost maintenance-free and have excellent resistance to heat loss. Originally used primarily in renovation because PVC lends itself to non-standard size production, PVC windows are rapidly increasing in the new construction market as well. PVC is available in several extruded colours. Special painted coatings have been developed to expand the range of colors available.

Composite Frames

Composites made from wood fibers, wood scraps, and ground up knots, are bonded together in a resin and shaped to replace window parts traditionally made of solid wood. Structurally, composite materials are equal to or superior to solid wood. They have two distinct advantages: a lower initial cost and they are less prone to warping and shrinking. Composite materials cannot be stained and usually are pre-painted during the manufacturing process. Due to their recycled nature composite frames are the ideal ‘green’ option as they make the most of the available resources, thus saving trees.

Thatch
Probably the oldest form of roofing, thatch is also eye catching, sustainable and quite durable. If installed correctly thatch can last anywhere between 15 to 20 years in good condition. The type of thatch material varies according to geographical location so the material used will generally suit the climate of the area.  Being a naturally insulating material, thatch is able to insulate your home without the need for additional insulating materials such as natural or synthetic wools. However the main problems with thatch are the high cost of installation and the constant need for maintenance. It is also more prone to rot and infestation.

Metal roofing

Metal roofs are resistant to extreme weather conditions. Available in two types, panels and shingles, metal roofs can come in aluminum, copper, stainless steel and zinc. Metal roofing is durable, lasts longer than asphalt or wood, and offers high solar reflectance. Metal roofs are becoming increasingly viable, as metal shingles are low maintenance, lightweight and more environmentally friendly. Metal shingles typically simulate traditional roof coverings, such as wood shakes, shingles, slate and tile. Aside from its longevity, metal shingles are much lighter than most materials and very resistance to adverse weather.

However, installation can be tricky and requires a contractor with experience installing a metal roof. As a metal roof starts to lose its shine, repainting is an option as long as the roof’s structural integrity is in good shape.

Clay Tile/Shingles

While brittle and heavy, clay tiles can last a long time and are very fire resistant. Clay tiles are very heavy, requiring additional roof framing, but they are non-combustible and extremely durable. Clay roofing tiles can come in lighter colours, which adhere to the cool roof standards and can reflect well over 50% of the sun’s solar energy. Genuine flat, ribbed or scalloped clay tiles are extremely durable but also very heavy, and must be installed by a professional.

Concrete Flat Roof or Tiles

The most common type of roof found in Indian cities; flat concrete roofs require a great deal of maintenance. They need to kept water tight and cleaned regularly to prevent leaves and debris from clogging the drain. The sun will gradually cause the roof to degrade, as flat roofs located in environments with hot and cold extremes are more vulnerable to damage. Flat roofs are typically less expensive to install than sloped roofs. Concrete tiles are very versatile and come in many different hues, shapes, textures and styles.

Compiled By
Anand Mishra
MD – Trimurty

Family Factor: Does it influence home buying decisions or not?

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Consumer response in Indian real estate has evolved significantly in the most recent 20 years. Family impact or related variables assume a key part in the basic decision-making means for home buyers. Let’s examine how the family and societal components shape property choices and how these have developed throughout the years.

Purchasing a house is the absolute most essential use a family brings about and the way that it may happen once in their lifetime for most Indians joins significantly more significance to this groundbreaking choice.

The buy of a house is more than only a financial exchange in India. It includes a few social and passionate choices that can impact the home purchasing process. While customarily, the man of the house is in charge of giving the rooftop over his family’s head, his inclination will be decorated by his family’s financial and societal position, necessities, and additionally, desires. In the constantly developing times when most ladies are working and adding to the current pool of assets for a family, rise to weight is given to her choice too.

Homes Trimurty Builders

These are the following family factors that impact property purchases:

Family structure

One of the essential components influencing home purchasing choice is the structure of the family. The extent of the family is an essential thought for picking home. A joint family would require a free house with more space to suit every one of the general population while an atomic family can without much of a stretch manage with a 2BHK condo or a smaller house. Furthermore, a joint family will favour an area which takes into account the necessities to both the elderly and the more youthful individuals. Thus, hospitals, schools, child-friendly projects, temples, and additionally nearness to entertainment alternatives will be the key essentials for selecting a house.

Family culture

Traditional families have a tendency to lean toward the joint living set up while modern families are littler with more youthful eras spreading their wings and settle in various urban communities. Another distinction showed by Gaurav, who is the Vice President – Marketing of Dheeraj Realty, is that in customary families, men are usually the guardians and act as a more prominent part in decision making. Then again, in urban families, ladies have huge power in settling on property purchasing choices. This permits property investment choices to be affected by sexual orientation attributes.

Gender characteristics

Gaurav offers that real customer response researchers have seen that when settling on a buying choice, men tend to settle on faster choices with the lesser impact on others. Then again, ladies are more inclined to negotiations and attempt to take into account everyone’s needs which extend the procedure.

Rise of independent women

With a more noteworthy number of ladies turning out to be fiscally free and the ascent in a number of twofold salary families, the land business sector is seeing an adjustment in purchase conduct and patterns. The accessibility of more prominent discretionary cash flow has changed the property choice procedure. Ladies are assuming a much greater part in property purchasing choices, and their needs and assessments are given equivalent significance in urban families.

While area and cost are still the most critical criteria for purchasing a property, different variables, for example, access to nightlife and brand name have likewise picked up significance. Moreover, the higher wage has opened up even working class families to the possibility of land as a real estate and additionally made second homes and weekend homes famous among the masses.