SMART SOCHO: How to minimise risks when buying your first home

Undertaking a thorough due diligence prior to embarking on the journey towards buying your first home will not only save you tons of headache (and money) in the long term, but it will also ensure the joy of buying your first major asset lasts forever, writes Rajesh Kulkarni.

For most first time home buyers, buying property can be both an exhilarating and exhausting experience at the same time. Deciding on a budget, checking your loan eligibility, deciding on the best home loan offer, scouting for the right property, meeting brokers, haggling over the price and lots more before the lucky few end up buying their dream home.

The excitement of buying your first major asset, owning your own home is sometimes undermined by the lengthy procedures involved in the buying process and the many pitfalls one must avoid to present a source of joy turning into a cauldron of misery down the line.

Property buying in India by definition is a complicated process and in most cases involves a lot of research, multiple agencies and lots of paperwork, enough to exasperate even the most seasoned investor, let alone a first time buyer.

Understanding the Risks Involved:
The biggest mantra that a first time property buyer especially in a city like Mumbai, needs to follow is to minimize the risk factors wherever and whenever possible. Typically the first time salaried buyer usually has a low risk-taking capability and therefore it pays to do a thorough due diligence on the entire process from start to finish, to avoid unpleasant surprises down the line.

There are multiple risks associated with buying property ranging from lack of regulatory approvals, below-par construction quality to the lack of legal clearances and completion delays. This in turn makes it all the more important for the first time property buyer investing his hard-earned money to understand the risks involved and be aware of the solutions to the same.

The huge shortfall of affordable homes in a city like Mumbai has created an enormous mismatch between demand and supply of units catering to mid and lower income categories of home buyers. Given the limited supply of such affordable or budget homes in the face of a growing demand, the risks involved in the purchase of such homes are also proportionately higher.


Points to Ponder:

Maintenance Costs:
In the excitement of buying their first home many buyers fail to consider the added cost of maintenance payable by them as owners of the property. Typically homes in new projects come with high maintenance costs proportionate to the scope and quality of amenities provided by the developer. So if your project comes with a long list of expensive amenities like say a swimming pool, modern gymnasium Jacuzzi, landscaped gardens, CCTV surveillance - make it a point to check the recurring costs you will have to bear for their upkeep, preferably before signing on the purchase agreement.

Factor in the EMIs:
Imagine a scenario where the buyer's take-home monthly salary is approx INR 40,000 and he is paying a home loan EMI of between INR 18,000 - 20,000 p.m. is it possible to provide for other expenses like food, travel, healthcare, education etc on just half a salary. Not likely. Everyone aspires to live in a large house, but not if it entails taking away a huge part of your monthly income towards servicing your home loan.

Always ensure that your EMI / rent component of your property does not exceed approx 30 percent of your total income. This is generally regarded as a safe limit, anything in excess could jeopardize your ability to fund your other fixed expenses which are equally important.

Opt for a Nationalised Bank:
It's a known fact that a large majority of first time property buyers generally take the home loan route to fund their purchase. While private banks are also known for their exemplary service and quick loan disbursals, nationalized banks have a reputation for implementing stringent due-diligence process to approve projects prior to approving a home loan.

An approved home loan from a nationalized bank generally implies that there are no pending legal or approval issues with your chosen project. From a buyer's perspective, it's always better to choose from projects which have the maximum approvals from reputed lending institutions.

Social Infrastructure:
So you have purchased your dream home and even managed to save a few lakhs on the asking price. Yet the initial euphoria soon vanishes when you learn that the nearest school for your little girl is a good 6 kms away, while the closest supermarket even further at 12 kms.

The above can be the worst possible scenario for a first time home buyer. While it's important to focus on the home itself, it's equally important to be aware of its external attributes in terms of connectivity options and the easy availability of necessary social infrastructure like quality educational establishments, shopping malls, hospitals and restaurants in the vicinity.

Developers Track Record:
Arguably one of the most important aspects of buying property as also the most overlooked. Common sense dictates that it's always safer to buy from an established developer with a long record of quality projects behind him rather than a small time operator or first time developing offering a mega discount on his first project.

The rationale behind this logic is fairly easy to understand. With an established developer there is that added peace of mind on key issues like the quality of construction, legal aspects, amenities provided, area promised an even the resale value of the project. Not so much with a small developer who may lack the required expertise to complete the project on time or even ensure the use of quality raw materials in its construction.

Naturally such players often tempt buyers with attractive discounts, fully-furnished homes, gold jewellery and what have you, but in the long run it's the buyer who has to pay for what can turn out to be a very costly mistake.

Ready Possession Projects:
From a first time buyer's perspective it's always advisable to opt for a ready possession project. Yes, the initial cost will be a lot higher, but in the end its money well spent.

Ready possession projects make it fairly easy for buyers to evaluate the quality (of construction) aspects, amenities provided as also utility issues regarding the power and water supply with existing residents. This in turn ensures that the buyer is fully aware of what he is buying and there are no unpleasant surprises in store for him/her once they move in.

Now that you're well-informed on the fundamental Dos and Don'ts of buying your first property/home, go ahead and indulge yourself. Remember a Smart Buyer is a Safe Buyer. Happy buying…