When it comes to investing we always prefer to go the Real estate way and no matter what we Indians always think that it is one of those asset whose price never decreases. Probably we have little or no memory about the sub-prime problems in US.
We should understand that there is too much of darkness when it comes to investing in real estate in India because of lack of any regulations and so I am going to list some of the points which you should consider before investing in real estate.
The points I am mentioning here is purely based on personal experience for a flat I booked in new town Rajarhat in Kolkata but when going through the final agreement I decided the pull it off.
The process started with a call where I was offered a flat at a price of 2400 Rs per Square feet. Price was quite attractive enough for me to react positively and so I decided to visit the place and even get a flat booked. Flat I booked was roughly 1015 Square feet.
I am sure you have done your calculation about my investment amount already and yes you were right. It should be under 25 lacs.
After going through the reputation of builder I decided to gave an initial booking cheque of 2 lacs
The agreement date was roughly one month after the booking and so once the agreement was ready I was invited to sign and pay the next installment but was shocked to see the pricing going above 30 lacs.
I was not ready to sign the agreement in a hurry but they wanted me to do so. I wanted to go through it thoroughly before signing and they were not very keen on sending the documents to me but wanted me to go through it in their office premises. I was fine with that as well and as I was going through the agreement I pointed them about few lacs of Rs which I was not told before and finally I was ready to take their option of cancel the booking. This is when they agreed to send me the agreement copy in my email to go through it.
Once I did a detailed study I found lot of things which were not much liked by me and I think every real estate investor should know and understand.
- Base price per square feet was 2400 but actual price was 2475. The extra 75 Rs were for south facing flats. I told them I am fine booking a flat that is not south facing and they told that north facing flats have garden view and so 75 Rs is anyways added to them as well. Smart 😀
- Each floor rise has a price per square feet increase of 15 Rs and as I was booking flat at 6th floor which added 75 Rs to the final per square feet value. This is normal practice here in Kolkata but it is not 15Rs but idealy 10 Rs but yes I was not shocked by it and in fact I was ready to pay that price as well.
- Apart from the normal electricity charges they asked for a charge of Rs 70 per square feet for Obtaining electricity supply from the supply agency for the flat. I told I am fine doing this myself and they told that it is not possible for me to get this done and I have to pay this amount.
- Lastly a Rs 15 per square feet as maintenance charge for 6 months was to be paid in advance and was adding to the final cost of the said flat badly.
So a 2400 Rs per square feet price is already at 2635 Rs per square feet and we are yet to include the Taxes, legal expenses which were almost way higher than normal.
Why I decided to opt out?
The only reason for me to opt out was because I was taking purely an investment decision and I have no plans to move to the new town in next ten years. I did not find the investment that fruitful in the next few years to come.
The payment terms were as follows.
|1||On Application||Rs.2,00,000 as Registration Money|
|2||At or before the execution of Agreement||25% of Net Price (Less registration money of Rs.2,00,000)|
|3||On Foundation of Said Building||10% of Net Price|
|4||On 1st Floor Roof Casting of Said Building||15% of Net Price|
|5||On 3rd Floor Roof Casting of Said Building||10% of Net Price|
|6||On 5th Floor Roof Casting of Said Building||10% of Net Price|
|7||On 7th Floor Roof Casting of Said Building||10% of Net Price|
|8||On 8th Floor Roof Casting of Said Building||10% of Net Price|
|9||On Brickwork of Said Flat||5% of Net Price|
|10||On Possession of Said Flat||5% of Net Price|
Ideally I will be making the payment of 27 lacs in the next one year and possession date (or in legal terms completion date) was August 2014. So roughly my 27 lacs is blocked for 3 years. Note that sales person told me 2013 is when I would get the possession but agreement told 2014.
- 27 lacs of investment in Equity for 3 next 3 years can fetch me far better returns than investment in real estate.
- I am better investing in a ready flat than in a flat whose possessions is few years down the line. I am anyway paying 90% of the amount in a years time.
- Ready flats as an investment options are far better because you can start earning the rent sooner.
So next time you consider to own a house opt for the one that can give you better returns make sure you read the agreement to sale in details to the extent you can. Opt for even a second lawyer to get it read for you if you are not sure about things included in it.