Right Time To Take A Home Loan And Buy A Property?

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Because of the on-going economic uncertainties, many aspiring home owners in Pune are still hesitant about taking a home loan and buying a residence. One of the questions that people who seek to make this beautiful city their permanent home is whether it makes more sense to rent now and await a price correction.

For those who are thinking of renting a home in Pune, there are many aspects to consider. In the first place, the affordability of both rental and purchased property is highly location and project specific. To illustrate – someone in Pune who can afford to buy a home in Undri may not even be able to afford the rentals at Boat Club Road, Koregaon Park or Kalyaninagar.

Secondly, whether it makes more sense to rent rather than buy a property would also depend on one’s future plans in a particular locality. Does one wish to settle down there, or is one also open to other areas? It definitely makes sense to rent a home while one is making up one’s mind about a particular locality.

If an individual is certain of a locality in Pune and is committed to settling down there, the right time to buy a home is now. There are many projects available in the excellent new residential areas that have come up in Pune, and prices are still competitive. There will not be a correction in real estate prices in Pune, as demand for a movement of residential properties in the city is healthy.

The watch-and-wait policy is only valid if there are informed reasons for anticipating a correction in a certain locality. On the whole, property rates in Pune will either remain stable or appreciate, depending on the area. Also, there are no prospects of home loan interest rates rationalizing over the mid-term, and economic indicators suggest that inflation will continue to drive up costs.

home loanGiven that it is the right time to avail of a home loan and purchase a property in Pune, one still needs to consider the financial implications. As a thumb rule, an individual’s home loan EMI should not exceed a rational percentage of his or her net monthly disposable income. Generally, EMIs can amount to 50% of monthly income.

However, home loans are not the only cause of debt in the contemporary context. People take out personal loans and have pre-existing debts, too. In other words, even a ‘fair’ EMI percentage could prove unaffordable. The ‘ideal’ EMI component can only be calculated vis-à-vis a debt-free person’s salary. This would be between Rs. 1000-1200 per lakh.

People availing of home loans sometimes forget that they are under legal obligation to repay. There are numerous cases where borrowers have neglected to undertake a due diligence with regards to their financial capabilities and the suitability of the loan of which they have availed.

As a result, they find themselves in debt traps and sometimes default on their repayments. Borrowers should stretch themselves only to the extent that they realistically foresee their financial position improving in a given time frame.

No home loan strategy should ever be based on anticipated financial windfalls as a means to pay off the loan. It should be based on realistic factors such as reasonable salary hikes and maturing of insurance policies and investments.

If one anticipates a salary hike, even if this amounts to only a certain annual increase, one can consider a ‘step-up’ option for the existing home loan. Here, the borrower pays a lower EMI initially and steps up the repayment of the home loan in proportion to the assumed percentage increase in income.

Image courtesy of renjith krishnan / FreeDigitalPhotos.net

Is The Metro A Panacea To Pune’s Commuting Woes?

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

The in-principle approval of the Pune metro rail project heralds the possibility of a infusion of new life into the city’s challenged infrastructure situation. The metro has the potential to overcome the limitations of Pune’s road network.

Going by available figures, the two planned corridors – the 16.59 kilometer stretch from PCMC to Swargate and the 14.92 kilometer stretch from Vanaz to Ramwadi – can certainly help in reducing the stagnation that plagues some parts of the city. And yet, the metro’s implementation will only touch the tip of the iceberg.

If we look at the current picture, the infrastructure in many inner locations of Pune has hit an apparently insurmountable roadblock. This is especially true for older traditional localities, from which development spread outwards like spokes from a hub.

Getting into and out of these areas, especially at peak traffic hours, is a big issue. In other words, the metro will address only a minuscule part of Pune’s requirement for better, more efficient public transport.

The marking of the metro’s routes has already been provisioned in the latest development plan. Altogether, the Pune metro blueprint appears to envision 30 stations in the first and second phases, with 15 of these along the Vanaz-Ramwadi corridor to be elevated while five stations along the Chinchwad-Swargate corrdior to be underground.

These five underground stations at Shivajinagar, ASI, PMC, Budhwar Peth, Mahatma Phule Mandai and Swargate would play a pivotal role in the overall easing of Pune’s commuting issues.

The metro will also add a very necessary level of comfort to public transportation, given that it provides air conditioning and generous standing space and also does away with the torture of sudden braking.

Image source: hillpost.in
Image source: hillpost.in

That said, the 360-degree implementation of both metro phases will not be without challenges. As we have already witnessed in Mumbai, the very establishment of the base infrastructure for such services is liable to bring with it major disruptions in real-time commuting to Pune’s citizens.

In any case, the metro is a not a catch-all solution to Pune’s transportation needs. Without roads of sufficient capacity, public transport penetration into the core areas of the city will remain a problem. The constant congestion of the available roads by private and public transport vehicles has subtracted significantly from the livability quotient of the inner city locations.

In fact, Pune continues to hold the dubious distinction of being one of the most polluted cities. In areas like Shivajinagar, the volume of traffic has long since caused air-suspended particulate matter readings to be far in excess of the National Ambient Air Quality Standard.

Lack of cohesive and comprehensive infrastructure, especially in terms of intra-city connectivity, is becoming a bigger problem for Pune with every passing year. Bureaucratic hurdles to implementation of pending or deferred undertakings must be removed.

The Pune metro – while a laudable and noteworthy undertaking – is only the beginning of a long journey towards bringing the city up to ‘speed’.

About The Author:

As CMD of Amit Enterprises Housing Limited, Kishor Pate is the driving force behind one of the country’s most successful real estate development firms. He is a well-known and respected personality in real estate circles.

How To Succeed In Property Investment

Kishor Pate 2Kishor Pate, CMD – Amit Enterprises Housing Ltd.

Getting into real estate investment without a proper understanding of what you aim to achieve is not advisable. There are many risks involved in real estate investment. However, with the right data and advice, you can definitely succeed in property investment. Here are the general guidelines:

To begin, you should know what the odds are. The fact is that the chances for inexperienced property investors to either succeed or lose a lot of money are more or less evenly balanced. The likelihood of suffering a loss is greater if the investor does not have a good idea of the state of the local property market.

Before investing in property, make sure that you have enough insurance. Many investors who have succeeded in the property arena safeguard their investments by floating a nominal limited liability company for their activities. This is certainly an option, but not really a necessity unless you are playing for very high stakes and investing in multiple properties.

Advice to End-User Investors

Property investors actually fall into two broad categories: end users and pure investors. That’s right – even end users can technically be described as investors in some cases. These individuals seek to make a percentage of profit on properties that they are themselves occupying.

This may involve partial rental or sale of a home or office, retail or factory space. This is not a very common practice, and is usually seen only in cases where the part of the property being rented out or sold would otherwise remain idle and non-productive.

A more rewarding option is the sale of the entire property. This is sometimes done for reasons other than investment – the seller may be seeking larger or more luxurious premises, may be in the process of relocation, or may not be satisfied with the property for other reasons.

There may also be a need to downgrade on certain expenses such as maintenance costs. If the sale of such a property is need-based, the profitability usually reduces since the seller needs to cash in within a limited period.

The kind of profit an end user can make on the sale of a property depends on the age and state of the property, its location and its inherent value on the market. A residence purchased five or ten years ago will have appreciated in value for the simple reason that property rates are constantly increasing. The value of the property will be even higher if the location is one in high demand.

The price a ‘second-hand’ property will fetch will also depend on whether or not it is well maintained, the facilities it offers, the area it is located in, etc.

Advice to Pure Investors

Exclusive or pure investors buy property for the exclusive purpose of earning a profit on them; they do not utilize the estate personally. The properties in question can be residential (flats, bungalows, row houses, duplexes, etc.), commercial properties (offices, factory sheds, etc.), retail (e.g. mall space) and non-developed or partially developed land.

Pure investors have a better chance of making a profit in their dealings simply because their options are wider. There is also no immediacy or urgency involved, since the basic objective is profit.

property investment

Investors of this kind should keep certain guidelines in mind:

• Location is everything. Even if rates are steeper in a preferred area, go for it. It will pay rich dividends in the final analysis.

• It is always more profitable to invest in properties under construction or still in the planning stage. By the date of actual completion, rates will tend to be higher.

• If one chooses to invest in residential real estate, the first preference should be towards flats that are located on the upper floors. They should offer a good view and ventilation. Other amenities in the schemes also matter like, the use of a swimming pool, clubhouse and other trendy facilities. They should also be backed by adequate parking facilities. Most buyers do not make compromises on this last factor, even if they give consideration to the others.

• Choose to invest in properties by reputable developers. The very name of a famous builder makes a definite difference on the bottom-line of the sales deed.

A quick note on ready for possession properties. Certain dynamics of the property market remain constant, so a profit is still possible. However, a ‘readymade’ property bought for the purpose of investment will have to be given sufficient time to appreciate in value.

Also, certain modifications specific to a potential customer’s needs may have to be made. The cost that this involves would have to be adjusted in the final amount.

Finally, if you are new at property investment and are utilizing a housing/investment loan in order to invest in property, ensure that the ratio of self-finance-to-loan amount is conducive to a future profit. Double-check all legal documents.

Property investment is not a game of blind man’s bluff. Fortunes can be lost for many reasons – spurious documentation, faulty judgment, market crashes and other unforeseen circumstances. There are a number of bases that need to be covered to reduce the risk factor.

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