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Real estate for young professionals - not as difficult!

Sumeet Kapur 
on 29 September 2014

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Like many others, we all think real estate investment as something big and far away when we are in early stages of our career.  No doubt it is, but it can be made much easier, if you just do some calculations around.

A few thumb rules or basic facts to know –

1)  If the interest rate is 10% on a home loan, then the installment is normally Rs.1000 per lac of loan taken. So if you take a loan of Rs.25 lacs, then the monthly installment is Rs.25000 approximately.

2)  If you buy a flat for Rs. 35 lacs which is to be constructed over a period of 3 years and you opt for construction linked plan, the amount payable to the builder will be 15 lacs in year 1, 12 Lacs in year 2 and remaining in year 3.

3)  Loan for a construction linked property is disbursed accordingly to the stage of construction. Only the booking amount of Rs.2-3 lacs is required to be paid on your own, as banks do not give loans for 100% value of the property. So, if you buy a flat for Rs.35 lacs, then the approximate loan you will take is 12 lacs in year 1, 12 lacs in year 2 and another 8 lacs in year 3.

You can conclude from the points above, that you just need to be able to afford a monthly installment of approx 10K in year 1, 20 K in year 2 and 35K in year 3 for a Rs.35 lac flat.

Yes, things can change if there are drastic changes in interest rates or in the duration of the construction of the property. Else, the above thumb rules shall withstand minor movements.

Now, there are few more points which we should consider to make a real estate investment decision easier for us:-

1) Real Estate value normally grows in India (you have to be very very unlucky to see a decline in the value of your property). So, even if you take a loan and reach a stage where you are unable to pay your monthly installments, you can sell the property at a gain and get out of the investment and the loan liability.

2) Make sure that you check the basic prospects of the location, Google about the project and the builder. This can be done on various online real estate forums now a days. Visit the project location to ascertain any issues such as slum dwellings around, a heavy power station being too close to the project, any disputed patch of land in the main approach road to the project etc.

3) Believe in your future – Your salary will grow and you will have some bonuses coming in. So, always assume a decent growth rate in your salary to see how much of the monthly installments you can afford to pay in the future years. It’s good to stretch yourself a bit while buying a home.

4) Ultimately, there is a factor of ‘Leap of Faith’ in real estate investments which you need to take. It is a bigger investment than most of the other investments we do and hence the returns are bigger. So, don’t be scared and take the step. You will realise it later that it was not as difficult as it looked earlier.

Now, I will take an example of a property I recently invested in Bhiwadi. Please note that this is just an example I am using to give a real life scenario.  There are many more similar projects available there, so do your research if you decide to invest.

Objective- To do a small ticket real estate investment (small ticket at my level after working for more than 10 years in the corporate world :-))

How I decided the location Bhiwadi -  Gurgaon is very costly, Noida is a bit risky and far from Gurgaon (where I stay), Manesar and Dwarka expressway are already at rates more than what they deserve. Therefore, I wanted to look at other locations. Bhiwadi was a nearby option and I knew Lalit Wason (from www.Realvista.in), who could help me get more information on investment opportunities in Bhiwadi.  He offered to take me to Bhiwadi for a visit and I happily accepted it.

What prospects I saw when I visited Bhiwadi –

1) Self-Sustenance - Huge amount of industrialization in the city and more coming in soon. So, the city will have jobs of its own and it will attract more and more people.

2) Successful senior citizens hub - Already become a hub for senior citizen residential projects, e.g. many projects from Ashiyana builder. One category of real estate projects being successful is a good sign for the city's real estate.

3) Closest Rajasthan city to Delhi – Bhiwadi being the closest Rajasthan city to Delhi, it gets special attention for development from the Rajasthan Government to invite foreign and industrial investment near Delhi.

4) Property rates not far above the cost of construction – Two basic things that determine the flat prices is cost of the land and the development in the city. Good part about Bhiwadi is that the average per square feet rate of Rs.2000-2500 is not far above the cost of construction and can only move up from there. How fast it goes up, no one knows but there are hardly any chances of it going down. Low cost residences are picking up and so is the area near Delhi NCR because of the existing high prices in cities like Gurgaon etc.

Project I invested in –

Builder Name

VP Spaces

The builder is not a famous one but has delivered projects in Pune and Faridabad, so can be trusted.

Project Name

Grandeur, Bhiwadi

Flat Value

Rs.34.99 lacs

Area

1150 Sq. feet (2BHK)

Loan Value

Rs.32.93 lacs

Rate per sq feet

Rs.2526

(+5.92L of EDC etc)

Interest Rate

10.15%

Year

Payment to Builder

Loan Disbursements

Average Monthly Installment

1

Rs.15.18 Lacs

Rs. 13.11 Lacs

Rs. 6,836

2

Rs.11.89 Lacs

Rs. 11.89 Lacs

Rs. 19,073

3

Rs.7.92 Lacs

Rs. 7.92 Lacs

Rs. 28,006

4 & Onwards

None

None

Rs. 32,789

(For calculations excel, write to sumeetkapur10@gmail.com)

Net conclusion is that if you can afford to pay a monthly installment of Rs.7K in first year, 19K in second year and Rs.32K from third year when your salary will also grow, do go ahead and invest in a project like this right now. If this investment grows to double of its current value in 3 years, you will earn 35 lacs from just this decision of yours. :-)


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