Personal Finance

Evaluate the real cost in realty offers

Meera Siva | Updated on November 04, 2018 Published on November 04, 2018

Don’t be carried away by advertisements this festival season; figure out the financial value

Rosie, a property enthusiast who thinks real-estate advertisements portray reality, was giddy with excitement. “There are so many offers for home-buyers this festive season!”, she exclaimed. Housie, a young techie who asks for hard data, flatly said that he was surprised at her reaction.

Deals galore

“The property market is slow, and so I think the many interesting deals from developers are likely to be genuine, in an effort to attract buyers”, Rosie said. “The offers fall under a few categories. One, discounts on the price. Two, better financing terms. Three, some of the features added to the home are for free. Four, prizes and freebies are given”, she noted.

She gave examples for each. “Price discounts may be reduction in square feet rate or a few lakhs taken off the total price. Deals are better in under-construction property. Many are waiving the 12 per cent GST when booking. And developers are going lower than the reduced down-payment — of, say, 10 per cent in the past — and no EMI till possession. Now, there are deals where you only pay a small token amount, say a few thousand rupees for booking. The rest can be paid near completion. Loan processing costs are also being covered by the developer. There are also offers where the stamp duty and/or registration charges are paid for”, she said.

“Other builders are adding modular kitchen, wardrobes, appliances such as water purifier, microwave oven and AC, video door-bell, furniture or free car parking. There may also be waiver on internet and DTH installation cost or water/power connection and meter costs. Free club membership, free maintenance for, say, one year, are on the cards. A few are also giving assurance of monthly rental payment. Some benefits are a little back-ended — developers are waiving the transfer fee that is paid when the ownership changes for the first transfer”, Rosie elaborated.

“A few developers are offering chances to win big-ticket gifts — luxury cars such as Benz or Audi, vacation to foreign countries or fully-furnished villas. Assured gifts include gold coins, iPhones or other gadgets”, she continued. She noted that Delhi NCR seems to have the most deals and the attractiveness was inversely proportional to the market distress.

Analyse the value

Even Housie was beginning to get tempted on hearing all the wonderful benefits that were seemingly just given away. “These are all interesting, but it helps to evaluate them objectively by figuring out the financial value of these offers. For example, in case of appliances, what is the value of the products given. If you find out the cash value of the benefits, all the categories become comparable and you can evaluate how attractive the offer is”, he said.

“Why is getting the cash value important? Say, you are buying a flat for ₹75 lakh, getting ₹75,000 worth of things is just 1 per cent in value. This may not really be interesting if you think about it that way”, he said.

“Not just that, you must also look at the utility of the product or service. For instance, I may have no use for a club membership or the furniture given, no matter what the value. And even if you need them, find out in detail the exact specification. For instance, what is included in the modular kitchen? What choices would you have in changing the specifications?”, Housie pointed out. He added that being stuck with something just because it is free or having to pay heavily to make any changes are not ideal.

“You must also find out if you can be given other choices. For example, I may plan to live in the house and not sell it any time soon. So, the offer of free first transfer is not of value to me. I would prefer waivers of late payment fees for monthly maintenance”, he said.

Buying decision

Rosie agreed and said that offers are just one aspect of the buying decision.

“When you decide to buy, it must be after thorough research on the location, developer reputation, features of the property and, of course, your financial situation. If these are not done, no matter how good the offer is, you must pause and not rush”, she said.

Bad choices can lead to loss of principal, higher ongoing costs or lower sale value and this can set you back by much more than what you seemingly clinched through the offer, she added. Housie warned about offers that are time-bound. “You must talk to the developer and sign up only after you are sure that the other key parameters of the property get a check mark. Developers are often open to extending the validity period of at least some of the offers, though the sales team may rush you to make a decision”, he said.

Rosie said that one has to read the fine-print thoroughly in many finances-related offers.

“An offer that says there is no payment does not mean there is a waiver. Ensure there is no extra interest added for the moratorium period. And buy under-construction property only if you are convinced about the developer’s ability to complete”, she cautioned.

The author is the co-founder, RaNa Investment Advisors

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