How to buy apartment in Bangalore - II

Here are some of the terminologies which everyone wanting to own an apartment should be aware of:

• Booking Amount : You see a project and if you like it, just to ensure that your claim gets higher priority you need to pay some money as booking amount to the builder (it runs typically in few thousands to lakh). You get some time to think over the option and to process the loan formalities. You can even cancel the booking getting back your money (minus some administrative charges which can be as high as 50%)

• Deviation : Actual building usually does not fit exactly as per the plan set initially. There is some deviation from the approved plan, which is allowed. Checking whether the deviation is beyond that value is helpful. The deviation can be horizontal or vertical. Different rules apply to each. Usually a 5% deviation is allowed.

• Registration : It is the process of getting the flat in your name after the construction. It is similar to registration of marriages or child birth. There is a good amount of money to be given to the government (and it differs across states).

• VAT + Service Tax : Although there is a talk of service tax being waved for home buyers, but it has still not been effective. These are the government taxes to be paid.

• Super Build Area : A builder usually not only charges you for the area you are going to live, but also charges for common areas like stairs or lifts. This area is charged for all flat buyers and is probably the single most earning point for the builder.

• Carpet Area : This is the actual area which you can use for living. Usually 85-90% of super built up area is carpet area.

• Built up Area : This is the area which is carpet area + area covered by walls etc.

• Cost per square feet : The SFT cost is always about super-built up area. It is misleading in the sense that you are paying the same amount not only for the area you will be using all the time (built up area) but also of the common area (like lift) which you would use very frequently.

• Floor Area Ration (FAR/FSI) : FSI is the ratio of total floor area of a building to the total plot area. This essentially implies out of total plot area, how much is used for construction. A smaller the value, implies large open areas.

• BDA : Bangalore Development Authority, govt body that authorises the construction of buildings in Bangalore. Official WebSite

• BMRDA : Bangalore Metropolitan Region Development Authority, this body approves plots beyond bangalore city limits. Official Website
  

• Pre-Launch Offers : A builder puts advertisements even before he gets the BDA approval (assuming it will be approved either by legal or illegal means). This pre-launch offer is to attract the buyers early enough. The best buy is always during pre-launch offers.

• Home Loan : Taking financial help from banks/financial institutions. Usually 85% of the total cost is approved for loan and the remaining 15% needs to be provided by the buyer. A trick used by builder to get you more than 85% loan is to show the bank a cost higher than what he sells you, so that you get 85% of higher projected value, ensuring you get more than 85% of the actual cost.


• Pre-EMI : EMI is the monthly outgo against any loan that you take. In housing loans, there is a concept of pre-EMI, where the actual EMI starts only after possession, but the builder has already taken money from bank (on your behalf) for construction. Since banks have already given (disbursed) the money, they want a simple interest to be charged till the time you start actual EMI. This is called pre-EMI. It is just an interest payment and it does not reduce your outstanding loan. This is total waste of your money. Sometimes builders are willing to share the pre-EMI on your behalf.

• Floating Interest Rate : The interest rate on the home loans. This is a compounded interest applied annually. It is called floating since the rate at any time depend on the prime lending rate (which in turn depends on so many economic parameters). So the interest rate can go up and down causing variation in the monthly installment to be paid to the bank. It is a huge blow during the rising interest rates. You can opt for fixed interest rate but they are usually higher than floating interest rates.

• Pre-Closure : If you have surplus money, you can close the loan earlier than the stipulated tenure. But banks usually charge some penalty for pre-closure.

• Approval Papers from builders : Parent deed, joint development deed, BDA approval, sanctioned plan, occupancy certificate, commencement certificate, registration of land, khata, tax paid receipts, clearance certificates from govt bodies like Electricity Board, Water and Sewage Board etc etc. These are typically the papers a builder should possess to avoid any legal hassels during the construction and to the buyers afterwards

• Possession Date : The actual date when you become a proud owner of a house

• Grace Period : A buffer of time after Possession date which accommodates any delay on either side.

• Premiums : Some builders, or rather all of them, ask for a premium for corner units or upper floors. In other cities, lower level floors cost more than the higher ones but in Bangalore it’s the other way around. This premium rate is typically 20/- to 50/- per sqft per floor.

How to buy apartment in Bangalore - I

When I came to Bangalore, the first thing that struck me is that everyone is (and literally everyone) is buying either a plot/flat or independent house etc. When you see so many people surrounding you looking out for 'investment opportunities' in housing/real-estate, somehow you are bound to get influenced. I was also caught into this 'rat-race'. The emotion that controls this rampant buying is the same emotion of human beings that plays a crucial role in stock-markets i.e. greed. I have heard so many stories of people buying flats at 15 lakhs few years back and the same flat now said to be costing more than 70 lakhs. The biggest mistake people do while buying a house is "not researching enough". I got into the same trap, but thankfully got out of it just loosing 10 K Rs (cancellation of booking amount).


In these series of posts, I will try to put my experience of "trying" to buy a flat in south bangalore. These tips typically apply for people buying their first house. Some of the general tips/gyaan would be useful for buying across the entire country.

• Fix your budget before seeing any property and stick to it at any cost (very difficult).

• Never think of buying the first house as investment. It should only be considered if you want to live in it.

• Don't think of "tax-benefits" while buying your first house. It only comes into picture when you are buying a house in a city of non-residence. Otherwise the tax-benefits of home loans will be compensated by no HRA benefits.

• I have heard this a lot "Always go for big builders, since that assures less pain", this is a myth. Buying a house is a lot of pain and efforts, it does not matters much whether the builder is big or small. All builders are crooks and are out their to make money
  

• Getting a good house is more luck than anything else. You got to be lucky to get a house without much hassel

• Big brand names do not necessarily mean higher resale value. What matters more is the location and the construction quality.

• Flats do appreciate in value but only up to a certain point. Say the original price is 2000/- per sqft at the time of booking. It might go to 2500/- by the time the construction is over and you register it (2 years). From that point on, the appreciation slows down a bit because it is now a second-hand flat. It might go to 3000/- (5-10 years) if the location is good but that’s generally the limit. After that the wear and tear on the flat bring the value down.

• Also the stories of astronomical price increase is in realty a myth. Imagine a 2BHK flat in say Bannerghatta Road (near IIM) costing 15 lakhs in 2002 (five years before) is now costing 70 lakhs (as per the market rate in the same apartment complex). But is that a real re-sale value of the flat? Do you think there would be any takers of the flat for 70 Lakhs when the same type of flat (in terms of quality/space etc) would cost me around say 30-35 lakhs near the same locality (Meenakshi Temple)? Since the real-estate market is on the upwards, a new buyer would always look at the new projects rather than buying a second hand flat. If the market goes down, then the projected cost of 70 Lakhs would also come down steeply.

• Always go for home-loans from reputed financial institution (even if you are capable of), since that ensures a cross check of documentations obtained by builders. For example, I booked the Ittina Mahavir project in electronic complex, HDFC refuses to give loan to any of the Ittina properties. When we enquired further, we got to know that there are lot of BDA notices against illegal activities from Ittina.

• Read all the documents before signing (even signing the booking form). It is easier said than done, since the marketing department of the builder will ensure that you get engrossed in the sugary talk so much that you believe anything he/she says and sign without reading.

• Go through agreement copy atleast 5 times with your family lawyer it’s almost 25 to 30 points and usually its mostly one sided.

• Make sure that following things have been put into agreement
• Builder will not demand for any other payments other than whatever has been specifically disclosed to the buyer in writing.
• Clear possession date in writing
• To avail housing loan from a bank or a financial institution of buyer choice. Usually they force you to get a loan from private banks

• Go and talk to the last completed project of the builder and talk to the owners.

• You may not be Vaastu believer, but purchase a flat which is vaastu compliance just to ensure its re-sale value.

There are so many things to keep in mind while buying a flat that you need to burn your fingers to actually understand everything. The most important point to keep in mind is not to get awed by the glossy advertisements from the builders (usually there is always some hidden constraints). Also don't ever think that if you dont book a flat now, you will miss the opportunity later. When I wanted to buy a flat in electronic complex, I talked to a friend, who has booked a flat at 2400 per SFT some nine-ten months back. So when I got an offer of 2350 per SFT, I booked it immediately thinking that this is the best buy I could ever get. Now few months down the line, I am seeing offers of 2100 per SFT also. If you do your research properly(which implies a lot of pain), you can get a good bargain even in the most "real-estate saturated pockets" of the city.