10 Things to know before you book a flat

The real estate sector was in a slowdown for the past 4-5 years, but its problems got aggravated in 2019 following the liquidity crisis triggered by the collapse of IL&FS. Since real estate directly and indirectly affects ancillary sectors such as cement, steel, tiles, paints, electrical equipment and even furnishing, everyone wanted the government to step in. Two months ago, the government announced a Rs 25,000 crore bailout package to revive stalled real estate projects.This will be routed through an Alternative Investment Fund (AIF), with the government contributing Rs 10,000 crore and financial institutions like LIC and SBI bringing in the remaining Rs 15,000 crore. The AIF will be managed by SBICap Ventures.Untitled Carousel 71942562Real estate experts are optimistic about the measure. Though this move will increase the supply of units, home prices may not come down. Real estate prices have already corrected substantially in pockets like NCR. Though builders are not cutting rack rates, they are offering big discounts. medium72458489 Mumbai remains one of the costliest markets, but affordability has increased significantly. The Home Price Affordability Index (HPAI) across cities has risen significantly in the past eight years. (The JLL HPAI denotes the ability to take a loan to buy a 1,000 sq ft flat in the city. The index value is the average household income as % of the required household income to service a loan equal to 80% of the price of the property. So, an HPAI of 100 means the household has enough to service the loan EMI. An HPAI of less than 100 means the household does not have enough income to qualify for the home loan.) Though the revival plan has boosted confidence, most experts still favour ready possession. However, there is a greater chance of extracting a big discount while booking an under-construction flat. medium72458514 medium72458726Since under-construction flats are more complicated and riskier, here’s a checklist for buyers that will help them know if booking a new project is the right thing to do.1. Is project RERA registered?Go only for projects registered with RERA because it approves a project only if it has all approvals (from municipal corporation, electricity and water department) in place. However, these approvals are only for starting construction.2. Are all details available?Another advantage of a RERA registered project is that all relevant information will be available on the RERA website. Since housing is a state subject, implementation quality of RERA varies across states. “It is better to avoid projects if full data is not available on the RERA website,” says Abhinav Joshi, Head of Research, CBRE India.3. Is builder financially strong?Don’t be under the impression that the house will be delivered smoothly just because it is a RERA registered project. As mentioned earlier, RERA approval is only to start a project. The builder must be financially sound too. “In addition to checking financial situation of the builder, buyers should also check about other ongoing projects,” says Sankey Prasad, CMD, Colliers (India). Avoid builders that got into trouble with other projects. “Also, avoid builders embroiled in NCLT cases, if their borrowing is high and if there are a large number of consumer complaints,” says Pankaj Kapoor, MD, Liases Foras. 4. Have you seen the locality?Facilities available inside the projects (swimming pool, gym, etc) are mentioned by builders. However, buyers must do their own legwork. “Visit the site to make sure that the physical infrastructure matches your need,” says Joshi. In addition to this, find out about upcoming projects and hospitals, malls, educational institutes and entertainment options in the vicinity.5. Is the timeline reasonable?The approved completion date is mentioned on the RERA website. RERA imposes a stiff penalty for violating the deadline. To be on the safer side, many builders give a very long completion deadline and tell buyers that the project will be completed ahead of the deadline. Don’t take this bait. Go only by the deadlines given on the RERA website.6. Have you seen any progress?Buyers also need to check the progress on the project before buying. “Check the construction speed of the project for 2-3 months before committing,” says Samantak Das, Executive Director and Head of Research, Real Estate Intelligence Services, JLL India. You can do this by asking the builder about the progress plan for the next few months and then check whether they have met the timeline. This should not be for one flat alone, but for the entire complex.7. Is the price reasonable?Make sure that the price you pay in the area is reasonable. Only a few metrics are available here. The most commonly used ones are the rental yield and EMI to rent ratio. “The rental yield is down now, but the price can be treated as reasonable if rental yield is around 3.5%,” says Kapoor. Similarly, the EMI to rent ratio is placed above four times (EMI is more than four times the rent in same place) compared to its value close to two during 2002-4 when the market was roaring. An EMI to rent ratio of close to two may not happen in the near future but it makes sense to insist that it should be close to three. 8. Have you asked for discounts?The above-mentioned ratios (rental yield and EMI to rent ratio) are to check whether the rates are reasonable for ready possession flats in an area. It is reasonable to expect a discount because you are taking higher risk when buying an under-construction flat. Experts advise you to expect around 10% from leading developers and around 20% from mid-level developers. This discount range is for projects that are nearing completion (more than 75% work has been completed). You can get a higher discount if the project has a lower completion rate.9. Is your adviser independent?It always better to engage an independent property adviser and a legal expert. “In addition to checking documents with a good lawyer, it also makes sense to check the structure of the project with the help of a structural engineer,” says Das.10. Do you see the future plans?“Irrespective of whether you are going to buy the property for self-use or for investment, you should look out for future developments coming up in your area because that will increase your property’s prospects,” says Prashant Thakkur, Director & Head of Research, Anarock. These future developments may be a metro connection, a new airport or an upcoming IT park or shopping mall. Builders may highlight all the positive future development plans, but what about the negative ones like a landfill near the location. “To get a full picture about future development plans, home buyers should check with development authorities like DDA in Delhi,” says Joshi.