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Buying Tips
Stock Market Vs Real Estate, which is a better place to invest in?
Like the stock market, the real estate market has cycles of growth and decline that are often clearest in hindsight. Both markets reflect the health of the national economy and offer unique investment opportunities. However, it is essential to weigh their different risks and potential rewards.
- Buying Stocks: Investing in the stock market offers significant benefits like liquidity and flexibility, meaning you can buy or sell shares quickly. Historically, stocks have offered high growth potential that can sometimes outperform the real estate market.
- Real Estate Investing: Owning property is the most common form of real estate investment. Unlike stocks, real estate is a tangible asset you can see and use, which often provides a greater sense of security and emotional comfort. Property values tend to be more stable and less volatile than the stock market, with a history of steady appreciation over the long term.
What proportion of total salary, for someone between the ages of 20 and 40, must spend on real estate?
When you are younger, you can use a mortgage to leverage your capital, allowing you to purchase an asset worth significantly more than your savings. As a reliable starting point, financial experts recommend that your total monthly housing payment (including mortgage, taxes, and insurance) should be no more than 30% to 35% of your gross monthly income.
What proportion of total salary, between ages of 40 and 60, must be spent on real estate?
Many people in their 40s are not first-time buyers. At this stage, you may have accumulated significant savings or equity in other assets, which can be used for a larger down payment, potentially reducing or eliminating the need for a loan.
If you do take out a loan, banks may offer a shorter tenure (e.g., 15 years instead of 30). This would increase your monthly payment but allow you to build equity and own the property outright much faster.
How should a buyer go about creating a budget for a property purchase?
It’s easy for homebuyers, especially first-timers, to get overexcited and stretch their finances too thin. Creating a realistic budget is crucial to avoid future financial difficulty.
- Set a Limit: A good rule of thumb is that your Equated Monthly Instalment (EMI) should not exceed 35% of your monthly take-home pay.
- Be Flexible on Location: If properties in your target area are too expensive, consider a more affordable starter home in an emerging neighborhood.
- Build Equity: You can live in a starter home for a few years and build equity. Later, you can sell it and use the proceeds as a down payment for a home in your desired location. This “property ladder” strategy is a proven way to build wealth over time.
At what time are we required to pay the Stamp Duty?
Stamp Duty is a government tax that must be paid whenever property ownership is transferred. The amount varies by state and is calculated based on the property’s market value. It is typically paid at the time of the registration of the sale deed.
What aspects are taken into account when calculating a home’s monthly repayments?
Lenders assess your financial health by looking at your total household income and your existing monthly expenses, including any car loans, student loans, or credit card debt. A common guideline is that your total monthly debt payments (including your new mortgage) should not exceed 50% of your gross monthly income.
Why are domestic mortgage interest rates different across bankers?
Interest rates vary between lenders for several reasons, including their internal lending policies, your credit score, and current market conditions. Your primary bank, where you have a salary account, may offer you a preferential rate. However, it is always wise to compare offers from multiple banks to find the best deal.
Can I enter into a selling agreement with any customer without first paying off the loan? What may the transactional modality be?
Yes, you can sell a property that has an outstanding mortgage. The transaction is typically structured so that the remaining loan balance is paid directly to the bank from the proceeds of the sale during the closing process. This is a standard three-way transaction coordinated between you (the seller), the buyer, and your bank.
ROI Advice
What may be a safe and reliable method for purchasing a property?
- Do Your Homework: Research the developer’s reputation online and visit their previously completed projects in person.
- Assess Construction Progress: To reduce risk, consider projects that are already 25-30% complete, as this indicates that major permits and approvals are likely in place.
- Work with Reputable Brokers: A good real estate broker can offer valuable market insights and help negotiate a better price.
- Favor Bank-Approved Projects: If leading banks have approved a project for home loans, it means they have already performed their own legal and technical due diligence, which adds a layer of security for you.
What kind of return do you need to expect from your purchase years later?
While some areas have seen rapid appreciation in recent years, past performance doesn’t guarantee future results. Real estate should be viewed as a long-term investment for wealth preservation and growth. Holding a property for at least four to five years is typically when investors begin to see meaningful returns.
How can one predict the future rise in land prices?
Future price appreciation is closely tied to infrastructure development. Look for areas with planned or ongoing improvements in:
- Roads, public transportation, and overall connectivity.
- Reliable water and power supply.
- Security, schools, hospitals, and public amenities.
How do I choose a place that ensures a good return on investment?
Location is the single most important factor for a good return on investment. A desirable location ensures strong resale and rental demand. Key features to look for include:
- Connectivity: Easy access to business hubs, major roads, and public transport like bus and rail stations.
- Amenities: Proximity to reputable schools, hospitals, shopping markets, and airports.
Tax Implication
What taxes are due simultaneously as you are buying?
- For a new (under-construction) property: You are required to pay Stamp Duty, Registration Charges, and Goods and Services Tax (GST).
- For a resale (ready-to-move-in) property: You typically only need to pay Stamp Duty and Registration Charges. GST is not applicable.
When is the sale transaction considered in its entirety?
The sale transaction is legally complete once the Sale Deed (or Conveyance Deed) is registered with the relevant government authority, and ownership is officially transferred to the buyer’s name.
When are capital gains important, and how may capital gains tax be reduced or stored?
Capital gains tax is levied on the profit you make from selling a property. You can legally reduce or avoid this tax in several ways:
- Hold for the Long Term: If you hold the property for more than two years, the profit is considered a long-term capital gain, which is taxed at a lower rate.
- Reinvest in Another Property: You can claim an exemption if you use the sale profits to buy another residential property within one year before the sale or two years after.
- Invest in Capital Gain Bonds: You can also avoid the tax by investing the profits in specific government-notified bonds within six months of the sale.
Document
What paperwork and procedures are necessary when purchasing a property?
You will need identity and address proof documents, such as your PAN card, Aadhaar card, passport, or driver’s license. The most crucial legal document is the Sale Deed; ensure it clearly lists the entire chain of previous owners to establish a clear title.
What are the considerations you should make while signing the agreement?
Before signing the Builder-Buyer Agreement, carefully verify the following details:
- Property Specifics: The exact apartment number, floor, tower, and size (carpet area vs. built-up area).
- Payment Schedule: A clear breakdown of all payment milestones.
- Possession Date: The committed date of handover.
- Penalty Clause: The compensation you will receive from the developer for any delay in possession.
How do you determine whether a task has official legal approval?
- Check for Bank Approvals: The easiest way is to see if major banks are financing the project. Banks conduct their own rigorous legal checks before approving loans.
- Verify the Title Deed: Ensure the developer has a clear and marketable title to the land. A lawyer can conduct a title search to confirm this.
- Review the Approved Plan: Confirm that the building is being constructed according to the plans sanctioned by the local authorities.
- Ask for Clearance Certificates (NOCs): The developer must have No-Objection Certificates from the water, sewage, and electricity boards.
- Confirm Key Documents: The Commencement Certificate (permission to begin construction) and the Occupancy Certificate (permission to inhabit) are mandatory. Verify these documents with the issuing authorities.
- Register Your Agreement: Ensure the Sale Agreement and final Sale Deed are properly executed, stamped, and registered to be legally binding.