There is a school of thought that states that you should buy a home as soon as you can afford it, or as soon as your home loan application is approved. In fact, the only question one tends to ask in context with home buying is whether property prices and interest rates are amenable at that point in time or not. On the surface, this makes sense. However, not all surfaces are reliable mirrors.
From an investment point of view, buying a house is often likened to buying gold and putting it in the bank. That is true to some extent. Investments in real estate, historically, have given very good returns, if held for a long period. In other words, buying property today does make a certain amount of financial sense.
Buying a house means security, and security is important to any family of any generation. It is one of the few long-term investments with practical utility – after all, you’re not going to put the flat in a bank while it appreciates in value. You’re going to live in it. But the fact that investment in property needs time to pay off good returns should be kept in mind.
Before utilising your loan or putting your own money down, calibrate the options well to judge whether your investments today will yield desired results before you plan to sell off. With the social structure in India decaying slowly, there are a host of factors that need to be kept in mind before making such a huge investment.
The reason why a home loan company digs so deep into the nature and situation of a client’s job is that they need to gauge how reliable a risk he is. There are certain classes of jobs that inspire more confidence due to the stability they offer to the employee.
This stability is not judged by the take-home income but by potential consistency. Therefore, if you are applying for a home loan, it would be best to make a personal evaluation. If you are a frequent job-hopper, suffer from poor health or have a long history of dismissals, you would do well to set your career situation in order before applying.
Even if your application is accepted, how well are you equipped to pay the EMIs (equated monthly installments)? With the loan granted, you could avail of it more productively when things are a little more stable on your professional front.
Another factor to consider is the peripheral expenses. To begin with, if you are using the services of a real estate broker, you will be liable to pay him a certain amount of money once the deal is finalised. There are also various legal formalities, including property and registration taxes. Are you in a position to take care of them as and when they arise?
There are both practical and less definable reasons for assessing your marital situation before contemplating the purchase of a home. A shaky or distressed marriage is definitely not conducive to making four walls into a home. The contemporary Indian mind assumes that marital problems will automatically get ironed out once the decisive step of buying a home is taken. The facts state differently, but that is not the point. Let us consider the purely financial point of view.
Many couples take out joint home loans. When a marriage is stable, this does have many advantages. When it is not, the consequences can be quite disastrous. Payment of EMIs in case of separation or divorce can become a major legal issue. Even in the case of outright purchase, actual ownership of the property if the marriage dissolves will be the subject of dispute. Hoping that buying a home will set a disturbed family situation right is akin to hoping that water will miraculously flow upwards if the right kind of pipe is installed.
Yet another reason to think long and hard before actually investing in a residence would be sudden geographical change. One major mistake repatriating NRIs usually commit is to buy a home arbitrarily, without considering the possible culture shock.
The fact is that they have spent a minimum of five years in a foreign country, which means that they have assimilated that country’s culture and adopted a certain lifestyle. Such a culture and lifestyle may be hard to replicate in India, no matter how progressive the city of choice is.
The same feeling of alienation and displacement can overwhelm property buyers who decide to settle down in an unfamiliar city or even state, without familiarising themselves with the new area of location.
Finally, the financial investment angle. If you ask a financial consultant about whether the time is ripe to buy a residence, he will probably raise only one point – will you be able to keep the property long enough to make it pay as an investment?
All of these factors are worth thinking about before actually taking the plunge of buying a home.
Mohammed Aslam is head (Pune) at Jones Lang LaSalle Meghraj.
This article is reprinted from the report, A House Of Your Own: Are You Ready To Buy?, published in The Indian Express.