For home buyers who want to buy a house only for self consumption, what are the important lessons from the happenings in 2009?
The gloom of 2009 left several lessons for the home buyers. The important among them were
1. Avoid over leverage – During 2004 to 2007, home buyers were lured by financial instructions that offered loan facility far in excess of buyers paying capacity. These loans were justified basis of the future earning potential of the home buyer and did not factor phenomenon (like pay cuts and job losses) that we saw in 2009. This left home buyers with excessive burden that they were unable to honor. In my personal opinion, as a thumb rule, the property value should be capped at 4 times the annual income of the individual. So if you are earning 7 lac p.a your property budget should be around 28-30 lac. Remember one golden rule, your home budget should be decided by you and not by the home loan provider, they are just doing business but ultimately the repayment burden has to be borne by you.
2. Value quality Vs noise – Many home buyers who bought property during the boom time are stuck as their projects are not getting completed. The developers are finding innovative ways of avoiding panelists, thanks to many loopholes that exist in the system. Most of these home buyers were lured by attractive advertisements that promised timely delivery and quick returns. 2009 slowdown reinforces the merit of associating with a known and established developers. For starters, one should rely more on developers that are listed on the stock exchanges. These developers have higher compliance & transparency compared to unlisted once.
3. One in hand is better than two in the bushes – Thanks to all the projects that were sold during 2005-2007 and the delay in their execution, there is going to be huge ready supply of residential property during 2010-12. The home buyer is advised to give preference to ready to move in accommodation over new projects. This will avoid heartburns.
4. Take time, after all this is your biggest investment – Home buying is the biggest decision for any Indian and should be taken after sufficient groundwork. One should not fall prey to the artificial scarcity created by elements for personal gains. There is merit in consulting real estate professionals, home finance companies, like-minded friends before arriving at a final decision. This process typically takes 9-12 months so one should be patient.