Properties, Homes & more

Reference: The Economic Times

Home loan providers are now insisting on construction-linked disbursal of funds to new projects, as they look to make developers more accountable after getting stuck in several stalled projects.

A number of developers have either stopped construction midway or slowed down due to shortage of funds and poor sales in 2008 and 2009. Lending institutions expect the move to help them monitor the progress of construction and make developers accountable, said a senior executive with a public sector bank. “Buyers in such projects are in a difficult situation. They have to pay monthly installments towards the loan without getting the possession of house. They also end up shelling out monthly rents during the period,” he said, requesting anonymity.

HDFC, one of the largest lenders in the home loan segment, has, allegedly, discontinued the practice of upfront disbursals and linked the flow of funds to progress of construction.

Developers initially used to offer homebuyers up to 10% discount on upfront payment. These developers subsequently diverted substantial part of funds to other projects. The delay in completion of work left buyers in a lurch. There is a high probability of default by such borrowers.

In construction-linked payment, the home finance companies or banks do not release the funds up front. They release of around 30% funds initially and the rest is disbursed as per the progress of projects. In such cases since the exposures are not full and the monthly repayment obligation for borrowers will be lower.

Many developers have now changed the payment schedule to construction-linked as against timebound payment. This is good for the industry. However, banks and home finance companies should release 30-35% of the funds towards the land and development cost. The lenders have also become more conservative in disbursal of loans. In a volatile real estate market, they offer lower valuations for the property against which they disburse the funds.

According to industry estimates, disbursements of home loan in the organised system of financing in the first six months of the current fiscal has been around Rs 60,000 crore. In 2008-09, it touched Rs 1,00,000 crore approximately, while in 2007-08 the amount was around Rs 1,30,000 crore.

A rental agreement is for short tenancies, usually for 30 days which automatically continues once this period is over, unless the agreement is terminated. In a rental agreement, the landlord can choose to amend the mentioned terms as long as he provides written notice to the tenant. However , the tenant has the right to occupy the property for a specified period at fixed terms, usually 11 months, in case of a written lease. However, unlike a rental agreement, a lease has to be renewed.

Please find below a list of important points that need to be thought upon, before taking a property on rent:

1. A tenant should know the prevailing rental rates in the chosen location and be aware that only an airtight rental agreement that transparently outlines his rights is acceptable. For example, it should be clearly mentioned who will pay the tax after mutual agreement between the landlord and the tenant. Also, a tenant should be aware that the landlord’s permission is required before initiating any major changes to the property.
2. The tenant should be wary of a clause allowing for automatic rent increases, arbitrary amendments to the existing terms of the agreement by the landlord, and any provision that permits the landlord to enter the property at any time.
3. The agreement or lease should be filled out by the tenant, or in the presence of the tenant.
4. There is no stipulation on the amount of security deposit to be paid by the tenant. It’s a commercial term determined between the two parties. Hence, the time to safeguard one’s safety deposit is before moving in.
   • Security deposit should ideally be paid in cheque to ensure that the same is reflected in their bank statements. Also, legal assistance should be sought to ensure that a proper clause stating that the security deposit would be refunded at repossession by the owner. There should also be a clause in the leave and license agreement of interest penalty on the outstanding security deposit amount in case the amount is not refunded. In such cases, the agreement should clearly highlight if the advance would be adjusted with the first or last few months of the lease. In case of security deposit, the amount and terms for its return should be mentioned.
5. The name of the landlord should be clearly mentioned in the property documents. The property papers, which include the occupation certificate and title deeds, should be in order.
6. The tenant can seek a copy of these papers if needed. If the landlord has carried out an illegal extension within the house, a tenant has to take a written record or have the landlord mention the same in the agreement . There is no such norm that the tenant should possess these documents. However, it’s in the best interest of the landlord and the tenant to have everything in written.
7. Similarly, if the property has any lien such as loan, then the lender should be involved in the transaction between the landlord and the tenant for the transaction.

Valentine’s Day is a day to express your feelings and renew the bond of love you share with your Valentine. To make this Valentine Day memorable for your beloved declare your love to the world by sending a cute and heartfelt Valentine’s Day message to us!! We will carry your message along with your name in this page dedicated to lovers and their messages.

So what are you planning for your Valentine? Some may plan something regular, like gifting flowers (especially, red roses), jewelry, dress, greeting card, etc. But I have something else in my mind for my beloved Valentine. I am not gifting her something unusual. It will be something absolutely out of this world. Something she will never expect and never forget!

Here is the list of my options. I am requesting each one of you to please suggest which option I should go ahead with…

Should I gift her PERSONALIZED COOKIE ARRANGEMENT & FLOWERS?
Should I gift her set of EXCLUSIVE JEWELRY WITH PERSONALIZED TIMELESS MESSAGE?	Should I gift her PERSONALIZED T-SHIRT that carries a message specially created ONLY FOR HER?
Should I gift her a much-desired and most-awaited BEAUTY CARE & BODY UPLIFTMENT SESSION to make her look even more beautiful & seductive?	Should I gift her EXCLUSIVE SET OF SPECIALLY PREPARED LINGERIE?
Or, last but not the least, SEDUCTIVE PERFUME that is specially prepared for her by FRANGRANCE SHOP keeping in mind her personality and tastes?

Guys… Please help me make the correct choice. I want to make this Day very special for my Valentine. I am waiting for your suggestions…

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Suddenly, it’s raining home loans! Banks, which were, until recently, reluctant to open their purse strings to home loan customers, are busy chasing them with teaser rates - where the interest rate is kept lower in the initial few years.

However, advisers warn individuals against obtaining such a loan only because of the lower interest rate, as it could have serious impact on their finances if the interest rates were to shoot up when the floating rate kicks in after the initial years. All prominent banks have introduced teaser home loan rates as they are flush with money due to lack of demand from companies for funds.

Ideally, one should buy a house only because one needs it and can afford it. Lower interest rate shouldn’t be the reason one should be going for a housing loan. ‘Taking a decision on the basis of current interest rate wouldn’t be right and wise, especially if you are going to switch to the floating rate after the initial period. The reason is: the teaser interest rate may be only 8% or max 8.5% in the first year or for the first three years, but after the initial period is over, you would be paying prevailing floating rates, which is not so easy to predict. And it may not be in your favour as well!

A lot of people make (incorrect) assumption about the future rate on the basis of the current benchmark rates. This method of reaching indicative rate only proves to be costly for them in the long run. For example, because of some unforeseen events, if the interest rate hardens suddenly, people might find it difficult to service their home loan, as the EMIs could shoot up beyond their ability to take care of them. So take a very serious look at your cash flow & finances before opting for such a teaser loan.

A loan tenure is the duration of that loan. In case of housing loans, generally, the tenure is long. It may vary anywhere between five and 20 years. Most borrowers prefer to borrow for a longer period of time. The reason is quite obvious. The amount borrowed is quite large. Also, the amount of monthly repayment through equated monthly installments (EMIs) depends on the tenure of the loan – the longer the tenure, the lower will be the EMI and vice versa. On shorter loan tenures, the interest amount paid will be lesser as against the longer tenure loans, where the interest amount increases over time.

There are various factors that influence the determination of a loan tenure. The first factor is the income of the borrower. The disposable income of the borrower makes a lot of difference and is, usually, the deciding factor. The reason is that it is from this part of the income that a borrower will be repaying EMIs. So, if the net disposable income is low, it is advisable to go in for a longer tenure loan rather than opting for short tenure one (assuming the loan amount remains same). This way the EMI portion is reduced. The loan amount is spread over a longer period of time. The immediate burden on the borrower is lower. This is despite the fact that the borrower is required to pay interest through the extended period of borrowing – means higher interest being paid by the borrower.

The other factor is the amount of loan. The amount borrowed determines whether one should opt for a longer or shorter tenure. In case the amount borrowed is huge, the borrower may prefer to go for longer tenure. Generally, short tenure loans attract lower rates of interest as compared to longer ones. This is because banks can estimate the near-term interest rate movements more accurately as compared to movements in the long term. So, in case one has adequate liquidity and resources to repay the loan faster, it is advisable that he should opt for a shorter duration loan and thus take advantage of the lower interest rate.

Another factor that influences the loan tenure is the objective of the borrower. Whether a borrower is intending to take the loan to purchase a property for his own use or as an investment has a bearing. Generally, if a borrower is borrowing for the purpose of investing, he may just go for a shorter duration loan so as to avoid the exit charges payable in case of early termination of the loan, and to maintain liquidity of his capital.

Another important element to be considered is the future income of the borrower. In case the borrower is expecting an increase or reduction in his income, he has to decide on the tenure accordingly. For example, in case a person is to retire in another five years, he may look at a maximum of five years’ tenure, and may not like to stretch it beyond his retirement age. On the other hand, a 30-year-old can think of a longer tenure loan, stretching up to 15-20 years, because gradually his income would also be increasing. So, one may opt for a longer duration loan and reduce the present burden. None of these factors can be individually taken to decide on the loan tenure.

All these factors are interlinked and need to be analysed in totality so as to arrive at an ideal loan tenure.