Properties, Homes & more

I have recently came across an informative post from Mohsin about Affordable Housing in and around Pune. Mohsin talks mainly about the following major areas of Pune which offer budget housing to all:

Kothrud: It is one of the fastest growing suburbs of Pune located in the south west of the city. With the rapid developments, this area has become one of the fastest growing residential localities of Pune. This place is inhabited by lots of students as many educational institutions like MIT and Cummins College of Engineering for Women are located in this area.

Aundh: Aundh is the last part of the “core city”, before going outwards towards Hinjewadi IT park. After development of Hinjewadi in last 10 years, Aundh has grown its importance and is considered to be heart of the city, especially for people working in IT sector. Availability of malls, hospitals and schools make it very attractive, but slightly expensive option.

Balawari: Balwari became known to everyone because of the stadium built for national games in 1994. After development of the Katraj bypass going to Mumbai, and Hinjewadi IT park, the entire region got a boost in terms of property prices and general economic development.

Kondhwa: It is amongst one of the oldest colonies of Pune city and lies in the south eastern part of the city. Kondhwa has the National Institute of Banking and Management (NIBM). Wanowrie area, under Kondhwa, houses huge Army medical set-ups like the Armed Forces Medical College (AFMC) and the Command Hospital and the Artificial Limb Center.

Pashan and Baner: Baner and Pashan both saw a tremendous boost in development in last few years, because of ease of commute towards city center as well as Hinjewadi IT park. Pashan’s growth in terms of new development is slightly restricted because of presence of large number govt. organizations and the resulting lack of land availability.

Kharadi: On the East side of the city, Kalyani nagar first saw a quick growth of IT and resulted into expansion of city horizons on Nagar road. Kharadi bypass, connecting the Nagar road to Hadapsar, saw real estate rates shoting up from measly 1000 Rs to around 3000 Rs. per sqft. We think there is a lot of growth potential in this region and investment can still be worthwhile.

Katraj: Another fast growing suburb of Pune is Katraj that is located in the southern part of the city. Katraj is quite well known for the campus of Bharti Vidyapeeth University, the Katraj Milk Dairy and the Katraj Snake Park. The New Katraj Tunnel here is a highway tunnel located on the NH4. The place is located at 10.2 Km from the Pune railway station.

As I have written in my previous post: Beware of “teaser” home loans, I have mentioned that advisers are warning individuals against obtaining a “teaser 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.

Although all prominent banks have introduced teaser home loan rates as they are flush with money due to lack of demand from companies for funds, the Reserve Bank of India (RBI) has taken a stern stand on this “bad practice” and have categorically asked all the participating banks to END TEASER LOANS. As reported by Economic Times, RBI is concerned mainly because borrowers may subsequently find it tough to repay the loans, once interest rates go up after the first couple of months (during which the rates are fixed at a fixed rate). I hope banks are ensuring that borrowers are well aware of the implications of such rates and the appraisal takes into account repaying capacity of the borrowers when the rates become normal. [Refer: RBI sees red over teaser home loan rates]

As per RBI’s directions, SBI will be terminating its teaser loans offers by March End, and HDFC will continue till end of February. However, ICICI Bank has immediately withdrawn all its teaser loan schemes. [Ref: Economic Times]

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.

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.

Continued from Part 1…

There are many important points to be looked into before signing on the dotted line… In this 2-part series, I will cover 9 important points that must be carefully considered.

1. Look deep in your wallet before deciding the property
2. Look closely at your lifestyle and financial capabilities
3. Evaluate market conditions
4. Higher loan amount increase burden of debts

(Please refer Part 1 for discussion on these 4 points)

5. Increase the down payment When you go for home loan, you have to pay around 10% to 15% of the project cost and around 85% to 90% is funded by the bank or financial institution. If you have more than the required amount for ‘down payment’ then pay more, so that your required debt is reduced significantly.
6. Prepayment is the best way to save on interest Always make an effort not to extend a loan beyond its tenure. As and when you have excess cash, try to prepay (huge loan first). For example, you could prepay from your yearly bonuses or salary hikes. Prepaying can lower the tenure and help you save on interest. However, check with your bank from when you can start prepaying, as banks usually do not allow prepayment during the first year of the loan period. Also check if there is a prepayment penalty. The idea is to make sure that the interest saved does not exceed the prepayment fees.
7. It is not a family bank, unlike family doctor It is not essential to opt for the same bank that your brother took his home loan from. It is advised that you should do your own searching in terms of the deals offered by different banks. Moreover, your brother’s offer for the same loan amount and tenure could be (and mostly, would be) different from what is offered to you, as it varies according to the credit profile of the borrower.
8. Processing fee If you have nothing in writing from the bank, it is possible that you might lose the processing fee that you pay to bank in case the loan does not get approved. So, either you get something in writing from the bank or factor in all this money for these kinds of losses.
9. Read the home loan agreement (fine print) carefully Most of us just close our eyes and sign on the dotted line. What we forget to read are the clauses that are in fine print in the loan agreement. You need to understand the significance and impact of these various clauses before you sign the agreement. Important clauses to watch out for are: the Force Majeure clause and Reset Clause on Fixed Rates.