If you are a first-time homebuyer or planning to buy a house for investment in India. There are few things you should be careful about. India has thousands of years of history, and land has moved from person to person, from kingdom to other, and so on. However, we are not here to talk about our Indian history, but to understand some of the problems which have carried forward from the past and still haunting our present. We have moved from a trust-based society to a legal-based society. We are dependent on our law to protect the purchase of our land. However, our Indian law may take several years or decades to resolve the conflicts when things go wrong. Well, as Investors, we do not risk our money for uncertainty.
Well, I am not challenging the law or judging the effectiveness of how the Law system functioning. But I am worried about how much time and money it would take to resolve the issue if something goes wrong in our real estate investment. Well, it is a topic for another day. Now let me come back to real estate and say why I think real estate investment is not attractive?
Well, India is the seventh-largest country and stands second in world population, that is the fact. However, our Indian real estate growth is still under a dark cloud. Even though Indian digital growth is outstanding but it seems real estate is left behind on digital transactions. In real estate, sellers still ask for cash transactions to avoid tax, which gives rise to the black economy, and buyers are impacted. I will talk about this later in this article. Property buyers are not safe in the real estate sector. Here are some of the reasons
- Banks in India provide home loans on the individual’s income and credit score of the individual. I am not saying this is wrong. But when buying a house with a home loan from the bank, they don’t provide a loan based on the asset value but provide a loan based on individual income and ability to pay back. Here asset we are referring to is real estate. Why don’t banks offer loans based on the house value? In simple words, the bank doesn’t want to take responsibility for any obligations on the asset they have provided the loan. Even though home buyser lose the house, buyers have to pay back the loan with interest. So banks are not worried about your well-being or the asset. They are only concerned with their money. So take time to laugh at bank advertisements if you see one. No, wonder why Indian banks have so many non-performing assets.
What happens when you stop paying loans?
- Your credit score will get a hit, and you will no longer be eligible for loans from any banks.
- Then your asset will be a pledge and will be out for auction.
- The amount which you have paid to the bank he’s gone forever
- There is no title insurance in India, Don’t ask me what title insurance is? Yes, many of us in India, Don’t even have insurance to protect our real estate or home. The problem is inadequate records, issues with inheriting ancestral properties, corruption, and illegal land acquisition. I don’t think any companies would come forward to protect retail property buyers anytime soon.
- There is no proper town planning and master plans for cities. Or even If there is one, it is being manipulated for an individual’s benefits and gains.
Well, if we keep listing the problems, it keeps growing. Some other reasons it is not a good investment are the imbalance of rental and property value ratio. What do I mean by an imbalance of rental and property value ratio? Every rupee we spend to buy a property returns less than 1% of the property value in retail space. It depends on the locality, connectivity, transport facility, and so on.
On average, the property value may appreciate around 10%. These are excessive numbers, but there are no actual public records available based on each city or area. If you know how to get this information in India? Then please educate us by commenting below. The only way to find out the current land price is by asking a local real estate broker. Even though the grovement entity maintains land price, we have to pay a premium price to purchase real estate. There is a considerable gap between bid and ask price in real estate.
Here are some tips buyers should look into while buying the property
- Check if the seller and landowner are the same. You find this in EC.
- Check that there is no objection certificate in place for the property you are buying
- Check if property tax had paid
- Make sure 100% of the purchase done via the bank for bookkeeping
- Check if electricity, water bills are paid.
- In all records seller’s name should appear.
We will come with another article with complete guides on, how to buy real estate?