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Property Buying in India – Don’t Believe the Myth

When buying property in India since the welcome advent of RERA, there is many a myth believed by overseas property buyers about the Indian property market.

So what is true and what is a myth?

Myth 1 – RERA Covers All Projects

RERA, or the Real Estate (Regulation and Development) Act, 2016, is a very welcome introduction to the Indian property market. But many property buyers believe every project is covered by RERA and thus safe.

This is not the case. RERA covers projects 500 square metres or more in area or eight or more units. For a project to be RERA compliant, the builder needs to register it with the authority.

Therefore, ensure that the project is registered with state regulator. RERA makes it mandatory for all commercial and residential real estate projects where the land is more than 500 square metres or eight apartments to register with the regulator before the launch.

Myth 2 – Buying Off-Plan Properties is Now Safe

Before RERA many builders left projects unfinished to start new ones, but now focus on completing the existing projects.

However, RERA has been seen to be diluted in some states to suit developers and hasn’t even been deployed in others.

Properties that are ready to move into remain the safest bet for overseas property investors. If you particularly want to buy off-plan then you must consider only well-capitalized developers who are diversified across other property typologies and even businesses, and ones that have a track record of project completion.

Myth 3 – Subvention Schemes Cut Costs

Subvention plans or no-EMI-till-possession plans are where a developer asks home buyers to pay around 10-30 per cent of the amount upfront. The balance is paid by a bank to the developer as a loan under a three-way agreement between the developer, the buyer and the bank. While the project is under construction, the developer pays the interest on the loan to the bank. The bank disburses money to the builder as construction progresses. The buyer’s EMIs begin only after they get possession.

However, subvention plans do not effectively cause a direct reduction in prices and could even increase the overall price.

They are largely available on under-construction projects just to bump up sales. However, nothing beats straight-up price discounts on the ticket size plus additional waivers to bring about a price reduction for home buyers.

Myth 4 – You Should Always Invest in Metros

Investing in a metro or tier 1 city will certainly attract higher rental income. However, this needs to be traded off against the higher initial capital cost.

Many experts believe that tier 2 and tier 3 developing towns make a more attractive investment option.

Prashant Thakur, Head of Research at ANAROCK Property Consultants, commented: ‘Emerging areas and Tier 2 and Tier 3 cities tend to offer the most attractive price points as well as appreciation potential. Established areas and metro cities are the costliest and have much lower appreciation potential. The keyword in the term ‘growth corridor’ is ‘growth’. If there is no scope for an area or city to grow further (in terms of civic and social infrastructure, economic drivers and overall real estate expansion) investments into it will not ‘take off’ as may be hoped for.’

Myth 5 – Real Estate Agents Are Unnecessary

Many property investors try to avoid engaging a real estate agent to save costs, but unless you know all the rules and intricacies of the local area in which you are buying engaging a professional with local knowledge can be a great help.

Real estate agents can also help with negotiations for the property with the developer, and also offer post-sales services such as site visit and documents support that the developer may not offer.

Despite the welcome introduction of RERA, overseas property investors still need to be careful when purchasing in India.

Do your homework and take advantage of professionals with local knowledge to ensure that your dream purchase does not become a nightmare.

 

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