Page 3: Buying property in India and financing a home purchase

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By Rajkamal Rao 

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6. In fact, profit margins are even higher for successful developers because of the way future homeowners end up financing the developers' construction projects nearly for free.  This leverage - where the developer puts up only a small fraction of his own funds is a highly disingenuous, but largely unregulated, practice.   
   
   Here's how the pricing and payment schedule work for a typical new high-rise flat.  Assume that you signed up for a 2,000 Sft 3-Bedroom flat on the 25th floor at INR 4,500/sft.  Your sale price is INR 90 Lakhs.  Add to this the cost of a covered car park (INR 2 Lakhs) to bring the total sale value to INR 94 Lakhs (for two cars).
   
   The day you book your flat, you are committing to pay 25% of the sale value within thirty days (INR 23.5 Lakhs).  Never mind that all you see around you are pastures and pastures of empty land.  Never mind also that your flat is on the 25th floor and it will be a while before you get to see it.  And finally, you get no interest payments from the developer on your booking deposit or on any of the other payments you make before winning possession of your flat.  But you dutifully continue to pay interest on your bank loan as and when pieces of the loan are disbursed.
   
   The developer begins construction and lays the foundation to your super structure.  If he starts on time, you are in luck.  If there are delays, you are out of luck.  You complain but nothing ever happens.  Construction activity resumes when it does, so what's the point in getting worked up? 
   
   The foundation is now complete.  Your developer calls you with instructions to pony up an additional 6% of the sale price (INR 5.64 Lakhs).  You counter to your spouse that this is ridiculous.  Your flat is still 25 floor levels up in what is now thin air and you have to make this payment now?  Your spouse comforts you that unless the foundation is complete, your flat can never be built high in the sky.  You grudgingly concede this point and pay.
   
   In about two months, the basement floor roof slab is completed.  You get a bill for another 6% (INR 5.64 Lakhs).  You wince, but you pay.
   
   This process goes on until by the time the 25th floor roof slab is completed, you will have paid close to 85% of the sale value.  You then pay the balance to cover the costs of flooring, tiling, fixtures, vanity and painting.
   
   Notice how the developer has skillfully used your funds to finance construction of the entire super structure by investing only a small fraction up-front (to acquire land, pay bribes to get clearances to convert land for residential multilevel development, prepare community infrastructure, build the model home).  In fact, your regular payments are not used entirely for the construction at all - a significant portion is used to tirelessly promote the property in the media to extract even higher sale prices from late buyers. 
   
   [Full Disclosure:  These companies advertise on our website as well, so we are not complaining].
   
   And the crazy market that is the Indian real estate market, buyers simply shut up and pay the higher rate, justifying their purchase in the knowledge that had they waited a few more months, they would have had to pay even more.


7. Your home is finally ready for possession.  You will now have to get that check book out again to pay for a whole host of mandatory charges and fees:
   
   
   • Electricity company charges
   • Water company charges
   • Backup generator charges
   • Clubhouse charges
   • Maintenance fees for the community, usually collected in advance for a year
   • A reserve fund for emergencies
   • Other infrastructure charges
   
   Expect to shell out an additional 10% of the original sale price (about INR 9.4 Lakhs) simply to obtain the necessary paperwork to move in to your home. 
   
   Heartiest Congratulations!  You are now a proud owner of a flat in bustling big-city India.  Just sit back and enjoy as your investment gains in value.  Month after month.  Year after year.  You remember Alan Greenspan's mockery of the US stock market when he remarked that its growth represents "Irrational Exuberance".   But you have the last laugh after all.  Exuberance it certainly is; irrational it is not.  At least not in the Indian context.

A note on Vastu.  We are not Vastu experts but know that people try to be "as compliant as possible" with Vastu rules when buying a new home.  This is the operative phrase.

People who know more about this topic than us say that whatever else may be your faith and trust in Vastu, the following minimum Vastu rules must never be violated.  [Their logic is that a home is a long-term investment; why wouldn't you want to spend the extra effort and time to make it as perfect as possible?]

• Your home should not be open in the South West or West.  This part of your home should not have bathrooms, kitchen, or even water sources (swimming pools).  For these reasons, it is best to have your master bedroom in the South West.
• The East and North East should be open - preferably a lot of windows.  Water resources in the North East are preferred.

In today's tight real estate market, building even a Vastu compliant single-family villa may not be practical.  So hoping for Vastu compliance in a multilevel building where space is optimized to squeeze in the greatest number of dwellings - borders on being maniacal. 

Sales people play both ends of this game extremely well.  They extract a premium on Vastu compliant flats arguing that these not only get picked up quickly now, but these are also sound investment choices for later should you decide to sell your property.  As non-Vastu compliant flats remain unsold, they try to convince you that it is not practical to expect Vastu compliance in a multilevel building and push you to sign up for them anyway.