Tuesday, May 15, 2012



In continuation from Parts 1,2 and 3 (links given below) - please read these parts but remember to come back here (or if you want why not read Part 4 first, comment, and then go back to the earlier parts)

Part 4

In the present scenario, what is the best way to buy a residential property in Pune?

This is what we were discussing one evening.

As you know, unlike other investment avenues, where proper systems and regulators are in place, the real estate sector is a free-for-all since till today it remains unregulated and the real estate “industry” does not have the formal status of an industry. We have heard that the government is trying to introduce a proper real estate bill incorporating rules and regulations to introduce transparency in the real estate industry with a statutory regulator, but one never knows how long it will take before this real estate bill is implemented. Till this happens the hapless consumer (the buyer) is at the mercy of the sellers, and so, if you are a buyer you have to be very careful, especially in the present unpredictable economic scenario and volatile political environment.

If you want to buy a house in Pune, here are some options for you. The best option is to “try before you buy” meaning take a house on rent in the locality where you want to buy a house. This will give you a first hand feel of living in that neighbourhood and also give you enough time to do proper market survey and select a house of your choice. Suppose you don’t like the locality, you always have the option of moving to another place.

The next best option is to buy a relatively new resale house. The “teething troubles” (liveability, suitability, as also the legal and technical aspects) will be over by then since the house would have been “lived in” and all technical systems, quality aspects and standard modalities would be established and proven, which is a big advantage.

The third best option is to buy a completed ready-to-move-in (ready possession) house. In case you have taken a home loan you can start reaping tax benefits immediately. Also, in case you are an investor and want to rent out the house you will start getting return on your investment (rental money) immediately.

Well, I write this for the play-safe risk-averse persons who are buying a home as end users for living in by investing their hard earned money. In the current uncertain economic scenario we have observed that there are execution delays in many real estate projects, and since this sector is unregulated, the consumers are quite helpless and there is nothing they can do about it.

We met a person who was supposed to get possession of his home two years ago and this has been inordinately delayed. He had planned that he would be able to move into his own home immediately after his retirement and he would have been able to do so had his house been delivered on schedule. Now, for him, everything has gone for a six. The poor chap is living in a rented house paying a heavy rent. He is also paying a hefty EMI towards his home loan. He cannot claim tax deductions since the house is not ready. He is also losing notional rent (in case he wanted to give the house on rent which he could have used for paying off his EMI and also to get tax benefits). The other day, someone said that there is a cash crunch in the market due to the unpredictable economic climate in the days ahead and this may cause further execution delays and the moment he heard this he was  further demoralized. The poor guy is not sure when he will get possession of his house and this uncertainty is causing him anxiety and stress and taking a toll on his health.

If your peace of mind is affected, this cost cannot be quantified in money.

The lesson we have learnt is that, considering the uncertain situation which may cause execution delays, for simple people like us who are investing their life savings to buy a home, it is best to steer clear of pre-launch offers. Even for under-construction projects it is advisable to have a proper look and satisfy yourself that your house will be delivered to you on schedule.

There is a counter-view that if you have an appetite for risk-taking, then you can make a fortune by investing (speculating) in pre-launch offers. This may be a good idea only if you are confident that the appreciation you will get from your property (taking into account the estimated execution delays and inventory overhang) will far exceed the returns you will get if you put the same amount of money in an Fixed Deposit (@ 10%) or some other safe investment. In the present unpredictable economic scenario and uncertain political environment (with elections round the corner in 2014), do you feel that property rates will appreciate so much in the near future in places like Pune (where the property prices already seem to be too high) that it is wise take a risk and go in for pre-launch offers or is it better to play safe and buy a ready possession house?

As I said, we are novices in this field; so if you are an expert, do tell us what you think.


Copyright © Vikram Karve 2012
Vikram Karve has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work.
© vikram karve., all rights reserved.

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About Vikram Karve

A creative person with a zest for life, Vikram Karve is a retired Naval Officer turned full time writer. Educated at IIT Delhi, ITBHU Varanasi, The Lawrence School Lovedale and Bishops School Pune, Vikram has published two books: COCKTAIL a collection of fiction short stories about relationships (2011) and APPETITE FOR A STROLL a book of Foodie Adventures (2008) and is currently working on his novel and a book of vignettes and short fiction. An avid blogger, he has written a number of fiction short stories, creative non-fiction articles on a variety of topics including food, travel, philosophy, academics, technology, management, health, pet parenting, teaching stories and self help in magazines and published a large number of professional research papers in journals and edited in-house journals for many years, before the advent of blogging. Vikram has taught at a University as a Professor for almost 15 years and now teaches as a visiting faculty and devotes most of his time to creative writing. Vikram lives in Pune India with his family and muse - his pet dog Sherry with whom he takes long walks thinking creative thoughts.

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Lost and Found said...

Interesting post. Especially because I work in the real estate industry myself. I'm a legal consultant for a leading builder...

Vikram Waman Karve said...

Well, you are an expert and I am a novice - so I am glad you found the post interesting. Do tell us your expert opinion about pre-launch offers - and do you agree to the tips in the article?

Lost and Found said...

Vikramji, I'm actually not an expert. I was a corporate lawyer in Mumbai before marriage brought me here and since I could not find a suitable profile in my own field, I drifted off into real estate for lack of better things to do. But I'm slowly gaining expertise now. Anyway, your advice about pre-launch offers is good. I endorse it completely. One ends up saving quite a bit in terms of money. Also, if one books a flat at the end of the year, always make sure you get the agreement registered before the new year kicks in. January is the time for the land values to be re evaluated and this year saw a 20% increase. You don't want to pay more than what you booked for. A lot of people with unregistered agreements had to pay more and obviously the stamp duty goes up too. If you're planning to buy only as an investment, it is okay to not get the agreement registered. This should be done during the pre-launch phase. By the time the project is complete (2-3 yrs) your flat value will have appreciated and you will have saved on stamp duty as you haven't registered. You can just go back and tell the builder that you want to sell the flat. They will get you a good deal and the new owner will register the agreement. Its a great trick that most investors do. I'm sorry for such a long comment! I should have just sent you an e-mail :)

Vikram Waman Karve said...

Hi Lost and Found,
Thanks for your detailed comment which has thrown a new light on the merits and modalities of booking a home in a pre-launch offer.
But just tell us one thing - in today's economic scenario is it not a big risk to book a flat in a pre-launch offer. Suppose there are execution delays, and worse, suppose the price of real estate starts going down like it happened in 2008 - 2009 and once before in the end 1990s too. What is your view? Is the risk worth it? Or is it better to play safe and go in for a ready possession flat?

Lost and Found said...

You have a good point. Execution delays are common and therefore one should always check on the background of a builder/developer before booking a flat in one of their projects. Best way to do this is to avoid brokers, just take a day off and go talk to people who reside in any of their previous projects. They always tell the truth. Also the brokers are eager to get their brokerage and exaggerate about the builder and the project so it is best to avoid them. About the depreciation in value, I think it is a rare thing that doesn't happen very often. especially in a city like Pune where demand is more than supply in terms of real estate and all the good areas are no longer available for development. So builders are going towards the outskirts. Wagholi and Vadgaon Sheri, for example have some wonderful projects that would have been more suitable at a posh locality like KP or Aundh. Pre-launch offers are worth the risk. Ready possession flats are often almost twice as expensive. Just make sure your builder is a trustworthy one. The risk will be worth it.

Houses For Rent North London said...

You don't want to pay more than what you booked for. A lot of people with unregistered agreements had to pay more and obviously the stamp duty goes up too. If you're planning to buy only as an investment, it is okay to not get the agreement registered. This should be done during the pre-launch phase of the agreement.

pune real estate said...

Interesting post! Very informative!!