Useful Tips to buy an apartment in Bangalore.

This article is specific to Bangalore; but the micro level principles should apply across the world.  Many Flat buyers used to approach me with the brochures of the apartments furnished by the builders. I noticed many Builders do not think the user end requirements while planning, they would have thought only built-up area and cost factors.  These incidents provoked me to write this article for the people who intend to buy apartment/Flat. I have not included everything related to buying an apartment here like location, security, legal factors, etc. I will probably add here later.

Size: Size (Sq.Ft. area of the Flat) shall be variable for 1BHK, 2BHK and  3 BHK Flats,

Well Designed/Planned apartments (Flats) shall have all the advantages for a comfortable living, by accommodating the required furniture of your choice with sufficient movement space around is must.

A Well planned Compact, but comfortable flat sizes (lower figures) to Spacious Flats (upper Figures) are given below:

1.       For 1- BHK flat area shall be around 600-800  Sq.Ft

2.       For 2- BHK flat area shall be around 801-1500  Sq.Ft

3.       For 3- BHK flat area shall be around 1501-2000  Sq.Ft

How to decide Size of the Flat:

Do not consider only the present need and decide the Size of the flat you intend to buy, always plan at least for 8 to 10 years ahead. Consider now yours is a small family (husband-wife), May be you might be satisfied with 1 BHK Flat now, but after 5-10 years later this Size Flat (1 BHK) becomes small as the family grows!!

So do not buy a smaller unit thinking that you can always buy a bigger one later. Rule out  the thought forever. If you can’t afford a bigger house now, you won’t be able to do so after 5 years either. Property rates are doubling every two years whereas the salary is not. And once you get settled in a house, it is almost impossible to shift. Then you have to look for the Let out options. This is cumbersome now a day

Looking ahead 8 -10 years, you’d have kids who would need a room of their own. Your parents might come to stay with you. You might acquire a ton of household stuff which you’d have to put somewhere. So buy the bigger Flat/ house you can afford. Look for one with at least 2 bedrooms with a total area of about 1500 Sq.Ft. It might pinch a little now but will sure come in handy later.

Built-up area: The area of the apartment quoted by the builder is called super built-up area. This is the area for which you are paying the money. This super built-up area includes the area reserved for corridors, playgrounds, gardens and lift etc. The area in which you actually get to live in is called built-up area which is typically 80% of super built-up area. So if you are buying a 2000 sqft apartment, you get only 1600 sqft out of that. Some builders claim to give 85% but that is the limit.

Going for Home Loan: This is the one thing that causes most anxiety to new homebuyers. There are many things to be taken care of while taking a loan.

Pre-EMI: In a typical payment schedule, the bank releases a part of loan, say 20%, at each stage of construction. By the time you take possession, the bank would have paid the entire loan amount to the builder. If the construction takes 24 months, you have to pay the interest for 24 months on the money the bank has released. As and when the bank releases money, the amount on which you have to pay interest goes up. This interest amount is called Pre-EMI.

The alternative to Pre-EMI is to ask the bank to release the full loan to the builder in the beginning itself. Then you can start paying full EMIs to the bank instead of paying Pre-EMIs. Even though paying full EMIs sounds bad when you can get away with paying much less Pre-EMIs, it is actually better and will save you as much as 6-8 lakhs!

When you pay full money to the builder up-front, you get a discount of 5-7%. This works out to be 3-4 lakhs, depending upon the cost of the apartment.

The Pre-EMIs that you pay do not count towards your loan. I.e. they do not bring your loan down. You are just paying a convenience fee to the bank. Most people go for this option ’cause they can’t pay full EMI and the rent at the same time.

Loan Interest rate: You can go for either fixed or floating rate of interest. Floating rates generally change every quarter but it is up to the bank. Fixed rates are of two types – fixed for a term and fixed for full tenure. The fixed term is typically 3 years after which there is a revision to the rate, depending on the market condition at that time. There are very few banks which offer fixed rate for full tenure. ICICI is one such bank. Some banks like Kotak offer loan with interest rate linked to the Fixed Deposit rate.

You can change your loan from fixed to floating rate later and vice-versa but banks typically charge 0.5% of outstanding principle amount for this. There is one hidden cost though here. Your interest and principle components for EMI would be calculated again and you might end up paying more.

As of Sept. 2013, the floating rate is 9.75%, three year fixed is 10.25%, and fixed for full tenure is 8.75%.

Loan Pre-closure: Most loans last for about 8-10 years even though they were originally taken for 15-20 years. If you get some extra money and want to close off your loan, banks typically charge you 2% of the remaining loan amount. Some banks do not allow you to do this at all. In ICICI, you don’t have to pay any penalty for this if you leave 12 EMIs.

Also check if you can pay more than your EMI once in a while. Banks typically allow you to make excess payments once in a quarter or once in 6 months.

I would advice not to Pre-close yourHome Loan, as the Home Loan EMI save your tax amount from your monthly salary!!

Get Tax exemption: You get tax benefits on home loan pre-EMI and EMI you can save money from your Monthly Salary

Avail Insurance Benefits: Banks typically fund up to 80-85% of the apartment cost. Some banks fund up to 90% if you take loan insurance but 90% is the upper limit. The loan insurance premium is typically 10-12k per year. It covers things like disability, unemployment, death, or loss of property due to fire and theft etc. Unlike life insurance, you won’t get anything back at the end of coverage term. You might be better off taking simple life insurance if you are not concerned about job security etc.

Loan disbursement: All the builders have home loan tie-ups with various banks and they also have loan agents who deal with those particular banks. After your loan has been sanctioned, it takes a lot of co-ordination between the builder and the bank to disburse the money. All this becomes much easier if you take the loan through these builder appointed agents.

Cost per Sq. Ft.: Like there is an ex-showroom price for cars, apartments have an ex-builder price (I just made up that term). A typical price of, say, Rs.3500/- per Sq.Ft quoted by the builder does not include charges for Water supply, Electricity, Car parking, Service tax, VAT, Registration, and legal expenses etc. You won’t get any wardrobes or kitchen shelves either. Add 30% of the base cost for these things (total cost would be Rs. 4050/-). The builder should be able to tell you exactly how much would these things cost.

Luxury Apartments

Your loan eligibility is calculated on the sum total of all the above costs.

Premium Flats: Some builders, or rather all of them, ask for a premium for corner units or upper floors. In other cities, lower level floors cost more than the higher ones but in Bangalore it’s the other way around. This premium rate is typically Rs.150/- to 200/- per Sq.Ft per floor. There is no problem in paying it except that it is not shown in any of the documents. Your house would still be registered at a rate of Rs.3500/- only. See if your builder can waive it off or reduce it; most do.

Attractions of Amenities: All the apartment complexes are advertised to have a club house, swimming pool, gym, garden, and playground etc. It would be a shame to call that pit a swimming pool but the point here is that you are made to pay for these things. If you are going to buy a house in one of these projects, there is nothing you can do to avoid paying for them. But what you can do is to buy a house in a much smaller apartment complex. These complexes typically have only 12-24 units and don’t have any of the above “luxuries”. You can see these kind of complexes everywhere in residential areas like HSR lay out, Sahakara Nagar/Vijayanagar/Nagarabhavi/KR Puram/Banasavaadi/JP nagar etc . The prices are about same as big complexes but then you get to live in the city and in a much better locality.

Marketing Agents: Do NOT trust the marketing executives who take you to the site and give you a tour. They would promise anything just to sell you the damn apartment. Always call up the customer care department and verify it with them. Better still, go to their office and have a look at the papers yourself.

When is the right time to buy: This one is simple. Buy it as soon as possible. Buy it now. Don’t worry about leaving Bangalore and going back to your hometown. you can always sell it later. And at a profit too. The best time to buy an apartment is during the pre-launch offer. These offers run for about 3-4 months and the rates are up to 400/- per Sq.Ft lower. As soon as the builder gets the plans approved from the Govt. authorities (and the project is officially launched), the rates shoot up (and keep on shooting up). The number of units on offer during pre-launch is very less though.

Another thing to note is that builders do not release (put up for sale) all the units once they launch the project. They keep some units for selling them later at a higher price always.