Things to remember before buying real estate

Published: Thursday, April 5, 2012, 12:59 [IST]

When I was seeking to purchase my first property, I was excited. It was directly from a developer and the building was under construction. We discussed the rate per square foot: it seemed reasonable. My wife decided to pull out her measuring tape to see if the area matched, and the marketing executive watched us patiently as we went from room to room. When we finished the exercise, there was a shortage. “Ah,” said the executive, nonchalantly. “What you were measuring is the carpet area, but what you are paying for is the built up area.” That included the walls inside the flat. I realized later that I was fortunate as compared to my friends in Mumbai who paid a rate for the super built up area: that included the common areas such as stairways and lift.

There’s more to pay at every step
I did a quick mental calculation (area multiplied by rate), and arrived at the total cost of the flat. It was a stretch, but there was a price to be paid for the family’s joy. The costing sheet, that the developer’s executive thrust under my nose increased the price. It was then that I was introduced to the concept of legal fees, deposits for electricity and water. Much later, after the construction was completed, there was an additional amount to be shelled out for registration. It will not be askance to state that the basic cost of purchase had to be increased by 25% by the time the flat was delivered to us, interiors not included.

Notional Loss
These hidden costs are easy to calculate. What I realized is that developers did not have any penalties built in if they delayed delivery of the project. Those of you who were in the queue waiting for your construction to be completed during 2008-09 know what I am referring to. Developers ran out of cash, but had the gall to inform investors by way of a simple letter that the delivery of the project was pushed back by 90 days to 12 months. Not only had investors to pay interest on their loans taken so far, but also monthly rentals till they moved to their “home”. And in the rush to complete their project and collect the final payment(s), some developers have cut corners and compromised on quality of finish.

The New Fad of Maintenance Deposits
Recent projects have included 10 year maintenance deposits which are collected upfront. That gives investors peace of mind, until they realize that the developer did not bargain for inflation in costs and these deposits will run out much faster. There is always a tussle among now owners of such a project to choose between higher costs and reduced services to make the maintenance funds last longer.

Are All Approvals in Place?
We are all aware that the value of land appreciates and is a greater treasure than the apartment we live in. In many parts of the country, undivided share of the land is a valuable component of what the investor owns. If the developer has built more flats than the original sanction, this single seemingly insignificant line in the agreement may be altered downwards and is possibly the single largest hidden cost that the buyer must beware of.

InvestmentYogi