- Date : 16/12/2020
- Read: 4 mins
Here is a list of questions you need to ask yourself before you can reach a conclusive decision on buying a house.
Trade-offs are common in certain purchase decisions that have limited use or are relatively low in value. However, buying a house is influenced by an entirely different set of requirements and preferences, and offers very little room for compromises. The considerable investment that goes into a property and the permanent nature (in most cases) of the acquisition make a compelling case for ticking off all the relevant boxes before making a decision.
Here’s a list of questions you need to ask yourself before you make a conclusive buying decision.
1. Buy or rent – which is preferable?
The first thing to ask yourself should be the classic question – is buying a better deal than renting? Various calculators are available that help an individual perform certain notional calculations to understand the difference between buying and renting a home. For families that expect to stay in a location for five years or more, buying property is a better choice than renting. Advantages include value appreciation, asset ownership, tax benefits etc. However, for those who are planning to stay in the location for a shorter period (say, under 5 years), renting is obviously preferable.
Related: Should you buy a home or rent one?
2. Ready-to-occupy property or one still under development?
The answer to this dilemma requires you to factor in various inputs. Remember, even if you are in a hurry to move into the new property, the decision should be taken after weighing all options. Cost-wise, an under-development property may seem appealing, with a deluge of offers drowning out logic. But despite RERA, you still run the risk of a delay in completion and possession, especially due to the debilitating effect of the pandemic and the recession. If you plan to settle down in the city, are not in a hurry to take possession, and want to stagger your home purchase expenses, an under-development property may be suitable. On the other hand, if you do not want to take chances, or if you want to quickly settle into your new home, the best option is to buy a home that is ready to occupy.
3. Does it make sense to wait for prices to drop?
Buyers often wait for prices to drop, and a dip in prices by even 1% can be significant, considering the value of residential real estate. The lure of a dip in costs can sometimes be unrealistic over the long term. Real estate prices are driven by a set of factors, unlike pricing decisions of other products/services. The value of a location is unlikely to change or reduce significantly. Similarly, price drops are possible only if developers are ready to slash prices when balance sheets are stressed out. Projects in prime locations from well-known developers are unlikely to undergo steady price corrections. Industry experts opine that whatever correction is possible has already been squeezed out within the last decade, and it is highly unlikely to see further reductions. It is, therefore, a better option to decide before the price contraction bucks, resulting in a gradual increase as demand increases in the future.
4. What is a ‘safe’ budget? Should I tighten my purse strings?
Regardless of the pre-or post-pandemic situation, a simple rule needs to be deployed when making your purchase decision. The percentage of equated monthly instalments (EMIs) towards loans, property, etc., should never exceed 35% of your income. Uncertainty can loom large if your finances are stretched, so it is essential to take a prudent decision and cap your total EMIs at 35% of your income. This must include any loan you may avail of to meet the down payment. While it is not a good idea to take a loan for the down payment, it could sometimes be the only option. Even in such cases, the total repayment should not exceed 35% of your income.
5. Will investments be a better option than property during this period of uncertainty?
Financial products and immovable assets are on opposite ends of the investment spectrum, so it is difficult to draw an analogy between the two. However, uncertain times always make a compelling case for asset acquisition as markets could be extremely volatile and financial products may either earn you excellent returns or leave you poorer. While this may also depend on your risk appetite, a sane decision is to force yourself into savings and acquiring an asset that has a higher probability of appreciation. Though comparisons over a long period (say, 30 years) may not offer a clear picture, it is also incorrect to look too far ahead in the midst of uncertainty and the cash crunch. EMIs toward properties are more like enforced savings, unlike financial products where decisions may be influenced by other priorities in expenses. Buying a home in your hometown or in a big city: What makes financial sense? Read this article that will help you make a wise decision?