Property prices in India are on fire. Prices are moving up faster than ever before. In such times, how does one identify the right price for a property? What are the checks to ensure that the property is not overpriced? Moneycontrol spoke to Ramesh Nair, Associate Director with global real estate advisory firm Jones Lang LaSalle to find answers.
Q. How does a person who is planning to buy a house be sure that it is not overpriced?
The success (in identifying the right price) lies in identifying at least two hours in a week to analyze the various opportunities by driving around the neighborhood, learning market values, checking competing projects and making appropriate offers. It will also be worthwhile for the investor to review relevant articles and gather information on deals in the market at regular intervals.
Q. Is there any thumb rule, which can be used to arrive at a ‘reasonable’ price of the house?
Typically the annual investment yield should be 5% to 7% for residential properties in India. The formula to calculate investment yield is:
Investment yield = Expected net annual rent
Total Purchase price
The buyer should deduct property tax from the annual rent to arrive at the net annual rent and add stamp duty and registration charges to the purchase price to arrive at the Total Purchase price.
Q. Are property rates negotiable? How should a person go about bargaining?
In most property transactions, prices are negotiable. A buyer should never feel uneasy to make an offer on the property. If he has spent enough time pre-qualifying the property and looking at it, then he should go ahead and make the offer, even if the seller is asking much more than what the buyer wants to pay. He should never feel concerned of the seller being offended by the price or terms quoted. He should let the seller know why the offer is what it is, highlight if the property needs any refurbishment, prices of competing projects or that it is located in a bad area etc.
Q. Under what circumstances is a rate higher than market rates justified?
If the builder or developer is providing any of the following extra amenities, then a slightly higher price is justified:
· Swimming Pool
· Fire fighting and detection
· Unique view
· Air-conditioned lobbies
· Clubhouses
* Gymnasium
* Intercom services
* Back up generators
* Videophone
* The quality of tiles
Q. How does one equate carpet area to built up and super built up areas?
Carpet area is usually 75-85% of super built up area. That means, if the super built up area were 1,000 square feet, the carpet area would be around 750-850 square feet.
Q. While buying a second hand flat, how does one know if its owner has factored in the price of any renovations/repairs to the cost?
The buyer should preferably take an architect to analyse the refurbishment/repair cost. The architect should analyse the structural aspect the building, interior fit outs, electrical fittings, plumbing and woodwork to work out the refurbishment charges. The buyer should then make an offer to the seller after keeping in mind the refurbishment costs.
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