Just imagine what would have happened if there had not been this economic crisis. Possibly newspapers would have had to come out with blank pages as there seems to be nothing else on them except reports of doom and gloom. But this is not the time for levity as the problem on hand is pretty serious. Especially for me as I have to think of an imaginative and interesting ‘intro’ so that I can ease you into the subject matter of this column this week, which is: Investing in house and real estate sector.
Every crisis, the experts say, is an opportunity for growth. This is true especially of the experts as they are desperately doling out advice and making money for themselves. Never mind the fact that these very same experts had predicted the Sensex to touch the 25,000-points mark.
Anyway, the scenario, they point out, is good to invest in a house or land as the prices are falling. Just a year ago, a new house in a place like Chennai was available, say, for a price roughly amounting to the fiscal deficit of a small African nation. Now the value of the same property is said to have come down by 50%, based on the simple and extremely logical formula —– the fiscal deficit of the said African nation has doubled in the same time.
The other question that follows is: How does one check whether one has enough funds to park in a property? Don’t even bother to check; the experts are unanimous in one thing: No matter how much money one has, it is never going to be adequate for a property transaction.
Useful tip: There are only two kinds of properties available in the market. 1. Affordable. 2.Not affordable.
By definition, affordable properties are the ones set in undesirable neighbourhoods that one would not want to buy. Non-affordable ones are the opposite: Something which one would want to buy but never can. Only Bill Gates, and possibly Sultan of Brunei, gets to live in the house he desires.
Loans are conveniently tailored handy instruments of finance that let you borrow in bulk from banks and repay in easy instalments. This is what the banks say. But don’t believe the bankers; nice chaps that they are, they are always joking.
Banks will give you money only if they are convinced about your, what they term as, repaying capacity. In pure theoretical term this means banks will lend you money only if had lots and lots of money. In practical terms, it means that since you had approached the bank as you had little money, repaying capacity is something that is to be sincerely arrived at by fudging the papers and documents with the aid of the helpful bank representative and his bosses.
Useful tip: Never approach a bank for a loan unless you have 1,70,000 copies (this is a rough estimate and it varies from banks to banks. With some banks it is 1,80,000) of your passport-size photographs with signature scrawled across in such a manner that none of your facial features are ever possibly evident. Most of the loan amount is taken up for the photo printing charges.
Industry trivia: Hindustan Photo Films in Udhagamandalam is on the verge of closure as all its stock has been utilized to meet the needs of the loanees.
Useful tip II: Also, get ready all kinds of certificates and papers that you have accumulated since your birth. This may include death certificates too. Banks need something to fill their coffers with, as apparently all the cash that they have are used to pay the salaries of their staff. SLR, the statutory liquidity ratio that banks are required to maintain at all time, is deduced from the figure that banks need to pay salaries to their staff for lifetime.
Once you arrive at the amount that the banks are ready to provide, you sit and discuss with the ever-helpful loan officer the rate of interest for the loan. The monthly repayment amount is fixed based on either floating or fixed rates. As a common person you will be tempted to ask which of the two is the better option. Both the plans have pluses, especially for the bank to suck more money from you. The rates are fixed so as to ensure that your liability remains the same whichever month you check into your loan account status.
Floating rate is a variable component decided by market forces, otherwise known as banker’s fancy. If the apex bank chief gets on the right side of the bed, he may be inclined to cut the rates. But you are doomed and your personal finances go for a toss if he has a fight with his spouse on the way to office.
The fixed rate of interest, is advised for those customers who don’t want to live on the vagary as decided by the mercy of apex bank chief’s spouse.
Banks collect their monthly dues either through an ECS transaction or post-dated cheques. The latter involves signing that will decidedly leave you with a terminal tennis elbow. The one advantage of having a housing loan is that your income tax burden will definitely come down. What you save by not paying the Finance Minister as income tax, you pay the Finance Minister in the form of high rates on your loan. This is essential model on which market economics works.
The smarter among you by now would have realised that this week’s column is nearing its end, but there is still no sign of the previously promised ideas on investing in real estate and housing properties.
Useful tip: Never believe what the blurb or the brochure says. This is true for any industry. Real estate, banking and Crank’s Corner.
For more tips, write in to: firstname.lastname@example.org, with a trillion copies of your photos, each duly signed along with your kindergarten mark-list. This will stand you in good stead when you go for a loan.
(A reprise of a column written for my publication some time back)