Investment from any source in the housing sector is an appreciated aspect in today’s Indian real estate scenario, from an industry perspective. Let it be resident Indians, NRIs or even companies, constructing houses creates jobs for a lot of people. A back-of-the-napkin calculation shows that for a 1000 sq feet house, 100 direct employment opportunities (architect, building engineer, masons, helpers, electricians, plumbers, painters, carpenters, etc) and over 1000 indirect employment opportunities (people working in cement plant, brick kilns, tiles kilns, electrical fittings companies, saw mills, steel plants, paint companies, etc) are created. Of course the duration of the employment will depend on a number of factors like nearness to a supply sources for material and labour, access to high tech equipment, architecture, etc.
But to construct a house is not all that easy. It is not without substance that a Tamil saying goes, “Veetai Katti Par, Kalyanathai Panni Par” (Basically the saying rates constructing a house and having a child’s marriage done among the toughest).
To an already difficult task, the sheer distance and absence during construction become problems that multiply, for the NRIs. There was an NRI based out of the USA who got a wonderful sales pitch from a builder. The salesman met the NRI at his office in the USA and arranged for all the documentation and also sent video clippings of the apartment at Bangalore. Convinced on the genuineness, the NRI transferred Rs.50 lakhs to the builder’s account. The date for the house warming was fixed after one month. The NRI could not make it to the function due to some pressing work and had asked his parents to do the poojas.
The parents got the shock of their life, when they landed at the apartment complex the day before the poojas. The complex had only one sample apartment finished (the one in the video). They were told by the Project Manager at the site that the poojas can be done at anytime but the apartment can be delivered only after “6 months”.
Another NRI who was building the house himself using an experienced and well referenced engineer found that his house orientation has been shifted by 15 feet. This left him space on the wrong side of the house squashing his plans to build a small commercial complex in future. They now have space for parking 4 cars but none for building a rent-worthy space.
Is There a Way Out?
A number of checks could have been used to be on the safer side in both the above cases:
1. There are a number of professional builders who are a lot more trustworthy. So doing a bit of research on the track record of a builder can help.
2. For any real estate purchase it is preferable to make visits to the sites before buying them. This exercise is worth it not only because you are committing a large amount of money but also because reversing the decision proves costly as well. If an NRI is not able to make it, he can request a trusted friend or relative to opt for the site visit.
3. Going for a housing loan through a bank will ensure that the money is released in stages only. This keeps the money safe during the construction. Also, all the banks at their local branches, have their list of shortlisted builders for whose constructions loans are pre-approved. It is better to buy only these constructions, as the banks are quite stringent in their norms for pre-approval and shortlist only those builders who have a proven track record and those projects, which comply with all legal norms.
4. Post the construction, the management of the asset is one of the major issues faced by NRIs. There is no easy solution for this. There are some society associations which support the owners of the buildings with services like maintenance and rent collection. There are again the “friendly neighborhood real estate agents” who may sometimes double up as the maintenance manager too. There are a few professional real estate management firms in most metros, who are now expanding into the 2nd Tier cities too.
5. Some of the other checks for any real estate purchase are:
a. Whether the construction rate quoted is for Built-up area or Carpet area? Construction is generally quoted for built-up area and rental is quoted only for the carpet area. There can be a difference of 15 % to 20% between the two based on the type of construction. Today in apartments there is the concept of super built-up area which apart from the built-up area includes stair case, common passages, fire escape passage, etc. The super built-up area can be bloated by as much as 50% of the carpet area.
b. Robert Allen, the Real Estate Mogul suggests the 100 – 20 – 10 – 1 rule for any real estatepurchase. The idea is to check out 100 properties in person; shortlist 20 of them for a deeper scrutiny; enter into negotiation with sellers for 10 of the properties and finally buy the ONE that is best suited .
c. Technically there should be a check for all the statutory approvals – town planning (Nobody wants a flyover at arms length from the balcony!), water supply and sewage disposal, safety approval from the local fire department, etc. It is always better to ask for the encumbrance certificate and the title deed from the builder to get a legal opinion from a lawyer.
6. Don’t hesitate to ask. This is probably the most important point. Many times, for avoiding being thought of as less intelligent, we question less. For any investing and particularly for real estate the more the questions asked the better the investment. The genuineness of the promoter can be gauged by the patience, the promptness and depth of the answers. Answers like, “Don’t worry about that, we will manage”, without going into the specifics are danger signs.
7. Take time. Do not restrain yourself by limiting the time for checking the properties and decision making to the time that you are present in India. A 2 to 4 week holiday cannot be hoped to be converted into a real estate investment period. Start the process before you come here. In case you cannot decide before you leave, it is okay. A Power of Attorney to a parent or a relative can be used to decide on the actual purchase even after you India.