A home within your budget

Old homes are available at a discount of 25%, or even more, compared to new homes in many localities. If you aren’t finicky about latest facilities, you could get a good bargain

 

YOU may have to live with higher residential prices. After all, in a country where citizens are increasingly flocking to big cities for job opportunities, is there any other way that property prices could go? But then if you are a smart buyer, who is willing to see through the dust, there are opportunities galore to buy that dream house. And yes, that too at an affordable cost.

   There is light at the end of the tunnel for home buyers. Old houses in the same locality are available at much cheaper market rates than the newlyconstructed ones. So should you toy with the idea of buying an old house? Raj Kumar of Jones Lang Lasalle Meghraj says: “That depends on one’s level of need, one’s paying ability and the condition of the house. While a new house is always a better investment, there are certainly occasional good deals available in older units, too. Units in projects by reputed builders often do have sufficient resale value, especially if they are in good locations. If the unit is in a location that meets the buyer’s need, all necessary conveniences are available in the vicinity and if it is in good condition, buying it makes sense”.

 

More space

 

 

The biggest advantage of going for an old house is that of getting more carpet area. This is primarily because of the low-loading factor in old constructions. Today, most of the residential constructions come with amenities such as clubhouse, gymnasium, swimming pool and all these spaces get loaded into the overall property rates. So, for instance, a new residential house might be a 1,000 sq ft home, giving only 750 square feet of carpet area (33% loading). In case of an old house, you could get probably get 800-850 sq ft.

 

Spruce up old homes

 

 

“Newly-built houses are usually designed keeping in mind the requirements of the existing generation. Be it more attached bathrooms with bedrooms or service area for maid servants, you name it and they have it. In contrast, older houses mostly have provision for only one bathroom, says Dharmesh Thadani, a Mumbai-based interior decorator. Even the modern kitchens are wellequipped with additional plug points and right electrical fittings. But then the big question is to ask about the incremental cost to redo the old house with such state of the art electrical fittings.

But….

There are some things though, which can’t be done even if you wish for it. Take for instance, the elevators which some of the old house might not have. This could be an area of concern, especially if there are elderly members in your family. Also, one might have to forego the commonly available amenities. “The new constructions usually have large housing complexes with common facilities such as swimming pool, recreation club/gym, etc. They also have appropriate provisions like a lawn or a park for the children to play in the compound itself, adds Mr Thadani.

 

Renovation costs and lower resale value

 

 

An old house comes at a lesser cost. But one has to discount the renovation cost before zeroing in on one. Used homes tend to deteriorate in overall condition and often require extensive repairs and refurbishing. They have far less resale value than new units, and no home loans are available on them after they have reached a certain age. This further reduces their marketability. They may have flawed titles and pre-existing litigation issues, since the transparency in property deals is only a recently emerging phenomenon in India, says Mr Kumar.

   In the end, the choice of whether to go for an old or a new house is an individual decision. Some might want the best amenities and are also willing to pay for it. But if you feel that affordability is pinching you, old homes — (of course, those that have been constructed not more than 10 years ago) could be a good consideration. After all, you get it at a discounted rate — not to mention more space to boot.

Fed steps in to protect home loan borrowers

Lenders would have to confirm that a borrower can afford a mortgage before making the loan under protections proposed by the Federal Reserve on Tuesday following the havoc wrought by the US subprime loan crisis.
The proposals are intended to replace loose standards that have put many Americans at risk of losing their homes because they took out loans they could not afford and may not have fully understood. The new rules will not assist today’s struggling homeowners but would give consumers the right to sue mortgage lenders who act unfairly and deceptively in preparing loans. Millions of Americans who stretched to buy homes in recent years face the risk of foreclosure as mortgages with initial “starter” rates reset sharply higher.
The Fed’s board unanimously approved the standards recommended by its consumer rights staff and said they strike a balance by protecting consumers while preserving their access to credit. “These new rules, once adopted, would apply to all mortgage lenders,” Fed Chairman Ben Bernanke said as the board met to consider the proposal. He said the rules would be “consistently applied and vigorously enforced” by state and federal regulators. The new rules would put the nation’s 50,000 mortgage brokers under some federal supervision, according to Fed staff. The proposal was criticised by several leading lawmakers and praised by an industry group. The Fed has been faulted for failing to use all its consumer protection authority during the housing boom that ended in 2005. — Bloomberg

Christmas: Value for money festive season

Praveen Pillai (27), a medical transcriptionist, has lavish plans for the festive season a Christmas vacation with friends and gifts for family. This will cost him a fortune and hes toying between pulling out money from his mutual fund savings or swiping his credit card either option will dent his future finances.
Pillai represents todays generation who want to enjoy, and feel compelled sometimes to dip into their investments to finance that binge. The festive season is that time of the year when discount tags literally push you to buy products and services. In fact, 50%-60% of the spending is unplanned and impulsive. Lured by freebies and discounts, people end up buying more, which hampers their budgets and finances, says Anand K S, wealth manager of Nile Financial Planners, who adviced Pillai to avoid the options he was looking at.
Holidays, gifts, parties and marriages the list of occasions seems endless. With the year-end craze setting in, its important you plan your budget so that you dont go overboard with credit card payments and loans.
So whats the solution?
Plan your holiday spending without affecting mandatory expenses like taxes, childrens school fees and other annual commitments. Including festival spending into your financial plan is critical.
Anil Rego, CEO of wealth consulting firm Right Horizons, says one of his clients used to be an erratic spender. Based on our advice she now makes a budget every January and looks at major expenses she has to cover. She takes into account bonus payments and uses that to meet expenses, says Rego.
For the shortfall, we suggested a regular monthly recurring deposit. A lump sum investment of Rs 50,000 would be difficult to squeeze out. She now easily manages it with Rs 5,000 per month. She also manages her tax saving investments by doing a monthly systematic investment plan with both unit linked insurance plans and equity linked savings schemes. It saves on interest payments she used to make earlier to credit card companies.

Festive Fin Plan


• Include festival spending in your annual plan/budget

• Dont jump at offers. Identify and evaluate products you need and wait for discounts.

• Plan and book your holidays to avoid rush and price hikes

• Minimize credit card purchases and EMIs

• Use your annual bonus to shop and for vacation

• Choose a short-term personal loan over credit card

• Dont miss your tax saving and other investments because of the holiday expense

• Plan for the next year before its too late

Higher study loans set to get cheaper

Getting finance for expensive professional courses is set to become cheaper for students from modest middle class homes. A Rs 4,000 crore plan is in the works that will enable the government to take over the interest burden on education loans during the ‘moratorium period’— the time when students are pursuing their studies and have not yet begun earning.
As things stand, education loans come with a clause that allows students not to pay interest during their academic life. The interest for this period is added to the principal and payments begin once the student starts working.
Now, under a mega scheme being finalised by the Planning Commission, the Prime Minister’s Office and the HRD ministry, the government will take over the interest burden for the moratorium period, estimated at about Rs 650 crore a year, assuming that five lakh students from families earning Rs 2.5 lakh a year or less avail of the loans. To qualify for the scheme, the student’s household income must not exceed Rs 2.5 lakh per annum. It will be open to students engaged in professional and technical courses at the under-graduate or post-graduate levels.
Broadly, this means those coming from families with a monthly income of Rs 20,000 will get an interest waiver.

1 cheap loan per student: Govt


New Delhi: The new education loan scheme that the government has planned will cost it Rs 4,000 crore for the 11th Plan period. The government, which intends to implement the scheme from the 2008 academic session, also wants to restrict the waiver benefit to one loan per student. So, if you borrow to complete your graduation, don’t expect a similar helping hand for a postgraduate course.
Bankers said that the move would also encourage many banks to lend more freely. In the absence of any clarity on when a borrower starts working, bankers often shy away from extending education loans. Some of them even insist on collaterals although the government has repeatedly maintained that the practice is virtually non-existent now.
The idea is not just to check brain drain from the country but also ensure that the government taps talented students who cannot otherwise afford professional studies because of the high fees.
According to government estimates, there are approximately 50 lakh students in professional courses of which about five lakh students come from families within the income range of Rs 2.5 lakh per year.
In recent years, a large number of students, especially those pursuing MBA courses in India or going abroad for higher studies, have borrowed from banks. According to latest data released by the Reserve Bank of India, there was a 51% rise in education loans—from Rs 9,962 crore at the end of March 2006 to more than Rs 15,000 crore at the end of March this year.
Tax sops have also played a role in accelerating loans and with the government allowing parents to avail of benefits, there could be a further spike in the coming year. Earlier, tax sops were available only if the student borrowed and paid the loan individually on completing his education.
The existing scheme for educational loans, devised in consultation with the RBI and the Indian Banks Association, covers all kinds of courses, including professional courses, in schools and colleges in India and abroad.
Under the scheme, banks provide a loan of up to Rs 7.5 lakh for studies in India and up to Rs 15 lakh for studies abroad.
For loans up to Rs 4 lakh, no collateral or margin is required and the interest rate is not to exceed the PLR, while for loans above Rs 4 lakh, the interest rate will not exceed PLR plus 1%.
The loans are to be repaid during a period of five to seven years with the provision of a grace period of one year after completion of study.



With cheaper loans, the Centre is trying to check brain drain and tap talented students who wouldn’t have been able to afford high fees

On the house: Elders can now own and earn

Senior citizens can now live off their homes, literally. Taking a cue from developed countries, the government has announced its sanction for reverse mortgage products in the country. In a reverse mortgage, senior citizens can avail of a loan against property owned by them without having to pay back monthly installments. 

The finance minister announced that the National Housing Bank (NHB) will shortly introduce a novel product for senior citizens: a reverse mortgage under which a house-owning senior citizen can avail of a monthly stream of income against the mortgage of his or her house. 

He or she can continue to remain the owner and occupy the house throughout his/her lifetime, without repayment or servicing of the loan. 

Reverse mortgage products are already available to citizens in countries like the US, the UK, Australia and Spain. In a normal mortgage, a customer will avail of a loan from a bank to buy a house and then repay it in monthly installments. 

In reverse mortgage, a senior citizen can pledge his/her house to a bank and get a lumpsum amount or monthly payments, based on the value of the property. They don't have to pay back any installments to the bank till they continue to stay in their house. The large Indian banks have welcomed the new development. Says V Vaidyanathan, retail banking head, ICICI Bank, "We like the concept and look forward to launching our products soon." 

Says an executive from HDFC, India's leading housing finance company, "This is a welcome development and we are awaiting NHB to announce further details of the product. We are certainly interested in launching our products in this space." 

In a typical deal, the bank or finance company will value the house using a standardised norm and arrive at a lumpsum or monthly equated amount payable over a specified period of time. In an earlier note prepared by NHB, a lending rate of 6% and a tenure of 20 years were used to arrive at amounts payable to senior citizens. 

At present, however, there is some ambiguity on how the income from mortgaging the house would be treated in the hands of senior citizens. There are no clear rules if such a payment would be taxed or not. 

Tax experts are, however, confident that since each payment creates additional loan, the payment on mortgaging property will not be taxed. 

Though the scheme has been announced formally in this year's budget, companies like Dewan Housing are already offering a reverse mortgage product called Saksham to senior citizens with an in-principle approval from NHB. 

The product is modelled as a regular income product for customers above 60 years of age who have been living in their house for at least one year. Says an HDFC official, "We wanted to be sure of the rules before we put out our products."