Factoring in price escalation
The rise in labour charges, price hike of raw materials and any sudden loss to the company can result in the price of your apartment hitting the roof
Recently, one NCRbased developer asked for an extra amount from homebuyers at the time when he was about to hand over the possession of ready properties. His argument was that there has been a small change in the super area. As the project was nearing completion, most buyers had paid almost 90%-95% of the property value to the developer. Since the project was underconstruction at the time of purchase, most of them had booked properties by taking home loans.
When the developer asked for the extra amount, the buyers had no option but to approach their respective banks for an additional loan. However, banks refused the top-up loan, as the change in the layout was not as per the earlier approved plan lying with these lending banks.
The outcome of this confusion was that buyers had to shell out money from their own pockets and the developer who made the changes in the layout collected significant amount of money from this small change in the super area. While this is a clear example of how in the absence of any regulation consumers are at the mercy of builders, this also speaks volumes about how a small change can bring about a sudden escalation in the overall price that you pay for the booked property.
Factoring in the price escalation is a key element while investing in the property market. Sudden rise in labour charges, price hike of raw materials and any sudden loss to the company can actually result in the price hike.
But what makes it easier for the company to increase the overall payment? The answer lies in the builder buyer agreement that you sign with the developer for an underconstruction property. The agreement has an escalation clause that says that the area of the apartment can increase or decrease, depending on market conditions and architectural changes, and that price will be subject to change accordingly.
However, the change in the payment is not just limited to under-construction properties. As a buyer you must be ready for such price changes even when you are buying in the secondary market. So what are these changes that may come your way? To answer this, it is worth mentioning that while buying a property in the secondary market one should do his groundwork and research thoroughly.
Even after you’ve bought a property, you may come across some construction defects. It is therefore always advisable to hire a structural engineer to run a check on the property before you sign the deal with the owner. If you come to know about these defects at a later stage, you would be required to shell out a hefty amount on the repair and reconstruction of the built up property.
Effective financial planning even before you actually sign any deal helps you to counter any sudden price increase. Here are some tips.
Before searching for a property you get an idea about the budget and the booking amount to some extent. You should then allocate some money for paying the earnest money. Here it is advisable to save slightly more than the booking amount to meet any sudden payments. Depending on the category of property, this add-on can vary.
While the developer may offer you an array of payment plans you should opt for the one that offers you a safety net against any sudden mishaps and changes.
Experts would agree that a constructionlinked payment plan is the best. The plan safeguards buyers’ interests and protects him against any delay in the delivery of the project.
Be careful while opting for the EMI rebate and interest subvention schemes that may lure you for a particular project. Usually the moratorium offered in such schemes takes away the burden only for the specified period. The burden comes back once the EMI starts post this period. At this stage, the EMIs are usually higher than expected. When buying in the resale market, bargain hard as there could be a huge margin for brokers and the intermediaries involved in the deal. Always prepare yourself for expenses such as repairing work, replacing electrical fittings and renovation and restoration. Sometimes, the new occupier of the property may even end up paying the pending property tax if not checked!