The Right Price
Two crucial questions, however, remain: (a) What is a good price for a property? and, (b) What can you afford?
The price: Unlike for stocks, where individuals are mostly price takers, real estate is different in the sense that it depends partly on your bargaining skills.
Below are a set of tools you can use to see whether you are striking a deal at close to fair value. As prices are going down, haggle hard. If the seller is under pressure to pull out, your dream house can be a steal. That apart, check out the following.
Rental yield: The typical historical yield of residential properties in India has been around 5-6 per cent. The rental yield is the annual rent that a property would command divided by its market price, multiplied by 100.
During the boom phase, the rental yield in some cases had gone below 3 per cent. To give you an idea, around 2005, in Dwarka (West Delhi), you could have got a two-bedroom house (950 sq. ft), costing around Rs 22 lakh (Rs 2.2 million) on a rent of around Rs 4,700 per month, thereby translating into a return of only 2.56 per cent. In other words, prices had possibly inflated on speculative interest.
So, before you settle on the price, get an idea of the rentals that house (which you are planning to buy) would command and the prevailing prices in the area.
If the rental yield of the house is less than 5-6 per cent, then bargain further till you are able to get a price, which brings the rental yield close to the 5-6 per cent levels.
Image: Labourers work at a construction site on the outskirts of Hyderabad. | Photograph: REUTERS/Krishnendu Halder
Also read: This is the best time to buy a car!
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