DON'T BUY THAT DREAM HOUSE YOU CAN'T AFFORD

Buying a home may be an emotional issue, but given the high prices and steep interest rates, staying on rent may be a wiser option, says Madhu T

    The stories are dark. The narrators are starkly different from each other. The only common thread that runs through these poignant stories is the ‘obsession’ to own a home and finances that are stretched beyond repair. After listening to the stories – told by the victims as well as financial advisors – you ask yourself: Is the desire to own a home at any cost causing irreparable damage to individual lives and finances? Consider these two stories. The first couple, barely making . 35,000 a month, bought a house in a far-off place in Navi Mumbai. They bought the house only for sentimental reasons, knowing very well that they can’t stay there. “When I met them for the first time, the wife started crying and said that they can barely afford even a meal at a restaurant because they were paying EMI plus rent and the EMI has shot up because of higher interest rates,” says a financial planner, who doesn’t want to be named.

Another young couple in their thirties also bought a house in a posh locality in a happening suburb in Mumbai. They almost overshot their budget by 75%, and paid around . 1.5 crore for it. Then came the interest rate shock and the extra EMI, plus living in a posh apartment also meant shelling out more for services, and opting for bigger cars and brands. “The husband took a foreign assignment to earn some extra bucks. The wife has some health issues, but can’t quit her job because of their financial commitments. It is a real sad case,” says another financial planner.

“These days, it is not uncommon to come across people who have exhausted their home loan eligibility and taken personal loans and used all their savings to own a house,” says Suresh Sadagopan, principal financial planner at Ladder7 Financial Advisories. “Naturally, there is tremendous pressure on their finances because of EMIs. Since most of them have a floating rate loan, they also have to bear the brunt of higher interest rates,” he adds. 

“Many people are struggling with their home loan EMIs because of the higher real estate prices and interest rates. They also have to face uncertainties on the job front, and also their incomes are not keeping pace with inflation and expenses,” says D Sundararajan, investment consultant at Trendy Investments. “Some of them resort to distress sale as the last option, but some still go on carrying the burden,” he adds. His advice to his clients: It just doesn’t make sense to be aggressive when it comes to buying a house now because of the higher real estate prices and interest rates. “You can pay very little – around 2-3% of the capital value – as rent and stay in the same place,” he says. Sadagopan also advocates rental accommodation. Mukund Seshadri, proprietor, MSVentures Financial Planners, says people should realise that they have multiple goals to take care of in life and house is just one of them. “If you pay a huge EMI for next 20 years and left with just five years for retirement, you would be in real trouble,” he says. However, for most people buying a house is an emotional decision and it is not easy to reason with them. “Buy a house if you can really afford it, but don’t become obsessive and give up all financial prudence,” says Sadagopan. Sundararjan also advises individuals to limit all their EMIs to 50% of their income. “If you exceed this limit, you could be in trouble,” he says. 

Financial experts say most of the arguments in favour of buying a house such as inconvenience of staying on rent, the wastage of money, ‘you won’t be able to buy a house if you don’t buy one now’ and so on, just don’t hold water. “Sure, property prices have gone up phenomenally in the past five-six years and the prices have once again gone up after a small correction, but prices can’t go up by 30% every year. It has to be in singledigit, may be on the higher side, in the long term,” says Sadagopan. “If you stay on rent, then you will be paying only a fraction of the amount and you will also save a lot.”

Home Truths :

1.      If you don’t have the money to buy the house, wait for a while; don’t overshoot the budget by a huge margin

2.      It just doesn’t make any sense to be aggressive at this point because of higher property prices and interest rates

3.      Don’t exhaust all your savings and borrow extra money through personal loans to bridge the shortfall on down payment

4.      It is always better to live on rent than stretching your finances recklessly, as any change in your current position my land you in trouble

5.      Limit all your EMIs to 50% of your salary to insulate your finances from interest movements or uncertainty on the job front

6.      Always remember that a house is just one of the multiple goals you have to take care in life, focussing only on it may land you in trouble.

Source : The Economic Times – 29/03/2012

NEW RULES OF LIFE INSURNACE

The budget has laid down fresh guidelines for tax benefits on life insurance. Find out which policies will help you retain gains under the new dispensation.

    For most Indian buyers, life insurance is a twoscoop sundae that offers tax deduction on the premium under Section 80C and tax-free income under Section 10(10D). And yes, on top of all this, there is a small cherry of life cover for the policyholder. This cherry just got bigger. The budget has proposed that an insurance plan will be eligible for tax deduction and the income will be tax-free only if it covers the policyholder for 10 times the annual premium. The clause, which brings into focus the core objective of an insurance plan, is meant for traditional policies since Ulips already offer 10 times the cover.
    This new stress on protection will drastically change the insurance market. “Many of the best-selling endowment and money-back plans will go off the shelves from 1 April,” points out Chennai-based financial consultant Rajaraman Kumbeswaran. For instance, Jeevan Surabhi, the 15-year money-back plan from LIC will no longer be eligible for tax benefits (see table). Most single premium plans will also vanish.
    Given that tax benefits are the main reason for buying traditional insurance plans, insurers are busy rejigging their products so that they can make the cut. But don’t expect the revised plans to hit the market anytime soon. The regulator takes 30-60 days to clear a new product, and given the rush of applications, there is a good chance that there will be an insurance drought in the coming weeks. “While we agree with the proposed change, the time allowed to implement it is too short and could disrupt the industry’s growth. Insurers should be given time till April 2013 to launch such products,” says V Viswanand, director and head of product management, Max New York Life Insurance.
    The budget proposals are in line with the recommendations of the standing committee on finance, but fall short of the suggestions of the Direct Taxes Code (DTC). The DTC wanted insurance policies to offer a cover of at least 20 times the premium for tax benefits. The industry thinks this is too stiff. “A cover of 20 times the premium for tax exemption is too much. The 10x multiple is fine,” says Amitabh Chaudhry, CEO and MD, HDFC Life

    The buyer too will have to make certain changes. It’s time to stop looking at life insurance primarily as an investment. In the following pages, we look at the outcome of the budget proposals and what buyers should do to avoid losing the tax benefits on life insurance. 

RULE 1 
Returns from traditional plans will fall further Traditional insurance plans don’t offer very high returns in the first place. These will come down further due to the higher cover required for tax benefits. A bigger amount will go towards mortality charges. Add to this the hike in service tax from 10.3% to 12.36% and there will be a smaller amount available for investment every year. A back-of-the-envelope calculation shows that the net return from the investment will fall by almost 40-50 basis points to 4.1%. This is less than that being currently offered by some banks on the savings
    account balance. It’s high time buyers stopped looking at life insurance policies as investment vehicles. Sure, they help you save and offer tax-free income, but the returns will be far too low to justify the investment. Besides, other tax-free options, such as the Public Provident Fund, are offering higher returns with an enhanced annual investment limit of 1 lakh. The tax-free infrastructure bonds are another possible replacement for endowment plans in your investment portfolio.
    The going will get tougher if the DTC insists on the higher multiple of 20 times the annual premium. However, experts believe this is unlikely. In any case, these changes are only with prospective effect and existing policies 

RULE 2 

Policies will have to be for longer tenures 
You must have heard ad nauseam that insurance is a long-term contract. Yet, short-term plans of 5-10 years are in high demand because the buyer doesn’t have to block his money for long periods. The 10x rule puts an end to short-term plans. A policy whose term is less than 10-12 years will fail the eligibility test for tax benefits.
    The worst hit will be moneyback plans, which typically have a higher premium compared to endowment plans. As the table shows, even for young investors, the short-term option of the hugely popular Jeevan Surabhi policy won’t make the cut for tax benefits. Similarly, the Jeevan Anand endowment plan will violate the 10x rule if taken for shorter durations of 5-10 years. Is there a way out? Buyers will have to opt for longer tenures (at least 20-25 years for money-back plans and at least 15 years for endowment plans) if they want the tax gains. The budget has very clearly defined life cover as the death benefit payable to the insured person’s nominee. It will not include bonuses and other maturity benefits.
    The focus on the long-term tenure will sharpen after the DTC kicks in. Right now, insurance plans can be surrendered before maturity. Under DTC, the surrender value will be made taxable. 

RULE 3 

Early buyers will find it easier to get tax benefits 
Buying insurance at an early age is advisable because the premiums are lower. “The earlier one buys insurance, the more cost-effective it is. Younger people get lower rates and can lock in for a longer period,” says Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance. A younger person will find it easier to comply with the new 10x rule than somebody who is in his 40s. An older person can get around this problem by taking a longer term plan, but beyond a certain age, even a long-term plan will not help. The annual premium for a 25-year Jeevan Surabhi plan for a 45-year-old man exceeds the 10% limit set by the budget (see table). Insurance companies will obviously reengineer their plans so that the tax benefits stay, but this will eat into the investor’s returns. 

RULE 4 

Focus will shift to pure protection term assurance plans 
The stress on higher cover by the budget and the DTC will also shift the focus to term insurance. These pure protection plans will not be affected by the new rule because they already offer very high covers. “Pure protection term plans offer covers of 200-500 times the annual premium,” says Swapan Khanna, co-founder of insurance tracker I-Save. In some cases, the cover can even be 1,000 times the premium. The good news is that term plan premium rates have come down and insurance companies have started advertising these more vigorously than ever before. Though the data pertaining to term plans is not available, there has been a marked rise in the number of regular premium, non-linked, non-participatory policies in the past year (see chart). Term plans fall within this category, though it also includes other types of insurance policies. “The share of term plans has risen and will go up in the future,” says Suresh Agarwal, executive vice-president, Kotak Life Insurance.
    If they want to buy cheap insurance, buyers will have to be more proactive. Online term plans offer low rates, but the buyer is entirely on his own. If you are not confident, buy through an agent. Even so, there are several things to keep in mind to ensure that your nominees don’t face problems while making a claim.

RULE 5 

Single premium plans will become very costly 
The biggest impact of the change will be on single premium plans. The existing plans offer a cover of five times the premium as required by the current tax laws. This ensures that only a small portion of the premium goes as mortality charge and a larger amount is invested. The new rule means a smaller portion will be available for investment, which would require a complete overhauling of the single premium category. “It will be very difficult to design a single premium plan that offers 10 times the cover and still gives good returns to the investor,” says V Srinivasan, chief financial officer, Bharti AXA Life Insurance.
    That’s not the only change. Some plans are designed in a way that the cover comes down from the second year onwards to avoid the mortality charge altogether. The budget specifically mentions that the cover should remain at least 10 times throughout the policy term. This requirement could kill this segment.
    Only single premium term plans will remain unaffected because the cover is already 40-50 times the premium. However, the return from premium term plans, which are nothing but pseudo endowment plans, could see a change. Buyers will have to be on their guard when they sign up for a plan. As Srinivasan points out, “The Section 80C tax benefit is not as important as the Section 10(10D) gain, which exempts the income from insurance policy.” Your agent may not be around when the taxman comes knocking on the policy’s maturity.

Author - BABAR ZAIDI – ET Wealth – 26/03/2012

DID YOU START YOUR HEALTH SIP ?

I begin each day of my life with a ritual of receiving one sms around 5:30 am from my fitness coach Sanjay. The sms reads “I am coming at 6:00 am so get ready” I take a look at the sms and reply “yes”. Initially, I thought that my ritual is to exercise every day, but my real ritual is saying Yes to my coach because, the moment I say YES to him my laziness goes away, my reasons/excuses disappear and I look up to the ceiling of my room and say to myself “Get ready Nandish it’s time to invest in your fitness.” This ritual has had transformative effect on me. I know it is absolutely no fun to wake up in the dark and push ourselves to go for a tiresome run or to hit the gym. But if you really want to cherish your wealth in later years of your life start forming healthy habit of exercising. One of the best website you can explore to get yourself educated on various exercises and diet is http://exrx.net/.

We have a rule if you do not exercise you can’t become our coaching client no mater how much money you have. It is because health is your true wealth. Let me share what we ask to our coaching clients

One of the Questions that we have asked all the people who have worked with us is

Is your well-being on your priority E.g. Do you Exercise/Go for a walk or play any sports? (If the answer is no this will be the first thing we will ask you to start, this will allow you to enjoy the wealth that you are going to generate in life)

Here are some Real Life answers from real people that I have received; I am sharing this so that you can learn from other people’s sharing

·         Yes, I am health conscious and selfish when it comes to health

·         I don’t exercise regularly

·         I used to. I will be resuming soon

·         Yes, for the past 7-8 months I have been going to gym regularly and have a very balanced diet.

·         To somewhat no. I try to maintain a healthy life-style, but fail occasionally.

·         Yes. I am too occupied to start with any of the activities. I am currently working on this.

·         Yes. My wife is an athlete and she pushes/motivates me to stay healthy. I walk every evening and try to maintain weight. I very strictly believe that Health is wealth. There is no use of money at all if I cannot stay healthy. E.g. – Yuvraj Singh – what will be the use of so much money if cannot be cured.

·         Yes. I go to Yoga in my office, daily. I have started this since last 8 months and doing it regularly<90% attendance>.

·         Sporadic exercise. Swim and play badminton regularly.

·         This is exactly what I don’t do at all. All I need to do is start ASAP.

·         Yes. I used to walk daily till 2 months back. Due to back pain and monsoons now it’s held up for two months.

·         I keep doing exercises on and off. More than 3 months back I have taken up Karate. I do that twice in a week, and I am quite sure that I am not going to quit that

·         I hardly do the above, but I will try to make it as a habit very soon.

·         No. My physical activities have reduced

·         Yes, I believe it is. I have started to go on a diet plan and been on it for a couple of weeks now. I have also started to go to fitness centre (tread mill and weights) for a week now. I hope and believe I can continue this.

·         I thoroughly enjoy sports. I play tennis and walk quite a bit. I also do yoga fairly regularly.JMy biggest priority is stay healthy and fit – a fitness freak, if you will. (I wish I had the same drive for money, ever since started earning!

Here is what one of our clients wrote me - “I have reduced my weight by 12 kgs in 6+ months and my BMI is close to ideal though still a bit above. Feel so much more energetic. How is your health investment doing?”

Some Need Shock Therapy

In one of the readers meet held at pune one of our client shared his life changing experience with the group .Once he had to participate in check-up camp organized in his company. He got his tests done and the doctor gave him a very serious look and told him to move to a separate room and relax there for some time. Doctor came after some time and said everything is going to be fine, with this his tension was at its peak. Our client got restless and asked the doctor “what’s the matter?” and doctor said “Diabetes” Our client’s world got shattered in that moment, his heart sank and his throat got dry.

Doctor saw all this and then said, “You are not having diabetes my friend but you are close to having diabetes and so it was necessary for us to give you some shock Therapy.” Our client bought new shoes the same day and was all geared up to take charge of his health. The next day, even with heavy rains, he was jogging in the park…. Do not wait for important things to get urgent, act today, take the learning’s from this experience.

Here is something that I received from my father a few days back

The Dalai Lama, when asked what surprised him most about humanity, answered, “Man. Because he sacrifices his health to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then he dies having never really lived!”

Start your Fitness SIP

Sharing from my personal life, I avoided doing physical exercise for years. My reasons were bigger than my commitment. I broke my reasons 2 yrs back, I hired a Fitness Coach who comes to my home and makes me do a lot of work-out. The fee that I am paying him for his services, I consider it as my HEALTH-SIP. I am familiar with all the exercises and capable to do them on my own but those 5 extra counts that he makes me do is only possible with him. I take this opportunity to thank my coach Sanjay, his commitment is amazing.

Some people…

·         Take better care of their pet than what they do themselves

·         Take better care of their gadgets than what they do themselves

·         Take better care of their car than what they do themselves

Focus more on your health than buying health insurance

When I coach people I see that people are more committed to buy the right health cover and more laid back on focusing on their health! Your body is the only thing which is going to stay with you for the rest of your life. See that you take care of yourself because it is said that your body is the only place you are going to live in for the rest of your life. Connect with your true wealth first, we have heard this since childhood health is wealth but most of us forget this when we grow –up. Getting health cover is important but do not deviate focus from your health, make a commitment you will live your life in such a way so that you do not have to use your health insurance ever. (Unless it is an accident or some other major health issue)

Health Insurance for parents

We interact with many people who want to buy health cover for their senior citizen parents. It really becomes very difficult in getting health cover after certain age and even if you get cover it comes with high premium. More than health cover start giving time to your parents, put 2-3 lacs aside (you can put even more if you have) for them and you can have your own health cover designed for your parents. All they want is your time, your attention and unconditional love. Encourage your parents in doing light exercises or light yoga . One very powerful meditation is conducted by organization called vipassana Meditation, they have world wide centers http://www.dhamma.org/ . My parents have done the same and I think it is the greatest gift we can give to our parents. Enroll your parents for naturotherapy, see that they have proper intake of fruits and dry fruits. See that your parents are not feeling lonely and they are around their friends. Take steps that make them happy this is far far better than saying I am a responsible son I have bought health cover for my parents.

Conclusion

As people are turning towards term plans a lot of people also turning towards joining gyms, going for a brisk walk, hiring a fitness coach, taking advantage of fitness facilities provided by companies. This is your true wealth. I always tell people that at the age of 55 or 60 you might have a lot of money but what if your body is not aligned to cherish that money? Stay healthy, stay committed and stay FIT. Do share what message you got from this post, if you are one of those who are not exercising simply start from this moment. After you complete reading this article do 5 push-ups, climb a stair, just do something in this moment, take small steps, engage in activities that you enjoy doing and change your relationship with health and fitness.

This article is written by Nandish Desai – www.jagoinvestor.com (SOURCE)

IS THE MONEY SPENT ON YOUR KID AN INVESTMENT OR AN EXPENDITURE ?

Investing on our kids can be considered as an emotional long term investment and there is no other investment which is as important as investing on a kid is for any parent. We always dream of making our kids doctors, engineers, MBA’s, Civil Service Officers and many more right from the day one of their birth. In the process of realizing our dreams we spend a huge sum of our earning or saving or wealth on them. You may wonder why I am counting the money spent on our own kid or why I am talking about investment and expenditure. Yes, just for a minute think practical and say why we want our kids to be in a better position or why we want kids. Of course, the answer should be, either we want them to take care of us when we are not earning; or when we can’t help ourselves; or we want our own kid as the representative of our family in our absence; or we want the continuation of our family tree. And please be little more practical to accept the fact that all the other material things you create in this earth are mostly created for our kids or will be transferred to our kids, right from our house, investment in various means and your name and fame. The process of bringing up a kid till he/she becomes a grown up and matured man/woman in the society is a very long term process and the risk is very high during this time like investing in stocks. Investing in stocks may give you huge returns sometimes and may not return even the principal amount sometimes. Similarly, investing on our kid may yield us back huge returns (which can be name, fame, wealth, etc) or many a times it may not even consider us as the owner of that investment. Yes, dear readers, that is what is happening across the globe in many families today. Most of the parents have lost complete ownership right on their kids. It is high time to understand whether we are spending our time and money in the right way or not. We must also recheck whether this spending is expenditure or an investment. If you are buying a good shirt, book, food, required entertainment or something which will fetch you the desired results, then it is an investment. But if you are not stopping your kid from using your hard earned money for smoking, useless hangouts with friends and any such things, then it’s a pure expenditure which won’t fetch you back anything. I was explaining, what is corruption to a group of participants at one of my recent seminars. Corruption does not start with Government officials or Politicians, but it starts at home when a kid is aged 8 or 9. If you give Rs 100 to your kid to buy groceries for home, he will come back and say that he spent Rs 80 to buy the items where as he had actually spent Rs 70. He is taking Rs 10 without your permission. This is because of the failure of most of the parents in making their kids realize the importance of every rupee they spend from their parents’ earning or saving. Things to Keep in Mind There are many things that you need to keep in mind when you try to mold your child; First thing is; Do not waste your time by telling your kids to study instead make them understand why they have to study. There is no point in injecting information into their mind unless and until they realize its value. What I mean to say is instead of teaching them 1+1=2; make them understand how it is 2 and why it is 2 by quoting good examples. Secondly; Never make your kids study for marks make them understand the importance of learning every new words, concepts, etc. Two things which make human beings different from other animals are Memory and Logic. Whatever human beings have created today are the outcome of his logic and intelligence. As I told earlier by-hearting the things will help them only to improve their memory power but understanding the facts will develop their logical reasoning power. This will gift you a wonderful kid with a high level IQ (Intelligence Quotient) When your kid takes birth he/she is like a newly purchased computer which has no software installed in it. You will have to install the required software when time comes and update it as and when required. For example if you are an accounting professional and handling only accounts related works you don’t have to install Photoshop (a designing software) in your system because it is not at all related to your job. Like the same mold your child with the required skill and capabilities which will help him/her in the future to achieve great things in life. Let us take one more example; Imagine you are trying to open a word file in your system without installing MS Office. Do you think the file will get opened….??? No way…!!!  It is your mistake that you didn’t install MS Office in your system, after doing such mistake how can you expect your system to do that action…..??? A computer can run with all these features only when operating system is installed in it and your kid’s operating system is nothing but the culture, character and the skills you inculcate in him/her. The kid will become a successful doctor, engineer or something else you expected only when all these fundamentals are strong. There is one more thing you need to look into ie; before trying to install a program in your system; you should make sure whether your system is compatible with this program. For instance there are softwares which are compatible only with Windows Vista, if you try to install it in windows 98 it will not work. Like the same before deciding on what your child should become, you should know his/her tastes, interests, talents, etc. Ask them what they want to become, only then you can create a find blend of ideas which will take them to success. I have quoted this example to make you aware of your role in building your child’s career. If you want your child to become a doctor, create such an atmosphere in your house from the day one. I am not telling you to buy the complex medical equipments and place it in your house, instead make your child feel the importance of this profession, tell him/her what a doctor does, how important a doctor’s service is to the society, how he saves people’s life, etc. Today most of the doctors, engineers and other people carrying big designations are unable to present themselves better in front of a crowd. This is only because of the lack of basic skills training. Parents enjoy their son or daughter going to college even at the age of 25 or 30. If you make your kid engaged only in preparing for the life till the age of 30, when do you expect your kid to stand on his/her own.....? This is the mistake generally parents do, they concentrate only on giving education not on its implementation, by the time they complete their education they will become bookworms and will not be in a position to make the real use of knowledge. Today’s world is very attractive and the chances of your kid getting attracted to too many thing is very much possible. But have you built the required resistance power in him/her to judge and choose what is good and  what is bad….??? To bring up a kid the parents’ contribution is just 50% and the rest is absolutely from the world around him so make your kid to contribute equally to the society and the nation as he/she takes care of you.

Posted By - Mr. C.S. Sudheer- 

UNDER CONSTRUCTION V/s READY TO MOVE PROPERTY - WHICH ONE ?

There is absolutely no confusion in saying that everyone wants to buy a house, a dream home which they can call their own. However, one big confusion among buyers is whether to buy an Under-Construction Property or a Ready to move in Property. Each of these options has its own pros and cons and it is extremely important to be aware about the advantages and disadvantages of Under construction and Ready to move properties. Lets look at them:

Negative Points of Under Construction Properties

1. Delay in project & Dispute of the Land & Permissions

If you know of any project which was delivered on the exact day that it was promised, its rare! Delay in the project for various reasons is one of the top most issue with under construction properties. On an average 2 years is the deadline given by the builders, but it gets delayed and further delayed most of the times. 2 yrs can turn out to be 4 or 5 yrs of wait in a lot of cases and this adds to the frustration of buyers.

This delay is caused mainly because of the dispute on the land, cash crunch and most of the times incomplete permissions from authorities. Builders start the construction after obtaining most of the required and most important permissions, but at times there might be few permissions which are still going on, but builders start the construction. So it becomes very important thing for a buyer to check all the required permissions and the ownership details of the lands. This is very true for small builders especially.

One important point to note is that even though the house is delayed by just 1-2 yrs and finally comes in your hand, but in a lot of cases promised amenities are given after a long period and some people are still waiting for that swimming pool which was promised in 2001 .

2. You don’t get what you see

The biggest issue, I repeat – the biggest issue of under construction properties is that you never get what you are promised or have seen as sample flat . Sample flats are built-in a way and decorated in a manner that your heart will met down and you will sell your self to grab that opportunity, and over years you will build so much expectations from your under construction house. But when you really get the possession, you will realise that a lot of things are not up to the mark and not as per the promise done. Sometimes layouts are changed & you may not like the new one.

Another issue is over promise in many things. For example – Some builders give false promises that Municipal Corporation Water Supply will be made available in the society after 3-6 months of completion of construction of society, but some builders never fulfill this problem once all the flats in the Society are sold. The builder’s objective of selling the flats is fulfilled and then he is not interested in the problems that people face. A lot of times oral promises are done on many things like cost of parking, extra facilities like swimming pool, gym etc and then they are not fulfilled. And at the end, you are in a situation where you can’t do anything. Either take it or fight a case against the builder and many hassles that come along. Hence please never agree to any oral agreements under any circumstances – Always insist on written agreements with clear delivery milestones etc. One bad experience from T. Ashok is like this

The builder did not construct shelfs and almirahs as promised. He left the house only with walls and lafts. So, I had spent more than 2 lacks for wooden works in kitchen and two bed rooms. Really that was a big burden for me apart from loan amount. So, here after anybody buying house, must ask the builder to mention all in agreements like painting, shelfs, windows, doors,etc., otherwise they may suffer like me.

3. Quality of work may be compromised

Another issue is the quality of work that gets done. The quality of the construction material used, Doors and windows fillings can be compromised with, electrical sockets and switches can be of cheap quality, plumbing can go horribly wrong and even the facilities like parking space, children playing area and other amenities might be below the mark or what you expected and when you complain about all this, there will be all sort of explanations like losses in other schemes, cash flow issues and the cost increase by builders and a new series of promises that it will be done soon. For an example watch this video experience for bad quality of construction and unkept promise by Unitech

4. Income tax claim is headache unless you get the possession certificate

I hope you knew that you can avail for tax benefits only after you get the possession of the house. Saving tax on the EMI’s is one of the big reason why many people plan their house buying, only to realise later that they never thought about this aspect. So if you are going to buy under construction property , be ready to pay rent + EMI and not getting any tax benefit unless you get the possession certificate, and incase the construction gets delayed by few months to 1-2 years, it will be frustrating.

Positive Points of Under Construction Properties

1. You start paying slowly & conveniently

The best part of Under construction properties is that it is affordable for most of the people through a home loan. When I say “affordable”, all I mean is that from payment perspective life is easy. You make a down-payment which is generally 20% of the property price and then start making the monthly EMI’s each month and this is how a lot of people are able to own the house. Later after few years , a lot of people feel comfortable as their salaries go up, but the EMI’s value is very much the same. Even if one is not taking a home loan, they can pay the money in parts as it can be construction linked payment.

2. Choices of floor or location are much wider

There are various locations where new projects come up, so the choice in terms of location or which floor you want are generally high. If you are not happy with 12th floor, you can pay more and take the 3rd floor, but in case of ready to move apartments, if 12th is available, then that’s all you have. No choice!

3. Good scope of Price Increase

Under Construction properties are generally in the outer area’s or the non-core part of the city and hence the price appreciation due to future development is good in under construction properties. However this is not true in each and every case. You still have to look at the location and future plans around that area. But the point is that compared to ready to move in apartments, under construction properties have more potential for price increase.

Negatives Points of Ready to Move Properties

1. A lot of legal work and documentation

Generally there is a lot of legal work and documentation required in case of Ready to move properties compared to Under construction, because there are no fresh documentation, but a lot of “transfer” documentation.

2. You need to arrange all the money in one shot for down payment, registration etc

In case of Ready to move in properties, all the payment has to be made upfront and all at one time. There is no stages in payment like you have in Under construction properties. So even if you are buying it on home loan, you have to pay all the down-payment, registration charges, stamp duty etc all at one go.

3. Chances of getting duped!

In case of ready to move in properties, there is a big risk of getting duped. You have to make sure that you investigate things very properly. There are cases where same property has been sold to more than 1 person. Make sure you hire a good real estate consultant or a good lawyer who can study the documents well and the fine prints.

4. Inflated Price already

The price appreciation in case of Ready to move properties is generally lower than Under Construction properties from percentage increase point of view (not absolute increase). Most probably the ready to move in properties which are much older than 5 yrs, a lot of development around them has already happened and the price appreciation has taken place for most what is deserves.

Positives Points of Ready to Move Properties

1. You buy what you see

When you buy Ready to move properties, you exactly get what you have seen. There is no chances of getting duped at least in those things which you can feel and experience. This is not in the case of Under construction properties , because you never see the actual thing , you see samples or the “projections”. It’s a good idea to talk to the people around or the neighbors about the water/electricity and other things and take their feedback.

2. Immediate relief from Rent & travelling cost

A lot of people who are paying very high rent or travelling very far for their work tend to buy the ready to move houses because they want immediate relief from the high rent or travel cost and one can get it in ready to move properties.

3. You can know what kind of people live around you

This is one big advantage of ready to move houses. You can already see who your neighbours are, what community they belong to , what income level they have and if you would like to be with them or not . In case of under construction houses , you are never sure what kind of people will be around you.

Conclusion

So the final conclusion from various experience is that if you want to buy the house from investment point of view, then buying an under construction house makes sense. However if its mostly from living purpose and you want to consume it for your own purpose, then buying a ready to move house makes more sense. Also all the pros and cons discussed can vary from case to case and the points discussed here are based on a general information and feedback.

Source – manish Chauhan – www.jagoinvestor.com

BANKS - LOAN SETTLEMENT - CREDIT SCORE

What your Bank will not tell you about Loan Settlement ? It hurts your Credit Score !

Over 88% of new home loan borrowers in 2011 had a CIBIL score of 750 and above. Do you have a score of 750+ or not ?

So now by default if your CIBIL Score is less than 750, you stand a very low chance of getting any kind of loan to be approved. Most probably your loan application will be rejected. However, today we are going to talk about “Settlement” aspect of Loans. Lets see more!

CIBIL has really made life worse for a lot of people. A lot of people have misused their credit cards or other kind of loans , on top of it outstanding loans piled up so much over time, that they could not pay it off completely. Banks suddenly told them- “Hey, Don’t worry if you can’t pay off your Rs 3 lac outstanding loan, just go for settlement and all you need to pay Rs 60,000. We will send you NOC letter after that”.

Are you one of those who went for Loan settlement months or years back ?

Settlement of Loan is not a solution

A lot of people feel that Settlement of their loan outstanding in case they cant pay it off is a permanent solution to their worries? However, for one and the last time, understand that SETTLEMENT of Loan is just a temporary solution. It’s just a short cut way to get rid of constant reminders from banks and credit recovery agents. Banks do this because they know you are a waste and mostly you will never be able to pay back your 100% dues, so they settle for whatever you can pay! . Atleast they will get something back from you.

This settlement of loan will NOT clear your name in CIBIL report. In fact its a negative sign. It shows that you took loan, happily used it, ballooned it with late charges/interest by not paying on time and finally bank in frustration said - “Fine… Let’s take whatever we can get out of this guy, if we don’t get some part right now, we will not get even a penny later”.

Mak was worried why his name is appearing on CIBIL report as “settled” and his loan application was rejected.

I want to remove my name from Cibil report, I Used to have 2 CC, from HDFC & another from citi bank, I do had personal loan from citi finance, which I settled long 2yrs back for which I have settlement letter as well. Recently when I applied for a Bajaj finance loan for home electronic, It got declined, reason given to me was as my name reflected as a defaulter of Cibil. Please advice me to clear of my name from Cibil.

What Mak has to understand is that Settlement is a negative thing, and banks will report this incident to CIBIL and mind you, your status will be marked as “Settled” for next 7 yrs. So forget about getting any kind of loan from any bank for next 7 yrs at least. Once 7 years passes, then the SETTLED status will be removed , however your credit score by that time will be so low , that you will not get any loan even after that point, unless you work on improving your credit score. Now if your score is low at that point, it will again be very difficult for you to get any kind of loan (because of low score). So ultimately, the final conclusion here is that once you settle your loan, it becomes very very negative thing for you and your future and over the years it will not let you get any kind of loan unless you pay off each and every paisa of your loan.

Loan Settlement is Tempting

Settlement gives you instant gratification. It’s something you really want to go for? Obviously, it gives an impression that all your worries will be taken off by the bank, its shown to people as an “opportunity” by banks. And most of the people fall for it. Swetha is one of those people who is confused about the Settlement of her loan

I have a personal loan and i have defaulted , my loan completes in the month of april the collection guys asked me to settle the loan for half the price of the remaining loan amount which is rs 44000 and he said the NOC will be mailed to within 15-20 days and also can i get a loan again . Please guide should i go for the settlement or payoff the whole amount.

No doubt, once you settle the loan and pay the settlement amount, the banks will not bother you anymore by calling and asking you to pay. They will also send you an NOC that this guy has settled his loan of X amount by paying Y amount (Y<X). But please don’t be mistaken that bank will forget you and is so generous that it will show any mercy on you. Bank will make sure your life is hell after that point. You will not get any kind of loan from that bank plus, they will send this information to CIBIL that this guy was not capable of paying off his full amount and hence we showed mercy on him by settling his loan. Please mark him/her as “SETTLED”.

Unless you pay off each and every penny/paisa of your original loan outstanding, your CIBIL report will show status “Settled” and it’s a very bad sign. Finally let me tell you what CIBIL website has to say about “Written Off” or “Settled” status in CIBIL report.

Given that a CIBIL credit report helps a loan provider ascertain your ability to pay additional debt based on your past performance, a ‘’written off’ or ‘’settled’’ account implies that you have not been able to pay your past dues. Hence, Loan providers may view accounts that are reported as ”written off” or “settled” negatively and this may affect your chances of a future loan approvals. - from cibil website

Conclusion

If you have settled your loan earlier, first check your credit report and see what is your score. If its low (lower than 750) , you will seriously face getting any kind of loan in future, So the only solution is to pay off the loan outstanding. Talk to your bank and pay it off. This will still not improve your score immediately, over next 1-2 yrs , make sure you pay your existing loan/credit card on time and dont mis-use your credit capability. Your score will improve over time.

Source : Manish Chauhan – www.jagoinvestor.com