The Fully-loaded Costs of Buying a Home

Owning a home is a cherished dream for most people. It is also a major financial planning decision, as it involves a very big investment, perhaps the biggest investment of one's life. But, buying a house doesn't just mean paying for the purchase price – there are many other associated costs as well, some incidental and some mandatory. The following is a list of hidden or non-obvious costs that you ought to consider when calculating your affordability budget for purchasing a home.

• Stamp duty and registration fees: These are mandatory fees that need to paid and are around at least 5% of the value of the property. The actual rate of the duty varies, depending upon which Indian state you buy the property in. So, on a Rs 20 lakh property, you could pay up to around Rs 1 lakh at the time of purchase. Ensure that you have enough funds left after paying for your house to pay this fee.
• Brokerage charges: If you go through a real estate broker to purchase your property you'll have to pay a brokerage charge based on the purchase price of the property. Every city might have its own accepted norms for brokerage, but typically fees will range from between 1% to 4%.
• Loan processing fees: If you are taking a home loan in India to finance your home purchase, you will need to pay a loan processing fee and an administration fee. These can range from between a flat fee of a few thousand rupees, to about 0.5% of the loan amount, depending upon the lender.
• Legal fees: When buying a property, you will need the services of a lawyer to verify that the legal title of the property is free and clear and that the ownership of the property is not in dispute. These charges can be a flat fee per transaction, or based on an hourly rate that the lawyer will charge.
• Inspection fees: Occasionally, you might have to pay fees to a surveyor to get your property inspected. This might be required by the home loan lender, if you are taking a loan, to test the structural fitness of the home that you are buying. These fees can be a flat fee, or might be included in the fees that you pay to the lender as a part of the processing fee of the home loan application.
• Utility connection charges: If you are moving into a new space, you will have to pay the local utilities water connection charges, electricity meter charges and other such charges. Often, these might need to be paid upfront, before your connection can be started.
• Association and society fees: These are recurring charges that might have to be paid monthly basis to the local resident welfare association or housing society. These are generally fixed in nature, but are mandatory if you live in the neighbourhood, whether you use the facilities or services of the association or society.
• Home furnishings: If you are moving into a new place, it is likely that it will come unfurnished. You will be getting a bare shell. Therefore, you need to budget for furniture, fixtures, fittings, furnishings like curtains, carpets, safety grills for windows, electrical appliances like geysers, air conditioners and kitchen gadgets like ovens, water dispensers, water purifiers etc. While these can be non-recurring expenditures, you might need to spend this money upfront as it will affect your quality of life and safety in your new home.
• Moving costs: If you are moving from one city to another, you will also need to budget moving costs that include items like cargo, insurance costs for shipping and any kind of customs clearance where needed.

Hidden costs in land:

In case you intend to buy a residential plot and then construct a house on this land, there are a few costs that you will need to consider.

• In some areas vacant land tax has to be paid for a certain period. Do your research to see whether this applies to the local area where you are intending to buy land and thereafter constructing your house.
• You might have to pay a building license fee, road formation fees (where necessary), and other municipality charges.

Buying a second hand house:

• Check whether the property tax, water charges and tax, other society tax and electricity bills have been paid by the previous owner. Otherwise, you might inherit these liabilities once the title of the property passes to your name.
• Depending upon the structure and the wear and tear, you might need to plan for the renovation, repair, painting charges when you buy a second hand home. Budget these in the total purchase cost and plan for it.

Things to remember

• Buying a house does not just mean paying the purchase price – there will be other fees and charges involved.
• Ensure that you have the cashflow to afford these charges at the time of purchase because some of these charges will need to paid off at the time off the transaction.
• The mandatory charges like stamp duty and registration charges should be paid immediately. Other costs such as renovation, furnishings etc. might be deferred depending upon your budget and timing.
• Remember that with some smart financial planning you can avoid stress and improve your financial situation for a big investment such as a home purchase.

Source: iTrust

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Fix your income with securities

If your heart beats faster with the swinging prices of stocks and equity indices. If you prefer earning a fixed return rather than following the 'high-risk-high-return' policy, it is advisable you park your money in fixed income securities. While the list of fixed income securities is long, SundayET brings a ready reckoner on non-convertible debenture (NCD), a fixed income security.

NCDs are debentures issued by a company which do not get converted into equity shares. On maturity investors get the principle and the interest amount either periodically or in the end depending on the terms and condition mentioned.
The year 2009 has seen several corporates issuing NCDs as these provide fixed returns to investors.

Tata Capital raised around Rs 500 cr in February through NCDs. Shriram Transport Finance and Tata Motors also raised funds by issuing NCDs. HDFC recently raised around Rs 4,000 cr through NCDs.

Recently, L&T Finance has issued its NCDs to raise around Rs 1,000 cr. The issue is going to close on September 4. According to Veer Sardesai, MD of Sardesai Finance, the tax payable under the cumulative option is liable to only capital gains tax at 10% on maturity. This would give it a post tax yield of almost 9% per annum.

Before investing in an NCD, one should look at several things such as credit ratings, credit-worthiness of the company and sector that the issuer belongs to. According to Zankhana Shah, head of Moneycare Financial Planning, rating of the NCD is important. The higher the rating better is the quality of the paper.

Many experts believe that parentage is very important. Rajiv Deep Bajaj, VC & MD of Bajaj Capital, the primary thing to look at is the company issuing the NCDs and the business group it belongs to. Also, one should check whether the NCD is secured or unsecured. Secured NCDs should be preferred for investment.

Even in case of secured NCDs, the assets on which the charge has been created should be of good quality. Fixed assets such as land and building, plant and machinery are normally considered to be of good quality whereas inventory and receivables come lower down the order.

The maturity period of NCDs is very important. The term of these securities should match your investment horizon so that the objective can be achieved. Experts emphasise on diversification. According to Shah, one should go for diversification within the NCDs. Not all NCDs should be from same sector and of same maturity plans.

According to Dhruv Agarwala, co-founder of iTrust Financial Advisors, there are many companies that have lined up NCD issues. Each issue needs to be judged on its own merits. One should carefully analyse the company's strengths and weaknesses, financial strength and debt servicing capability.

Some metrics to look at would be debt equity ratio and interest coverage ratio that give an indication of the company's ability to service its debt. Other things to look at would be the yield at maturity, the maturity period, frequency of interest payments and ability to liquidate the investment to ensure that one's specific requirements in terms of return expectations, time horizon, need for regular income and liquidity are met.

A close comparison can be drawn with different kind of fixed deposits (FDs) to find out the advantages and disadvantages of NCDs over them. According to Sardesai, the main difference between a company FD and an NCD is that a company FD is not secured.

In an NCD apart from the name there also some physical security provided, which makes it a bit less risky. According to Shah, within the fixed income securities bank FDs are always referred as these give higher safety. According to Kartik Varma, co-founder of iTrust Financial Advisors, FDs offer more flexibility in terms of tenure.

You can have a tenure of as low as 15 days and up to 5 years. NCDs tend to have longer time horizons and may go up to 10 years. According to experts, investors with fair knowledge of debt instruments should go for NCDs. According to Shah, many people even don't know what is an NCD. Also, very conservative investors will not go for NCDs as they prefer bank FDs or other known debt instruments.

Source: http://economictimes.indiatimes.com/Personal-Finance/Fix-your-income-with-securities/articleshow/4949948.cms

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