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Monday, 5 November 2012

Ways to buy a home and SARFAESI Act,2002

Those who are looking for a home have three options

1.Buying an under-construction property

2.Buying a resale property

3.Buying a property auctioned by the Banks.

1.Buying an under construction property:

A property under construction would definitely be cheaper than one available for purchase or occupation. Typically , these under-construction properties quote at least 20% lower than the prevailing rates in a locality.

Before investing in an under- construction property we must know the risk factors

1.EMI's on sanctioned loan:

The delayed possession of the house exert severe financial pressure on the buyers if he has to pay the EMI as well as the rent at the same time. Moreover, if the project gets stuck(or) even defaults, the home buyer is still liable to pay the interest and the principal component of the disbursed amount to the banks.

In an under construction property, a bank disburses the loan amount in tranches to the builder. However, you may be expected to pay the EMI on the sanctioned loan amount and not the disbursed loan amount. This huge EMI outgo from the first month can also be a strain on the pocket.

If the project delays or defaults, the liability is on the borrower to pay off the dues. The loan will be settled only after the borrower has paid off the interest and the principal component of the loan amount disbursed to the builder.

2.No objection Certificate:

 Also do check if it is already mortgaged with a lender, if the property is already mortgaged with a lender, do insist on a no-objection certificate from the lender before entering into a purchase agreement with the builder.

3. No tax benefits in under-construction phase.

    A home loan borrower can claim tax exemption on interest payments up to Rs.1.5 lakhs and another Rs.1 lakh under section 80c towards the principal repayment. 
    The section 24 of the Income Tax Act states that if a property is still to be constructed, there will not be any deduction on the interest payment all of those years. The interest for the pr-construction period can be availed for deduction in five equal installments from the year the construction is complete. The tax rebate on principal repayment may not be allowed when the property is under construction.
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