While purchasing property: Buying realty is a lifetime decision

Purchasing property for yourself is one of the biggest decisions you take. Buying property is a decision that is taken once in a lifetime by most people. Of course, there are many people who buy and sell property like cars. A relatively fewer number of people fall into this category.

The property market in India has seen a great deal of change over the past few years. The housing loan market is growing at a phenomenal rate of about 38-45 percent over the past few years. A number of factors have contributed to this trend - the most important being low interest rates, tax incentives on loans, and availability of excess liquidity in the system. However, in the last few months, the trend has started reversing. Interest rates have hardened, and excess liquidity is being diverted towards the corporate demand. The question is whether tax incentives will continue in the times to come. If not, it may turn out to be a severe jolt to the housing finance industry.

The intense competition in the market has certainly helped borrowers by ensuring a wide variety of choices on the platter. One should evaluate the options available in the market before taking a decision. The critical factors being interest rate, repayment period, home loan agreement, loan eligibility, and terms and conditions.

It is very important to choose a good lender as the relationship usually lasts for the better part of life. There are numerous banks and housing finance companies in the field. So the choice is wide. Lenders may reduce their interest rates and charges for customers with a good credit record, or those employed with approved companies.

One should check out the interest rates being charged. The absolute rate may not give a proper picture. The rate should be evaluated along with the attendant factors: whether it is a daily reducing or a monthly reducing rate. Further, whether it is fixed rate for the life of the loan term or a floating rate varying over the term. In case the interest rate is variable, then what is the frequency of the revision of interest rates - whether it is monthly, quarterly, semi-annual, or annually. There are some banks that do not disclose this information. They do not disclose the timing of change in the interest rates either. Still some others pass on the interest rate increases to the borrowers, but do not pass on the reductions.

In case of fixed rate loans, interest rates are supposedly isolated from the market movements. But there are only a handful of banks offering fixed rate loans in the true sense of the word. Most lay down a condition in their home loan agreements that the rates are subject to revision under specified conditions - major changes in the money market condition, change in the bank's prime lending rate etc. So, the protection against changes in the market rates is nullified.

The Budget 2005-06 introduced a 10.2 percent service tax on the services element of the building in all housing complexes with more than 12 units, developed by builders. These costs are usually passed on to the purchasers of the property.

The loan agreements contain clauses that permit the banks to change the interest rate, fees structure, loan repayment schedule, terms and conditions etc. One should go through these clauses and their implications very carefully before taking a final decision.