SPRING IN SECTOR – MAKE THE MOST OF THE FESTIVE SEASON

The festive season is here. Shoppers are active in the markets. Most of the long-pending and postponed purchase decisions are made during this time of the year.

This year is no exception. In fact, there is another good reason for better festive season sales this year. With the implementation of the recommendations of the 7th Central Pay Commission, the government employees have a windfall.

The current festive season started off on a good note and is expected to continue till the end of the season. This season is considered to be auspicious by many. Across different parts of the country, there are a number of major festivals occurring during this time of the year.

A large number of people plan most of their major purchases during this period.Be it the purchase of a new car or refrigerator, this is when many make a move.

This is also a time when planned property purchases are made. A large number of prospective buyers looking for a home for their own stay come into the property market during this period. They contribute to a bulk of the property transactions at this time as investors are active throughout the year.

Catering to the increased demand during this period, property developers come out with new plans and incentives. There are offers on both ready-to-move-in houses and new property launches.

Along with developers, this being a good time to tap in the home loan market, banks and home finance companies too come out with new and innovative products to attract prospective borrowers.They have tie-ups with developers and provide instant loan approvals.

Further, the loan schemes offered dur ing the festive season may include no processing fee, special interest rates, quicker processing, and so on. On the ground, the market conditions for a property purchase are conducive.There is good supply.The options across all segments of apartments and villas are many. There is easy availability of finance too.Prospective homebuyers need to plan now and take advantage of these factors.

While buying a house, there are some costs that a homebuyer has to fund.Generally, banks finance up to 70-80% of the property’s cost. The rest is to be fi nanced by the buyer out of their own resources.

Some finance requirements one needs to plan for:

DOWN PAYMENT

If the total cost of the property is Rs 50 lakh, a bank may provide a loan of up to Rs 35-40 lakh. The exact amount of loan one is eligible for depends on the prospective borrower’s financial appraisal. The rest of the funds needed for the property purchase have to be arranged from one’s own resources.

This part of the finance is called down payment and has to be arranged for before the loan sanction.

REGISTRATION FEE, INTERIORS

The homebuyer may need to fund the stamp duty and registration charges. In addition, one may need to spend on the interior decor or renovations to the property. Fixtures and fittings will be needed in case they are not already installed.

Further, one may have to go in for property-loan insurance.

PLANNING FOR FINANCE

Here, the role of financial planning comes in. You can start planning and accumulate the finances needed.

For example, the recent decision of the government to pay arrears to the government employees, arising out of the 7th CPC’s recommendations, is good news.This lump sum can be a good source of funding for those planning a property purchase. One can use this additional income to fund the down payment.

Similarly, many companies pay the annual bonus during this time of the year, which again can be used to build a buffer for the down payment.

Any surplus funds can be invested in short-term, safe investment instru ments, so that they can be used when the need arises. For example, you can invest in the short-term fixed de posits of banks.

It is not advisable to in vest these funds in long term securities like bonds or Public Provident Fund.

Also, it is not advisable to invest this money in the stock markets for short dura tions. Although the returns may be higher, the risks are even higher.

Once a property has been shortlisted, and purchase formalities taken care of, you will have to pay at a short notice. In such a case, you may not be able to liquidate long-term investments quickly.

Also, the stock markets are volatile and it’s quite possible that at the time you need the funds, they are passing through a low phase. In such a case, you may not be able to get the required money from the markets.

It is therefore advisable to invest in the short-term fixed deposits of banks. A small portion of the corpus may be invested in debt funds as well.

Since the funds may be required at short notice, the aim should be to earn some returns while keeping the capital safe. You can invest in short-term instruments with a time horizon of 2-3 months. The priority has to be safety, liquidity, and returns–in that order of preference.

Finally, a prospective homebuyer needs to stay focused and not divert the corpus into other purchases.