OVER the last few months, property prices have been on a roller coaster ride. The rates had skyrocketed and have now fallen more than 20 per cent. So, is this the right situation to buy a house?

In a series called 'On the Couch,' I take my readers through conversations with various kinds of financial jargons. In this column is a hypothetical situation with Real Estate (RE) having a conversation with a layman who wants to buy a house.

Buyer: It is so important to have you. I feel you are so over-priced that it is beyond common man’s reach to own you. It's such a pity.

RE: Quite true. There are many people who like to hoard me. They have money and keep buying more and more of me, and as a result I may seem artificially high priced. And common people like you have to struggle lifelong.

Buyer: You are a basic requirement and I need to buy you to have a roof over my head.
RE: Yes, it is an essential requirement of life. You need a home and so does everybody.

Buyer: How do I buy you?
RE: Let me explain this in two stages.

First stage: When prices are extremely high, it is the worst time to buy property. We witnessed this situation just before the property prices crashed.

If you intend to buy me during this overly priced situation, you may run the risk of irrational financial deals because you would be paying more than the actual worth of the house. Nevertheless, if you can still afford to buy a house, do so at your own risk. But remember such a market is a seller's market.

Note: It is not easy to find out if the prices have reached the stage of 'extremely high'. But you can get a fair judgment by keeping a continuous tab on the prices through agents, consultants, etc. And most importantly do your own research before indulging in any form of buying.

Second stage: A good time to buy a house would be after about two years of a crash but before four years. This is an approximate time to buy. Besides, you will also get some real bargains when the prices have stabilised a bit. Look out for developing or under development projects. Don't forget-- bargaining is the key to getting best deal.

This is typically a real estate buying mechanism.

RE: No. You need to wait for some more time, property prices are expected to fall by another 50 per cent. Besides, interest rates are on their downward journey too.

Buyer: Is it a wise decision to buy real estate as an investment?
RE: Let’s say instead of investing in property, you decide to invest in a bank fixed deposit or any other alternative. Now, if your rental income works out to be higher than the FD returns, you can go ahead with your purchase else you can skip this option.

Buyer: Can I consider loans to fund my purchase?
RE: If your rental income is equal to or greater than the equated monthly installments, then you can consider taking a loan.

Buyer: Should I look at real estate funds floated by companies?
RE: If you trust them, go ahead or else just avoid it.

Me: What kind of returns can I expect from my property?
RE: Returns can be in line with inflation. When inflation is high so will be the returns and vice-versa. Returns can also be emotionally driven. So, they can be highly priced in the locality that is a favourite among people.

Calculate: Check out the property prices in your city

Read:

• Wait a year to buy a home: Knight Frank India
• Should I buy a house in 2009?
  

Photograph: Associated Press

Disclaimer:
The concept “On the couch…” and the contents of the above article are the intellectual property and copyright of the author, Kartik Jhaveri. No part may be used or reproduced in any form or manner. If you choose to act upon the information contained in the above article it is at your own risk. This article is purely educative and you are strongly advised to consult an expert prior to taking any significant decision.

e-mail: Kartik Jhaveri

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