THREE things are so essential to the fabric of life that they ought to be free: food, shelter, water.

Personally, I would add an iPod to this list also. But let's leave that aside for now.

Of these, one and three, if not free, are available at reasonable rates everywhere. Unless, of course, your daily food requirement constitutes a five-course gourmet meal and you drink only Evian!

The killer is Number 2 -- shelter.

That seven-letter word is not as simple as having a roof over your head. It comes with a multi million industry that is unscrupulous, unorganised and highly volatile. Colleagues of mine, corporate sharks in the boardroom, have been reduced to tears while buying a house.

People charge what they feel like. It is maddening.

How do you identify the right price for a property? What are the checks to ensure the property is not overpriced? We spoke to Ramesh Nair, Local Director, Jones Lang LaSalle Meghraj, Chennai, to put some method to the madness.

1. The two-hour rule
"I plan to buy a flat in Mulund West (northcentral Mumbai), near Nirmal Lifestyle (a mall). The builder is quoting around Rs 5,000 per square foot. Is this rate realistic?" asks Ram.

Ram can identify the right price by following the two-hour rule. Nair suggests that you spend at least two hours a week on research. Drive around the neighbourhood, learn market value, check competing projects and make appropriate offers, review relevant articles and gather information on deals in the market at regular intervals.

2. The formula for the right price
If you thought the time to learn equations and formulae is behind you, think again. While buying a house at the right price, look for an annual investment yield of 5 per cent to 7 per cent for residential properties in India.

The formula to calculate investment yield is:

Investment yield = Expected net annual rent x 100
                                Total purchase price

(Deduct property tax from the annual rent to arrive at the net annual rent. Add stamp duty and registration charges to the purchase price to arrive at the total purchase price.)

Photograph: Associated Press/Elaine Thompson

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e-mail: Team Wealth

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