Imagine that you stumble across an opportunity to purchase an old structure at an affordable price and with the potential for development. These offers are often appealing. For instance, in the city of Mumbai, the cost difference between a 2BHK house in an upcoming society and one that has been in existence for 30 years is usually at least 20 percent. It could go upwards of 35-40 percent, based on the area. As families increase, a lot of people feel the need to move up to a larger home in a new structure or want better amenities and don’t want to wait until the redevelopment process is complete. There are a lot of such homes being offered for sale (even for sale in distress) in metropolitan areas that are densely populated. Within Mumbai, there are a lot of structures that were constructed in the late 80s and early 90s and are more than 30-40 years old, waiting for their fate.

Waiting game

Consider investing in this old property if you can get an excellent bargain. The most significant risk when making an investment decision on old houses is that it will be redeveloped; however, the timing is unclear. The main risk is the waiting time, which is the time for which a significant portion of your capital will be held in an old property. The longer the wait, the more likely it is that you will not get the best chance of a return. The value of money has a duration. It’s different between doubling your money within five years or ten years. In the meantime, if you profit from it by reneging on rent, you’ll get back the capital you invested over many years. The yields on rental properties in metropolitan areas such as Mumbai are about 2.5-3 percent per year, which is a mere smidgen. If you’ve taken a loan and are paying EMI on your old home, the total returns will be even lower.

How to navigate the delays

RELATED STORIES

• Greater meets more than 50% of the target investment.
• Offices lease market will see 26.9 percent QoQ growth in 2023’s third quarter, the highest of the top eight cities.

I’m not saying that investing in real estate in an old house isn’t a great deal. It is important to note that to seek capital appreciation for these properties; the fundamental assumption is that it will be a candidate for development. It is possible to be lucky or not as investors take the trading (not investment) calls for shares, gold forex, or any other commodity.

ADVICE: Bandhan Mutual Fund introduces a retirement plan to help you save for retirement; should you invest?

Furthermore, the process of redeveloping the old housing societies is complicated. There are many problems, such as lack of coordination and differences between society members as well as conveyance and legal disputes and so on. Redevelopment projects also have the threat of delays or getting stuck if the construction company selected by the committee managing it is not able to demonstrate credibility. Also, the length of time that the entire project is conceived and implemented is an important factor.

If the property is subject to reconstruction within ten years or less, the likelihood of earning double-digit yields increases. If the wait time exceeds ten years, you will get back the capital you invested over a long period by merely generating pathetic rent yields. In the end, your earnings will be contingent on the date when your property is put into redevelopment.

A checklist to buy redevelopment-potential real estate

Before you choose properties that are old, You should consider asking these questions before making a decision:

Have you got any goals for the near future that require an enormous cash flow, like your child’s education, within the next five years? If so, then you can’t afford to invest the funds in real property.

What does your current allocation to assets appear to be? If you’re investing insufficiently either in debt or equity, It is better to invest your money in these asset classes first. These types of assets are more liquid and are more closely aligned with your objectives.

Make sure you have enough cash in your savings account or in investments to pay your downpayment. Will this affect your current asset allocation?

* Do you require finance for the purchase of this property? Are you able to pay the EMI? Make sure you are in the right financial position.

Have you conducted adequate research about the location of the property, the Society members’ managing committee, and the managing committee for the society members?

Can you establish a clear date within which you’d like to get rid of your investment regardless of the redevelopment scenario, or are you able to secure the funds for a prolonged period?

It is attractive to buy real estate because it provides the feeling of belonging. There is also the common idea that property investment is always profitable. It is, however, important to examine their circumstances and consider the above questions. Investments in real estate that are not planned could be costly in the long run. In the end, buying a cheap property doesn’t always translate to the best bargain. How the investment is integrated into the overall picture ultimately is more important.