Patrick was in two minds about the apartment that was up for sale in a nice neighbourhood. One mind, let us call it Optimist, felt that it was a great deal and he must act before it is lost. Another mind, Pessimist, was filled with doubts and worries about the home. The internal conversation went something like this.

Bear case

“Older apartments are a money pit and buying old is a sure way to get holed and deal with mold,” said the Pessimist. “There are at least a few reasons why you must stay away from this idea. One, the building may be crumbling and issues such as water leaks, and plumbing trouble may start to emerge. You may end up spending a lot of money and go through a lot of hassles to fix issues that will likely be recurring.

Two, the intensity of the issues may be so high as to pose a risk for those who live there. For example, if the wiring is old, you may be potentially flirting with electric fire hazard. And those in the top floor of old apartments could face the dire risk of the roof falling. The lift in the complex may be unsafe or, may not even exist.

Three, older apartments may not have many of the amenities that new constructions have. For instance, some may lack car parking; most would not likely have gyms or other facilities that are more mainstream now. A few features considered essential – uninterrupted water supply, for instance – may not be available and you need to see if you are ready for the lifestyle change.

Four, if the development is very old, the owners may be considering redevelopment. This may take a while to happen and as a newcomer, you may find it difficult to navigate the relationships and understand the constraints and preferences of the other owners.

Five, there may also be issues in getting a home loan for an old apartment. For example, some home finance companies may refuse to lend if the house is over 15 years of age. This is because, if the loan tenure is 20 years, the house may be too old to sell, if there is a default. Some lenders may grant a loan for a lesser amount, as they may appraise the value to be less. Some may reduce the tenure of the loan.”

Bull case

The Pessimist had even more to say, but the Optimist cut in. “These are not always true and there are many reasons why you should look beyond squeaky new homes,” the Optimist said, and started listing them out.

One, if the home was built by a good builder, it can have a lifetime of 40 years in many cases. So, 15 or 20 years is not an issue and there may not be structural issues or other problems, in general, if it is well maintained. And you can get it easily checked before you get into a deal, anyway.

Two, older apartments may have more land and hence you may get a higher Undivided Share of Land (UDS). So, as the building starts to lose value over time, the land value would appreciate better than when you buy a new home, with a potentially lower UDS, for the same price.

Three, you may be able to buy older homes at a discount to the prevailing market rates. For example, a 10-15 per cent lower price is common. And based on the specific circumstance of the seller – for instance, they want to relocate - you can get an even better deal, as they would have made decent gains and may want to close the deal soon rather than extract the last rupee.

Four, in many developed neighbourhoods, you may not be able to find many new projects. The number of new homes that come up in the area could be limited, which may lead to high prices. So, buying a resale home may be the choice available. And this may offer good price appreciation over the short term and long term due to demand-supply mismatch.

Rational case

Patrick’s brain, which felt quite trolled by this exchange, added a few points.

“You need to first understand the true reason for the sale, to uncover any problems with the property. Be sure to get opinions from civil and legal experts to ensure there are no issues such as illegal or unsound construction.

Even if you do not plan to take a loan, get the property assessed by an independent valuer to understand the rate. This will also help unearth any aspects that may lessen the home value, which may have been missed. While working out the finances to buy the home, include additional expenses for repairs and upgrades.

Also, while the cash component in resale homes has reduced, you still need to understand the expectations and decide on the deal.”

“So, should I hold or fold?” asked Patrick.

All three said, “It depends”.

Home loan

Check with the lender on any restrictions for home loan tenures and loan-to-value for older homes

Checklist

Check the structure for defects

Ensure all amenities are there

Validate the price with experts

(The author is an independent financial consultant)

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