Personal Finance

The ideal location for a house

Meera Siva | Updated on August 25, 2019

Whether buying for own use or as an investment, look for a few key attributes

Location is touted as a key factor when buying property, but finding the right place is not a simple formula. Nevertheless, there are some elements you can evaluate to arrive at a good location when buying a house.

Buying for use

In general, considerations vary if you are buying to move in versus as an investment. If you plan to live in the house, the family composition would decide the desirable attributes. A place that is close to the workplace or has connectivity would be ideal for nearly everyone. Rather than going by distance, looking at door-to-door travel time (of say, 45 minutes one way) can help narrow down the locality.

For younger couples, entertainment options, for example, may take precedence over, say, availability of schools or hospitals. Also, if their job requires a lot of travel, airport access is a factor. For families with kids in school, proximity to places the family frequents — schools, markets or shopping malls — would be a good consideration. Availability of parks where children can play and other activities such as classes may outweigh even the daily travel hassle. For families with elder members, walking space and proximity to medical facilities would be important.

Buying as investment

When buying for future use or as an investment, you must look for the broader appeal rather than suitability for a narrow target. As with picking stocks, you need to do a top-down as well as a bottom-up analysis. If you have the option to choose any city, the first step is to look at the macro aspects of price appreciation, before the locality-specific aspects.

For example, property prices are a matter of supply and demand. Demand is driven by job growth in the area. If there are well-diversified sources of jobs — as opposed to a single company or sector being the job driver — the city will likely see price growth. A proxy to this is the office space absorption in a city, which is usually a good indicator of demand and price. A recent example of a city that is picking up on this front is Hyderabad — it is expected to consume 11-12 million sq ft of office space in 2019, putting it on par with Bengaluru, as per research firm JLL. And data from property consultancy Knight Frank show that Hyderabad saw good price appreciation (9 per cent YoY — January-June 2019 vs January-June 2018).

Another factor is efforts to boost job growth. For example, are there IT or other sector zones planned, or perks given by local government to attract firms? Likewise, infra projects such as metro rail and education institutions bode well for long-term growth.

You must also keep an eye on supply. Start by looking at the current levels of unsold inventory and expected supply in the next two years. You must check this specifically for the price range of the property you plan to buy and not go by overall figures. For instance, data from JLL for Bengaluru showed that luxury houses saw good uptake and unsold stock fell to 3,260 units in Q1 2019 (from 6,370 a year ago). Houses in other price ranges did not see such a robust off-take.

Once you pick the city, the key to earning good returns is being able to spot a locality that is not already well-developed but is upcoming. It helps to not pay a premium and avoid the fringes where there is no activity. The key is finding the sweet spot or value buy — a place that is strategically well-located and would develop. And as you do not plan to live there, and factors such as lack of connectivity may only affect rentability, you can still buy if you see price growth potential and the situation improving in a few years.

What to watch

There are a few must-haves, such as the safety aspect, that you cannot compromise on. You can check this by visiting the area at night and different days of the week. Also, risks such as flooding are on the rise due to climate change. There are tools (based on historic data) you can use to get information at a pin-code level.

Be sure to set a budget you are comfortable with and stick to it. List the factors you are willing to compromise on, as there may not be an ideal location that ticks all the boxes within your price tag. Also, if you have been a city-dweller who is used to walking down to shops or being in easy reach of music or theatre, realise that moving to a suburb may require some adjustment.

It is important to not compromise on quality. For instance, if the location you picked does not have projects you are happy with, do not settle for less. The market is not hot, and you may be able to find other options if you wait.

The writer is an independent financial consultant

Published on August 25, 2019

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