In the last couple of years, affordable housing is the only segment where transactions have happened in real estate. Pradeep Aggarwal, co-founder and

I am looking to buy an apartment in Bangalore, Can anyone shed some light on what happens after 30 or 40 years (after the apartment gets aged)?

The answer applies to all metro and capital cities in India . The question asked is similar to : Should I rent a car or own a car ? With every passing year , the answer will shift to renting a car …

  1. Timing of Selling

Assuming you purchase a newly built apartment in a good locality and there being no more space available in the vicinity for new construction , you can get some capital appreciation in initial 3–4 years as people would be willing to purchase the apartment .

But after 7–8 years , new areas would develop , your building will become old , it will require maintenance regularly and therefore new buyers will come only from lower middle class who cannot buy a newly built apartment .

There onward , your apartment’s price will be decided as percentage cost of a newly built apartment , which may be half of a new apartment . It will have more cost of maintenance , lacking many new facilities . It could be done only after demolishing the building and making a new one . In my view, even that cannot be done in future as city would have changed dramatically in next 30 years and old buildings may be just demolished to make way for open space .

So, best time to sell the apartment is within 2–3 years , after that it starts depreciating .

2. No Capital Appreciation Scenario in Future

It happened until 2012 in India . Reason was that there were small local builders who built low rise buildings with small number of apartments so supply was less . Old generation has 3–4 children on average so there was huge demand as they needed new residences . Economy was booming during 2003–2009 , everybody was getting good salary , IT market , share market boom , huge black money investment in construction led to good money in people’s hands and many people could purchase real estate . That led to huge appreciation of residential property .

In 2016 , people have one or two children , they already live in a decent residence and there is no panic need to buy another apartment. The employment is only giving 3 or 4 LPA to new generation . Corporate builders are building high rise towers with 30 storeys , 500 apartments, with high technology and cost .

So supply has increased but demand is not there as there are few people who can afford a simple 3 bhk flat for more than 1 crore . Starting maintenance cost and rental charges are already quite high , so people have little disposable income to buy a 1 crore worth flat and they would prefer to live in rented 2 BHK in sharing mode.

That has led to huge inventory of unsold flats with builders , who are now compelled to rent them so that they can pay to investors and banks . They are forming REIT ( Real Estate Investment Trusts ) to capitalise their investments .

This scenario will continue in coming years as technology becomes more affordable, MNC companies enter with foreign investment into real estate sector . Real estate sector will be more regulated , all the taxes are to be paid along with 20% GST in construction and maintenance and no black money could be used in construction or in purchase in coming years.

Therefore in coming years , it will be only for very rich people to purchase an apartment . Big companies will own them and offer for rent for ordinary people , as already happens in western countries .

New building regulations, environmental issues , increased taxes ,high labour cost to maintain buildings, shortage of water etc are other issues which will create headache for owners and that may make selling an old apartment impossible sometimes .

Because of all these developments , just as it is now better for an individual to hire Ola or Uber to commute than owning and driving a car , the same way residential apartment will be owned by big real estate companies who will rent them and maintain them . Under such circumstances , person owning an apartment will be more like yellow black cab taxi owner , whom people will rarely look for .

3. Conclusion

It is better to live in rented accommodation than purchasing a residential apartment . That will save your investment from getting blocked . Whether you purchase it , then rent it to others or you yourself live , investment wise it makes no sense . You have choice to move into new flat , new city , country as per your job, financial , social and family status .

We are copying western way of living , so we will reach where Europe and US have already reached . Their middle class citizens no longer purchase apartments , they rent it and very soon we will also be renting them through UBer / Ola type mobile apps and that can be 1BHK , 2BHK as per need and duration . These flats would be equipped and furnished like new cars on Uber and one would need only personal effects to move into them in an hour , like a hotel room , after transacting over a mobile app.

If you belong to rich class , then also you will go for apartment hotel type buildings , maintained by big companies as owning a land piece , constructing and maintaining will be huge headache which only Film stars, politicians , industrialists would be able to afford.

4. How People Will Invest in Real Estate in Future

It is best described in this link Nuts and bolts of Real Estate Investment Trusts .

My essays on future…

Update After Demonetization in 2016 :

The prices will fall initially in 2017 but once GST is applied , the sale becomes more transparent , then properties will become costlier by at least 25% from low of 2017 prices .

Once the whole process becomes transparent , more builders will come and supply will increase , so the prices will again stabilize and what has been written above will again be applicable after 3–4 years from now on . It will truly follow the housing patterns of US and Europe, with abundance of rented accommodation by corporate players using foreign direct investment.

Post GST Scenario In October 2018

GST has not made much difference as it reduced overall taxation . So, the situation whatever has been stated above now applies completely.