Moneycontrol PRO
Check Credit Score
Check Credit Score
HomeNewsBusinessPersonal Finance

When should you buy your retirement home?

Retirement is another aspect that talks to the deeps. People want to have enough in retirement so as to be able to live in comfort. People dread the possibility of depending on their children, which today is indeed an uncertain prospect.

September 10, 2014 / 05:18 PM IST

Suresh SadagopanLadder7 Financial AdvisoriesThere are two subjects that greatly interest people in this question – Property & Retirement. Property denotes solidity – an investment that you can see physically, something that they can rent out and get income. Also, it is believed that property prices will always appreciate. This is often mentioned as a statement of fact.Retirement is another aspect that talks to the deeps. People want to have enough in retirement so as to be able to live in comfort. People dread the possibility of depending on their children, which today is indeed an uncertain prospect.That probably is the reason why many talk of building or buying a retirement home now itself. On the face of it, the idea may seem sound. However, it is anything but.Let us look at the experience of Kevin…Kevin wanted to buy a property in Mussorie for retirement purposes. He was quite attracted to this destination after his holiday there, in a resort. He came to know that a local builder was constructing apartments in the outskirts, for those who wanted homes in Mussorie. Kevin thought he could use the apartment, from time to time, as a holiday home as well as use it to settle in after retirement, in 17 years. The property was not very costly. He had to pay about Rs.35 Lakhs for it. He paid an advance and then took a loan. The property was to get ready in 2 years. But even after 3.5 years, it was only 60% complete. Kevin had to make several trips to Mussorie to meet the builder and check the progress. After 5 years, the property got completed.But even after that, electricity and water supply took another 5-6 months coming. When Kevin’s family finally went for a vacation to their own home, they were happy. But, the occupancy was pretty low – almost no one was there. The watchman there told them that hardly two to three families came in a month! No one was staying permanently. There were no shops around and they had to go six kilometers to the market to fetch anything. After four days of stay there, the family got bored with the enforced solitude. While they were there, they saw that all facilities were not operational. The children’s park had play equipment, but they had rusted and the play area itself was overrun by weeds. Lights were not functional. The gardens were not maintained at all and was like a thicket.When Kevin came back from holidays, he was not sure if he had indeed taken the right decision.Surya had a different experience. He had bought a home in an assisted living colony meant for senior citizens, in the outskirts of Coimbatore. This is a well maintained place. He had to pay about Rs.55 Lakhs for the apartment. Surya originally bought it for his parents who were staying in their village. But then, they refused to budge. Surya thought he can retain it as a retirement home for himself. It looked like a good idea to him. The property was appreciating well, according to the builders. It had gone from Rs.35 Lakhs five years ago, to Rs.55 Lakhs.  So he wanted to keep it even though his retirement is 22 years away.However, buying property for retirement suffers from a few drawbacks.Property depreciates over time -  It may all be very well to plan that dream retirement home in the hills. But, if the retirement is still far away, the property will become old and will need lot of maintenance by the time, one may retire. One may end up spending a packet on it as well as investing time in repairs and maintenance instead of the rest and peace one was expecting in their dream nest.What appears great today may not be what one may want in future – We keep changing over time. What appeals to us today may not be what would arrest our attention two decades later. Our interests change, perspectives and outlook change, better / more exciting options could come in later… better amenities, more contemporary styles & facilities and even innovative ownership options could come in future. Even the location which looked positively alluring today, may be replaced by other worthier contenders. In a nutshell, what looks like a great option today may not excite one later. Returns from such properties would be poor – Properties bought with serenity in mind are going to be a bit away from civilization. For that very reason, they are going to fetch poor rentals or no rentals, as they are far away from the area of commercial activity. However, maintenance and property tax would still have to be paid by the owner. That makes these properties a double whammy.Amount invested in such properties would give poor returns - Retirement properties are not expected to set a blistering pace in terms of appreciation. Since they are in far flung areas, the appreciation potential will be muted. Amount invested in them would hence grow slowly giving poor returns on a good sum of money invested in them.  For instance, if one invests Rs.55 Lakhs in a property which offers a post expenses returns of 5%, it is expected to have appreciated to Rs.1.61 Crores in 22 years. A simple financial investment even yielding 8% would have appreciated to Rs.3 Crores, in the same timeframe. That is why investing in such low yielding retirement homes is a bad idea.It is hence far better to keep the investments in financial assets and choose to invest the money in a place of one’s choice near to retirement. That way, one would buy a property that in contemporary, with all facilities, in a place where one wants to eventually settle down. One will be spared the unwanted trips to the property, from time to time, to ensure that it is well maintained. Apart from the privilege of owning it, there may be nothing else going for it.Verdict - Keep the money intact and buy a home of your choice, closer to retirement. Once you do that – don’t worry, be happy!

Suresh Sadagopan is Founder of www.ladder7.co.in and can be reached at ladder7@gmail.com

first published: Sep 10, 2014 05:18 pm

Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

Advisory Alert: It has come to our attention that certain individuals are representing themselves as affiliates of Moneycontrol and soliciting funds on the false promise of assured returns on their investments. We wish to reiterate that Moneycontrol does not solicit funds from investors and neither does it promise any assured returns. In case you are approached by anyone making such claims, please write to us at grievanceofficer@nw18.com or call on 02268882347