Publication: The Hindu Business Line

Should you invest in residential property with your retirement savings? Most people do, because they think rental income helps meet your post-retirement expenses. But does it? As you will see, real estate investment may not be your primary retirement-income generator. Rental income can supplement, not substitute, pension products.

WHY UNSTABLE?

In our investor-learning programs, participants often say that they use their retirement savings to buy residential property. You might agree with them. After all, you receive rental income every month and such income often keeps pace with rising price levels. But there are important variables that you need to consider before you create a real-estate retirement income portfolio.For one, rentals are not as stable as you think they are. You will, perhaps, remember how rentals fell after the sub-prime crisis in 2008. And that is not an aberration. You will witness more such real-estate volatility, as India canters to become a developed country. For another, you need to spend a proportion of your rental income to maintain your property. Added to that is the possibility that your property may not be occupied at all times. Besides, rapid infrastructure development in the country means your property maybe affected by changes in regulations.

This includes forceful acquisition by the government to expand roads or build airports!

All of these factors mean uncertainty in your rental income. And that means your lifestyle is exposed to risk of changes in these variables. Because you expect to earn income from it, we cannot consider capital appreciation in the property. You can either sell or earn rental income, not do both! The question is: Would you like your tenant to decide your post-retirement lifestyle?

RENTALS VS ANNUITY

You may recall from our discussion in our earlier column, Micromotives, about how retirees need to have stable cash flows to meet their lifestyle expenses. These are regular monthly expenses such as food and clothing to maintain desired post-retirement lifestyle. We suggest that you consider annuities for this purpose, as rental income cannot provide stable cash flows for the reasons mentioned above.Annuities are pension contracts that you can purchase from an insurance company for a lump-sum payment.Many do not prefer annuities because the traditional annuity does not return the purchase price after the death of the annuitant. If you are one of those who dislike this feature, you can choose to buy an annuity with return of purchase price after your death.The advantage is that an annuity gives you a stable lifetime cash flow. Importantly, you do not have to worry about finding a tenant, leave alone expecting the tenant to pay the rentals on time! Besides, an annuity compares favourably with residential investment.

If you buy a property worth Rs one crore with your retirement savings, you may receive a rental income of Rs 40,000 a month. That translates into Rs 4.8 lakh income a year or 4.8 per cent return a year. Currently, an immediate annuity with return of purchase price will pay you about Rs 7 lakh for Rs one crore of purchase price, if you are 60 years at the time of purchase. Suffice it to know that insurance companies are able to offer such competitive rates because of “mortality credits”.

You should create stable cash flows to meet your lifestyle expenses to lead a stress-free life, post-retirement. Rental income may not provide you such stable cash flows for the reasons discussed above.You can nevertheless invest in a rental property to supplement your post-retirement expense.

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Publication: The Economic Times

Technically speaking, renting out a property that you own is also a form of returns on investment in real estate. It is the ’softer’ option because you are not doing hardcore buy-&-sell speculation, but rather capitalising on an existing property. Conducted properly, renting out can assure a steady cash flow, minus the high levels of tension involved in actual property trading.

The advantages of buying rather than renting a home are obvious. Buying a property means mandatory saving. If using a home loan, one makes payments on an appreciating asset. It also improves your credit rating with lending institutions, and the equity vested in an owned property comes useful as collateral for emergency loans. Moreover, payments made towards home loans are legitimate income tax deductions. Apart from this, people buy homes because home ownership contributes to security in advanced years, which typically mean decreased income generation capacity. A home owner is also at liberty to make whatever improvements he wishes to on the house, subjects to certain applicable restrictions.

Property means that one is not answerable to a landlord, that one can pick and choose one’s neighbourhood, and that one is free from the hassles of signing monthly rent cheques. Significantly, a self-owned property is also a definite status symbol. If asked what kind of residential property is preferable - purchase or rental -most of us would reply ‘purchase’ without a second thought. We feel that a property to call one’s own has many advantages, and that a rented property is only a stopgap measure at best.

COUNTING THE COSTS

All of the above is true, but it does not present a complete picture. There is a time to buy, and a time to rent. Owning a home can also bring hidden encumbrances with it. Apart from the fact that one needs to make a substantial down-payment while buying a home, one is also making added commitments in terms of time and emotions. Moreover, there is always a chance that the hoped-for appreciation in value does not happen - this is quite possible if the neighbourhood deteriorates and makes the resale of the home problematic. It also restricts your financial freedom, since a large chunk of your money is tied up in the house.

One must also consider that maintenance and repairs to a self-owned home can represent a significant capital outlay, and considerable investment in terms of time and effort. You will also need to insure both your home and your home loan against any unforeseen disaster, and one cannot anticipate when property taxes will suddenly increase. Finally, an unexpected loss of income (as can happen if one loses his job) can make things extremely difficult if one is paying off a home loan.
Owning a property is a considerable commitment in other ways, too. From the moment you sign on the purchase deed and put your down-payment on the realtor’s table, your course is charted in many ways:

■   By buying a property, you are also accepting full responsibility for its upkeep.
■  You have surrendered the choice of moving to another place whenever the fancy should take you.
■   You have committed yourself to building a workable relationship with your neighbours, whether you like them or not.
■   You have also relinquished all possibilities of changing your mind and are stuck with whatever the present location’s inherent appreciation potential is.

Buying a property does not mean that you are not bound in certain ways. Actually, such a move makes sense only when you have an unshakeable monetary base.

MIND OVER MATTER

Depending on the stage you are in at the moment, it is always wise to consider the advantages of rentals over ownership properties. If you are still vacillating between choices of the areas to live in, between jobs, or not even sure of what kind of lifestyle you are most comfortable with, choosing from the vast rentals market would probably be a better option. Renting an apartment gives you the freedom to leave at any point in time, for whatever reasons. It frees you from the burden of maintaining the residence, this remaining the responsibility of the landlord. If you suddenly find a better paying and generally more promising job somewhere far from your present location, you are not tied to a rental apartment in any way. You can give a notice, collect your deposit and leave. If you think contextual and relative one.

The money you save now by abstaining from buying a property and opting for a rental would probably earn you more in a bank fixed deposit than in over-optimistic property speculation. This is, of course, not true in all cases. In the final analysis, the decision whether to buy or to rent a property must be yours alone. Do not allow yourself to make an emotional decision. Being able to buy an expensive apartment in no way assures a ‘happily ever after ending.
High maintenance costs, unnecessary amenities, unsuitable neighbours and many other undesirable consequences can result from a rash purchase. Until financial circumstances are favourable, renting a property sometimes is the perfect interim plan.

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Publication: DNA

Panvel is the gateway to the MMR - Mumbai Metropolitan Region. The main hinterland of Maharashtra lies towards the east and south of Panvel. Panvel provides quick access to the hinterland and it is the opening towards Pune. With the opening of the economy, one can expect a lot of development to take place in and around Panvel. There will be dramatic improvements taking place.

Until now, Panvel has been primarily a middle class area, the other Navi Mumbai nodes are more affluent. Proximity to Pune is its biggest asset. With the new International airport coming up in Navi Mumbai, Panvel’s future seems very promising. It can really take off. Another plus point is its proximity to JNPT, the freight corridor, the industrial corridor… the rail connectivity is excellent. As a terminus it is suitable for freight related activities.

Over the past year, Panvel has suddenly become the hotspot for many people and they have begun to look at Panvel as a place to be in, whether it’s in terms of appreciation, whether it’s in terms of growth, whether it’s in terms of opportunity. This is happening due to a variety of reasons ranging from the International airport coming up and the elements around it, or the fact that Panvel is evolving into a major terminus. The fact that there is more land available at Panvel for township projects is a major plus point for real estate development. Most home seekers today are from the middle class who want some amenities. Panvel makes that possible. People can enjoy lifestyle amenities like a playground, clubhouse, etc. in the new townships coming up there. Today Panvel offers maximum value for money.

Today the land mass in Mumbai has gone up to Nallasopara and Dahanu. Panvel and beyond Panvel up to Raigad are equidistant. Panvel has a lot more scope because it has JNPT, one of the largest employment providers; the largest IT corridor, MHAPE. On the Pune side there is development from Hinjewadi towards Lonavala, here it will be from Panvel. Land is easily reachable. You have the Panvel-Uran railway line laid up, once the population comes up you can start it. You have the Mumbai-Pune Expressway, the old Highway, water is not going to be a problem thanks to the Morbe Dam.

When it comes to potential, the Pavel-Raigad region can extend the IT corridor right up to Khopoli. Panvel may well become the hub of Navi Mumbai in future. The proposed 22 km six lane sea link between Sewri and Nhava Sheva is likely to change the skylines of Panvel as the distance between Mumbai and Panvel would also come down drastically. Navi Mumbai real estate is going to hit some new high notes with the coming of the new International airport. The highest focus will be on Panvel and its immediately adjoining areas, since Panvel is Navi Mumbai’s last node and also the ingress for the Mumbai-Pune Expressway. A speedier focus on the development of physical and social infrastructure in the region will ensure that this region maintains its attractiveness as a destination on the Mumbai real estate map.

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