Older house can offer price and location advantage, say experts

But ensure repair expenses don't erode initial gain; also carry out title check

Housing prices have risen nearly 5 per cent across the country’s top- eight cities between January and September, according to a report by PropTiger, owing to an increase in the cost of raw materials like cement and steel, and growing demand for housing. If you wish to save money on house purchase, consider buying an older property.

Price advantage

An older property is usually available at a lower price than a new construction as property value depreciates over time. Experts vary in their estimates of the price advantage you can gain by going for an older property. Santhosh Kumar, vice chairman, ANAROCK Group says the price difference can vary from 3-5 per cent in some cases and go up to 15-20 per cent in others.

Vikas Wadhawan, group chief financial officer (CFO), Housing.com, PropTiger.com & Makaan.com estimates that newer homes are around 25-50 per cent costlier than older ones.

The exact price difference would be case specific. Says Kumar: “If the resale property is situated in a highly aspirational neighbourhood, there may be no difference at all.”

The price difference also depends on the new property’s stage of development. “As the project nears completion, the price difference tends to narrow,” says Kumar.

In the case of a new property, the builder’s brand and quality of construction, and in the case of an older one, its age and state of maintenance, impact pricing.

Access to prime localities

Land is often not available in prime localities for new projects to come up. If you wish to live there, you will have to buy an older property and pay a premium for the prime address. “Older, established parts of the city command a higher price than newer suburbs,” says Pankaj Bansal, chief business officer (CBO), BankBazaar.com.

Older houses, built on larger plots, tend to be spacious. “Since they are usually built on large parcels of land, they have bigger rooms and could even have a big yard,” says Kanika Gupta Shori, founder and chief operating officer, SquareYards.

A buyer can sometimes hit the jackpot by buying an older property. “When a very old property eventually comes up for redevelopment, the owner’s stake can double or triple in value,” says Kumar.

With an older property, what you see is what you get, which is not the case with an under-construction property.

Buyers pay a pre-EMI (only interest on the loan) when their property is under construction. They can avail of tax deduction on this amount in five instalments once construction is completed. Abhinay Sharma, managing partner, ASL Partners, says, “If a buyer moves into an old house, he can begin to avail of tax benefit immediately from the first EMI on the home loan.” The buyer can also save on the pre-EMI.

But repair can cost a packet

If the older property is in a state of disrepair, you may have to spend a considerable amount on making it liveable. This expenditure could erode the initial price advantage.

Also, be prepared to spend more on maintenance. “These properties are more likely to require repairs from time to time. They are also likely to be less energy efficient,” says Gupta Shori.

Banks are sometimes reluctant to lend money for the purchase of very old properties. “Banks look into the structural stability of older constructions. If the building is older than 40 years, or the municipal corporation has classified it as dilapidated, the loan may not be approved,” says Bansal. Shorter loan tenures are offered on buildings nearing the end of their lifespan, unless they are exceptionally well maintained.

Older buildings often lack modern amenities. Says Kumar: “Adequate parking space may not be available in a building constructed a few decades earlier when car ownership wasn’t common.”

Run these checks

Get a structural engineer to test the strength and viability of the construction. Also get a lawyer to ensure that the title is clear and unencumbered. Says Srinivas BR, partner, DSK Legal: “The purchaser will have to carry out legal diligence on the title of not just the developer or the original owner but also the re-seller.”

Pros and cons of a new construction

Pros

• Likely to be equipped with the latest amenities and adequate parking
• Financing is easier
• An under-construction property purchased at a well-chosen location offers good potential for price appreciation as new infrastructure is developed and the area gets occupied
• Energy-efficient architecture and equipment can reduce cost of energy

Cons 

• Project delays — due to litigation or due to late permissions — are possible in under-construction properties
• Newer developments usually come up in the suburbs due to paucity of land in prime areas  
• The buyer may be liable for goods and service tax (GST) if the purchase was made before the occupation certificate was obtained