Buying leisure property? Don't treat it as an investment!Buy another house which is capable of being rented out and which can be a good retirement planning tool.
04 Jan 2010
I was pleasantly surprised to receive a call from Raj Gupta, who has been a close friend since my CA days. But bigger surprise unfolded when he told me that he had won an argument with his wife for the first time in life, all because of me!
He was very excited, thanked me profusely for my article in DNA. ( Refer my article on October 3 Buy another home) I was even more surprised to note that my advice can make people win an argument with their wives. ( A thing that I have personally never been successful at).
Naturally my interest level in the conversation rose. I was keen to know the details. He explained that for last few months he has been arguing with his wife over buying ready made farm house-cum-plot near Karjat, approx. 100 Kms from Mumbai. His wife has been opposing the plan, closing that it was a luxury that they could ill afford at this point of time.
And my above article extolling the virtues of buying a second home helped him in convincing his wife that it was not a luxury purchase but an investment he was making for their retirement. Raj said, See, even Harsh supports my view. Hence Raj was extremely happy with the article.
Paradoxically I need to clear this illusion not only for Raj but for all of you who have stretched my advice a bit too far. What my article really suggests is that buying another house which is capable of being rented out. It can be a good retirement planning tool. Moreover it should not be important that whether you would have yourself liked to stay in that house or treat it as weekend gateway. You should buy from a rental perspective. In fact buying a house in smaller towns that you have some knowledge and connection with, might be a great decision given the fast pace of growth that is likely to be experienced by smaller towns and might give good returns over a long period of 20 years.
But what Raj was proposing is not in consonance with my suggestion, as a leisure property could hardly be rented out on a continuous basis. Besides it is difficult to liquidate a leisure property as it cannot be sold easily thus becomes difficult to realize the value of such properties in India. Despite growing economy, FDI influx, rising urban incomes, reach of internet and many such factors, leisure property market is not very well developed in India. Moreover, there is lack of transparency at the operational level and so is the depth in such markets. Hence, getting resale value of a leisure property is very difficult, getting rental for the leisure property is even more difficult.
Let me add here that even the builders of such leisure properties have to rely on large marketing organization and marketing campaign to sell them and it is quite time and effort consuming process. This is not practical for an individual looking to sell his leisure property.
So should you never buy a leisure property? No, I am clearly not saying that, But it should not be bought, thinking it is a good investment. It should be bought from that part of your assets that are allocated to pay for luxury that most people are entitled to after achieving a certain earnings and savings status. Buying it under the mistaken notion that it is a great investment, could perhaps be a big financial mistake. In the event of any stress in your financial life, your ability to liquidate that leisure property quickly might be very difficult. But clearly all those of you who want to get away from all the distress around and connect with your families over the weekend, in a self-owned weekend gateways can positively impact your overall lifestyle and improve your earning potential. To that extent it can be considered to be well spent.
So I am not surprised that once again another wife has won the argument.
Alas! my friend Raj's happiness was short lived. But then he, like most of us, is a good loser and gives in with grace when he knows he cannot win the argument.