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IREF® - Indian Real Estate Forum > Real Estate in India > Real Estate Bangalore > Hold/sell decision for 25 yr old apt on old airport road
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Old March 1 2012, 11:50 PM   #1
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Default Hold/sell decision for 25 yr old apt on old airport road

Hi all, seek your valuable advice and inputs on the situation outlined below.


Background:
I own a 2BHK (~1000 sqft) in Builders Apartments, a building located bang on old airport road, right next to the Intel office and across the Leela Palace hotel. The Bldg was built in 1986, has 5 floors with ~60 flats, largely occupied by owners. I bought the flat in 2001 (by when it was already 15 yrs old) as we had lived there as tenants for a year and we just loved the location and the neighbours. We moved out of Bangalore in 2006 and have since rented out the place.

I no longer see myself going back to Bangalore and was thus considering to sell and reinvest elsewhere. I called up a few brokers to get an idea of the price and was shocked to hear that at best it would fetch ~25 Lacs (~2500 psf). This was a shocker since I paid ~12 Lacs in 2001 and more so since a similar flat had sold for ~30Lacs in 2005 or so. Reasons given for the low price were as follows:
- Very limited demand due to age of bldg and lack of modern amenities such as gym, intercom etc
- Difficulty in getting home loan for potential buyers as some banks limit the max age of bldg
- New constructions in the area quoting at ~3500-4000 psf and thus "age discount" of 1000-1500

The place is rented out at 11K pm which translates to a rental yield of 5+ % (assuming price of 25 Lacs)


Advice needed:
Should I just sell now and "cut my losses" OR hold on and wait for a better valuation in the future?

I have been thinking about this for a while now and have come up with strong arguments for both cases:
Sell case: Reasons for low valuation outlined by brokers dont seem wildly unreasonable. Assuming they are true, these facts will only worsen over time.. hence better to get out now and invest the proceeds elsewhere.

Hold case: At 2500 psf, I feel I am getting zero value for the building as I guess that the land beneath itself would cost that much. Given the prime location, it is likely that the entire bldg goes in for redevelopment in which case valuation would be significantly higher.


My gut tells me to NOT sell at these levels (2500 psf). I dont really need the money. Keep it on rent and wait for good valuations.
With that said, I also want to be realistic. I know how long and painful the redevelopment game can be. Further, I dont know if the demand supply situation in Bangalore/old airport road favors redevelopment..for all I know, that might never materialize.. a bird in hand is worth two in the bush..


Appreciate any insight forum members can provide

Thanks in advance

 
Old March 2 2012, 05:11 PM   #2
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Default My 2 cents

I would suggest you to hold the property and earn rent.
Given the prime location ..I think that the rental value will not go down . . Also you can give it to bachelors on rent in future(or now) . .if families have too much concern for amenities...
Wait for the saturation(in terms of apartments available for purchase due to complete utilization of land) to set in . . in Old Airport Road . ..once it is reached..you can expect a little more appreciation of your property...
 
Old March 2 2012, 05:37 PM   #3
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Thank you for showing us the mirror. I believe 25 years withence, most of us, who are posting queries on this forum regarding the purchase of 2/3 bhk (or bangalore speciality 2.5 bhk ), will be posting similar queries.

With my limited knowledge, I would suggest you to pull out the money to cut the losses. Go for some pre launch/launch apartment by some reputed builder with completion date 2-3 years from now, even on the outskirts of the city.

This suggestion is majorly influenced by the fact, that you don't visit bangalore too often.
 
Old March 2 2012, 06:18 PM   #4
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Default Apartment again?

Quote:
Originally Posted by drone79 View Post
Thank you for showing us the mirror. I believe 25 years withence, most of us, who are posting queries on this forum regarding the purchase of 2/3 bhk (or bangalore speciality 2.5 bhk ), will be posting similar queries.




With my limited knowledge, I would suggest you to pull out the money to cut the losses. Go for some pre launch/launch apartment by some reputed builder with completion date 2-3 years from now, even on the outskirts of the city.


This suggestion is majorly influenced by the fact, that you don't visit bangalore too often.

Poster is looking for investment, why apartment again? As you all can see the fate of a flat as it gets older... investing money in plot that too in outskirts is a good option IMHO.
 
Old March 2 2012, 10:08 PM   #5
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Quote:
Originally Posted by psk View Post
Poster is looking for investment, why apartment again? As you all can see the fate of a flat as it gets older... investing money in plot that too in outskirts is a good option IMHO.
Dear psk, I agree with your statement. But, I gave the recommendation considering that OP does not live in bangalore and has no intentions of doing so in near future.

Apartment increases in value from pre launch/new launch till the time it is delivered. It holds its value for say 5 years and then normally depreciates.

Land normally appreciates slower than the apartment. But, it retains its value and is better investment in longer term, provided there is someone to look after it.

The nearest analogy which comes to my mind is - Apartment is like a woman, whose prime may last only a few years, whereas Land is like Wine, gets better and better with age
 
Old March 3 2012, 12:56 AM   #6
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Good comparison like it.

More decisions to take for VAMLADI.
 
Old March 3 2012, 10:37 AM   #7
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Time will tell whether land or apartment is better. Who knows tomorrow no one will be interested in buying land and prefer flats.
 
Old March 3 2012, 05:15 PM   #8
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Quote:
Originally Posted by ssuresh83 View Post
Time will tell whether land or apartment is better. Who knows tomorrow no one will be interested in buying land and prefer flats.
Good thought which is the case in USA, where land is abundant and labor is costly than construction material.
We have quiet opposite situation in India.
 
Old March 5 2012, 02:41 PM   #9
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Default Thanks all.

Firstly, Thanks to all for your inputs. I am visiting Bangalore later this week to assess the situation in person. I hope to talk to the neighbors, brokers etc and then take a decision.

On plots vs apartment: I like both women and wine .
My boring analogy is from the equity markets. Plots are for "fundamental" investors who pay based on intrinsic value of the asset. Apts are for "pie in the sky" investors who pay based on what others may pay at a future date for the asset. I think its a mistake to say one is better than the other. Apts come with construction risk but offer tax benefits, scope for rental income and pose less "encroachment risk". Plots are all about capital gain. Personally, I am evaluating both options and will decide after considering all factors.
 
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