The year was 1990. Brothers Satish and Pranav received Rs.25 lakh each from their father. Both brothers were to buy a house for their respective nuclear families. Satish opted for a nice, large apartment in the heart of the city – its central location would make it convenient for him to commute to work and for the kids to their school. Satish spent generously doing it up. The house, when completed looked pretty good.
Different strokes
Different strokes
Pranav’s approach surprised everyone. He rented a decent apartment in town to live in and used his inheritance to buy a large piece of land on the outskirts of the city. Pranav was looking for ways to maximise his wealth. Having good knowledge of the behaviour of the real estate market, he planned to make the most of his inheritance.
A few years later, Satish was thought to be wealthier than Pranav. After all, he did have that lavish, well located apartment. It had appreciated in value and was now worth Rs.90 lakh. It didn’t look as grand as when he purchased it, but it remained a good building. Satish was quite pleased with the appreciation in his property till he learnt how Pranav’s property investments had fared.
Pranav was selling his plot of land for a staggering Rs.2.25 crore and buying a new bungalow in town. Satish was perplexed as to how Pronav’s real estate holdings were worth so much more than his. Hadn’t both invested in property an identical amount, at the same time? Why hadn’t his apartment appreciated as much?
Land appreciates
The reason was simple. In real estate, it is the land that appreciates in value, not the building. The building has a fixed life and, in fact, depreciates each year. So, if you are looking to buy residential real estate for investment purposes, the ideal is to buy a plot of land, build a small house on it and wait for the land value to appreciate. The expenditure on building the house should be kept to a minimum, as the amount spent on building the house is an expense. At the time of sale, the buyer may not pay you for the house.
A similar situation also exists in apartments. Here too, it is your share in the land that appreciates not the building. The building has a finite life. Say, it is 100 years. When you buy it anew, you are buying something that will last for 100 years. If you sell it after 20 years, it has 80 years of life remaining. Since you have used up 20 percent of its life, the buyer should pay you that much less as building cost.
Other aspects of your apartment such as its interiors – expensive paint, false cellings, furniture and furnishings, bathroom fittings have a shorter life still. This causes their value to fall much faster. Also, chances are a prospective buyer won’t have the same taste in interiors as the seller and wouldn’t pay the original price for them. In other words, money spent on interiors is consumption, not an investment.
Choosing an apartment
Since the building component of an apartment and its interiors don’t appreciate, look to invest in real estate by buying a plot of land. If this is not possible, your next best option is to buy an apartment that doesn’t have an unduly high cost of construction.
Assume two apartments have an identical sale price of say, Rs.3,000 per sq.ft. Both are in localities expected to appreciate equally well and have comparable common amenities like parking spaces. The first apartment has a cost of construction of Rs.1,600 per sq.ft. and its land cost is Rs.1,400 per sq.ft. while important numbers for the second are Rs.1000 per sq.ft and Rs.2000 per sq.ft.
The cost of construction usually rises when the interiors are more detailed and classy. But since those interiors are a depreciating asset, it’s a better to buy the second apartment, whose higher land cost is probably the result of a better location or larger space. This ensures you spend more of your money on land than on construction or interiors- and set yourself for higher appreciation.
A few years later, Satish was thought to be wealthier than Pranav. After all, he did have that lavish, well located apartment. It had appreciated in value and was now worth Rs.90 lakh. It didn’t look as grand as when he purchased it, but it remained a good building. Satish was quite pleased with the appreciation in his property till he learnt how Pranav’s property investments had fared.
Pranav was selling his plot of land for a staggering Rs.2.25 crore and buying a new bungalow in town. Satish was perplexed as to how Pronav’s real estate holdings were worth so much more than his. Hadn’t both invested in property an identical amount, at the same time? Why hadn’t his apartment appreciated as much?
Land appreciates
The reason was simple. In real estate, it is the land that appreciates in value, not the building. The building has a fixed life and, in fact, depreciates each year. So, if you are looking to buy residential real estate for investment purposes, the ideal is to buy a plot of land, build a small house on it and wait for the land value to appreciate. The expenditure on building the house should be kept to a minimum, as the amount spent on building the house is an expense. At the time of sale, the buyer may not pay you for the house.
A similar situation also exists in apartments. Here too, it is your share in the land that appreciates not the building. The building has a finite life. Say, it is 100 years. When you buy it anew, you are buying something that will last for 100 years. If you sell it after 20 years, it has 80 years of life remaining. Since you have used up 20 percent of its life, the buyer should pay you that much less as building cost.
Other aspects of your apartment such as its interiors – expensive paint, false cellings, furniture and furnishings, bathroom fittings have a shorter life still. This causes their value to fall much faster. Also, chances are a prospective buyer won’t have the same taste in interiors as the seller and wouldn’t pay the original price for them. In other words, money spent on interiors is consumption, not an investment.
Choosing an apartment
Since the building component of an apartment and its interiors don’t appreciate, look to invest in real estate by buying a plot of land. If this is not possible, your next best option is to buy an apartment that doesn’t have an unduly high cost of construction.
Assume two apartments have an identical sale price of say, Rs.3,000 per sq.ft. Both are in localities expected to appreciate equally well and have comparable common amenities like parking spaces. The first apartment has a cost of construction of Rs.1,600 per sq.ft. and its land cost is Rs.1,400 per sq.ft. while important numbers for the second are Rs.1000 per sq.ft and Rs.2000 per sq.ft.
The cost of construction usually rises when the interiors are more detailed and classy. But since those interiors are a depreciating asset, it’s a better to buy the second apartment, whose higher land cost is probably the result of a better location or larger space. This ensures you spend more of your money on land than on construction or interiors- and set yourself for higher appreciation.
Golden Pearl Villas Area Range 1833 - 2265 sqft, Located at Sarjapur Road, Bangalore available with 3BHK Villas and 4BHK Villas.
Description:
The contemporary setting of Golden Pearl is both a testament to attention to details and a celebration of modern lifestyle. The infrastructural facilities in place provide the finishing touches to villa homes and lend an air of sophistication. The professional expertise attained in the planning and designing of the contemporary architecture also subtly achieves a homeowner’s vision of sublime and grand living. What’s more, the IT intensive locality of Sarjapura Road combines lush ambience with easy, effortless drive to work.
Amenities
Club House
Landscaped Gardens
Amphitheater
Fully Equipped Children’s Play Area
Jogging Track
Tennis Court
Badminton Court
Underground Electricity
Central Lighting System
UGD, Water line Connections, UGWW
Black top Roads
Foot paths to all the Roads
Round the Clock Security
Wi-Fi Connectivity
CC Cameras for security monitoring
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