If you are looking to buy an apartment, you must have observed that there are new apartments as well as resale apartments available for sale. New homes are acquired directly from builders and resale apartments are those which are being sold by the previous owners.
Resale apartments are suitable if you are looking to buy in a particular locality where no new apartments are coming up or if you are looking for a ready-to-move-in property.
The cost of a resale apartment will vary depending on the age of the building, locality, nearby facilities such as public transport, schools, etc. Before deciding to buy a resale apartment, it is important to understand how each factor will have an impact on the cost of purchase and your finances.
1. Age of the building
The age of the building is one of the crucial deciding factors in buying a resale apartment. It doesn’t make sense to buy a 10+ years old apartment if you plan to repay the housing loan in 20 years.
Preferably, the age of the building should be less than 5 years and your planned repayment term of the housing loan should be 10 years.
A resale apartment is not suitable if you are buying it as an investment as the resale value reduces further as the property ages.
2. Cost of Purchase
The cost of purchase of a resale apartment is not limited to the actual price and registration costs. You may have to spend money on
- Legal charges to verify the documents, creation of sale deed, etc.
- Charges for assessing the construction quality by a structural engineer.
- Remodeling charges, if required.
- Loan processing charges etc.
This is a very important step before you zero down on a resale apartment. You have to get the title deeds verified by a legal expert. You also have to find out the reason for which the property is being sold.
4. Tax Benefits
A deduction of Rs. 1.5 lakh on the principal portion of your Home Loan EMI under Section 80C of the Income Tax Act and a tax exemption of up to Rs. 2 lakhs on the interest component under Section 24B can be availed.
5. Behavior of the seller
Though it may not sound important, it plays a crucial role in completing the entire purchase process. Before you finalize a resale property, please verify
- If the maintenance charges are all paid to date.
- If the property is mortgaged, then what is the outstanding balance.
- If the owner is still occupied, then how quickly will the property be vacant.
6. Physical Condition of the property
Even if the property is not very old, it can be damaged due to poor maintenance by the occupants. So, before finalizing a resale apartment estimate the amount of repair and remodeling charges that you have to bear.
Why will the resale value of an apartment reduce over time?
It comes as a shock to many owners when they try to sell their apartments after 10-15 years and find out that the sale value is less than the total amount they have spent to acquire the apartment. This total amount includes the sale price of the apartment + registration costs + interior costs + interest paid on loan etc.
The important thing to understand before buying an apartment is that the cost of the actual structure constitutes the majority of the total cost. The undivided share of land you receive will be very little and constitutes only a small part of the total cost.
As the building ages beyond 10 years, the value of the structure definitely comes down. If there is any appreciation in the value of your apartment for the first few years, it would be mainly due to the demand-supply gap in that area. Once the demand is met, that’s when the value growth flattens. Not many will be willing to pay for an old building that may need constant repairs.
In real estate, growth happens due to an increase in land prices and not due to the structure. With very less land holding, the value appreciation of your apartment will be set off by the value depreciation of the structure. Also, the rental yield of an old building will gradually reduce.
You may have a question on why many old properties are sold at exorbitant rates. If you observe the detail, most of such properties are independent properties such as villas, bungalows, etc where the area of the land is very high. The buyers pay for the land value and not for the old building standing on that land! Most likely the old structure will be razed by the new owner.
Pros of buying a resale apartment
- Lower cost as compared to an under-construction property.
- Easy to find tenants for an established society if you plan to rent it out.
- Possibility of owning a property in developed localities.
- Since it is ready to occupy, your financial burden will be less as you need not pay both EMI and rent.
- You are going to get what you see when you buy a resale apartment.
Cons of buying a resale apartment
- Not suitable to be bought as an investment as the resale value will be lower.
- Rental income will not increase significantly as the property ages.
- Property may require remodeling based on the condition it is or to suit your requirements.
- You have to spend time and effort to get the documents and title deeds verified by a legal expert.
- Higher costs of repair as property ages.
It makes sense if you buy a resale apartment for your own use but buying it as an investment hoping for value appreciation may not be a smart move.