PUNE PROPERTY - QUALITY APPRECIATION RENTAL VALUE

ARE YOU THINKING OF BUYING A HOUSE IN PUNE

The Real Estate Triad – Quality, Appreciation and Rental Value

Musings of a Novice Self-Styled Property Guru Part 5

By

VIKRAM KARVE

In continuation from Parts 1,2,3 and 4 (links given below) - please read these parts but remember to come back here to Part 5

(or why not read Part 5 first, comment, and then go back to the earlier parts)

Part 1: http://karvediat.blogspot.in/2012/03/why-are-property-rates-so-high-in-wakad.html

Part 2: http://karvediat.blogspot.in/2012/04/real-estate-prices-in-pune-hype-and.html

Part 3: http://karvediat.blogspot.in/2012/04/house-hunting-in-pune-5-tips-for-buying.html

Part 4: http://karvediat.blogspot.in/2012/05/are-you-thinking-of-buying-house-in.html

Part 5

ARE YOU THINKING OF BUYING A HOUSE IN PUNE

The Real Estate Triad – Quality, Appreciation and Rental Value 

Musings of a Novice Self-Styled Property Guru Part 5

By

VIKRAM KARVE

There are three types of people who buy houses:

1. End Users

2. Investors

3. Speculators

The Quality of a Property depends on which category dominates that property market.

End User Driven Property Market

Long back, in the Pune (then called Poona) of the 1950s, 1960s and 1970s, the general trend was to buy a plot of land and construct your own house on that plot of land.

It was probably only in the late 1960s and 1970s, I think, that the concept of builders and developers constructing mass housing projects first began to gain ground. Those days people bought houses for themselves for their families to live in and the concept of “investing” in real estate was not in vogue, at least in Pune.

In earlier times, the rent laws were such that if you gave your house on rent, it was almost impossible to get the house back from the tenant. In fact, if you were lucky to be a tenant (or even if your father had rented the house) you almost became the de facto owner of the house, and as long as you continued to regularly pay rent in a timely manner, it was very difficult for the “landlord” to evict you. I even heard that in some cases tenants became owners by paying 100 months rent. That’s why probably there was a saying: Fools build houses

Hence, it was quite foolhardy to “invest” your lifelong savings in a house and then give it on rent, since there was a risk that the tenant may never vacate and you may never get your house back in your lifetime. 

Also, since housing loans were not so easily available as they are now, people generally bought just one house for their own use from their own life savings and retirement benefits.

Thus, it was a totally End User Driven Property Market.

When you are buying a house for your own lifelong use, you are very much concerned about the quality of the house because you are going to live in that house for the rest of your life. End Users don’t contemplate selling or renting the house at the time when they are taking a decision to buy a house for their own lifelong use, hence factors like Appreciation and Rental Value were not that important and Quality of the Property was paramount.

When the End Users are very much concerned about quality, the builders have to be very quality conscious.

Hence, in End User Driven Property Markets the Quality of houses will be of a very High Standard.

Investor Driven Property Market

Later, with the advent of liberalization, the concept of investing in real estate began to gain ground. One of the main reasons for this new trend was that now you could “rent” out your property on “leave and licence” for short durations. Home Loans were easily available and you could offset your EMI from the rent received. Appreciation and Rental Value were the two most important factors for real estate investors and Quality aspect was relegated to third place. Of course, if the quality was bad, this would adversely impact rental value. 

Hence, in Investor Driven Property Markets the Quality of houses may not be of a very high standard but the quality has to be reasonably good so as to not adversely affect rental value.

A buyer who is buying a property solely as an investment will be more interested in other factors (like location) that influence property appreciation prospects and rental value. Most investors may not plan to live in the property during their lifetime – once they realize a good return on their investment they are likely to sell the property, book their profits and move on.

Speculator Driven Real Estate Market 

Most Speculators book property during the pre-launch phase and sell off the property whenever they get a good deal, sometimes even before the construction is complete. Speculators are only interested in quick appreciation of property value so that they can make a “fast buck” – good profits in the fastest possible time.

Thus, in Speculator Driven Real Estate Markets factors like Quality just do not matter – the only thing that is important is extent and rate of Appreciation of the Property.

What Drives Today’s Property Market – End User, Investor or Speculative Demand ?

In today’s real estate market, at least in Pune, all three types of property buyers exist. The percentage of end users, investors and speculators varies from project to project and obviously, in a particular real estate market, the importance given to Quality (vis-à-vis the other factors) will depend on which type of customers dominate the property market – End Users, Investors or Speculators. So, Dear Reader, of you are thinking of buying a property in Pune, depending on your objective (end use, investment, speculation) select a project where you will be in the dominant group.

Happy House Hunting.

To be continued in MUSINGS OF A NOVICE SELF-STYLED PROPERTY GURU Part 6 …

VIKRAM KARVE 

Copyright © Vikram Karve 2012
Vikram Karve has asserted his right under the Copyright, Designs and Patents Act 1988 to be identified as the author of this work.
© vikram karve., all rights reserved.

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About Vikram Karve

A creative person with a zest for life, Vikram Karve is a retired Naval Officer turned full time writer. Educated at IIT Delhi, ITBHU Varanasi, The Lawrence School Lovedale and Bishops School Pune, Vikram has published two books: COCKTAIL a collection of fiction short stories about relationships (2011) and APPETITE FOR A STROLL a book of Foodie Adventures (2008) and is currently working on his novel and a book of vignettes and short fiction. An avid blogger, he has written a number of fiction short stories, creative non-fiction articles on a variety of topics including food, travel, philosophy, academics, technology, management, health, pet parenting, teaching stories and self help in magazines and published a large number of professional research papers in journals and edited in-house journals for many years, before the advent of blogging. Vikram has taught at a University as a Professor for almost 15 years and now teaches as a visiting faculty and devotes most of his time to creative writing. Vikram lives in Pune India with his family and muse - his pet dog Sherry with whom he takes long walks thinking creative thoughts.

Vikram Karve Academic and Creative Writing Journal: http://karvediat.blogspot.com
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Email: vikramkarve@sify.com

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