Think before selling your house

Banker Neeraj Mahajan was in tears recently when he visited East Patel Nagar to attend a social function. He could not resist himself to visit the lane where his family had a house which they sold around ten years ago. When he saw the name of his late father still inscribed on the gate on his house,tears started rolling from his eyes. The crowd of memories of yesteryears started coming to his mind when his joint family used to live there. Sudden financial crisis forced the family to sell the house.  However,Neeraj’s family could still live there happily and even corner enough money for comfortable living for rest of their life if they face the same position now. The family could easily join hands with some builder who would build flats/floors there and also pay them handsome sum. This is what going on in a big way in capital.  “ I feel that unlike property owners of other metros, all those who have landed properties in capital are very lucky. They are in a position to unlock their properties in a huge way. They just join hand with some Realtor who is in to developing residential properties,” says Samir Jasuja,CMD of prop equity, adding, “ There are large number of people who do not have regular income but living in properties worth several crores are fast started collaborating with builders for better life”.  This dilemma of a house owner who owns a priceless asset that isn’t getting him returns is a classic one in Delhi, where value of real estate has quadrupled in the last few years. Till recently, you had to en cash the entire property if you needed funds since laws only permitted two and a half storeys. Now, that the law allows four storeys, plus basement and a stilt level parking, you can unlock the huge value of your asset without displacing yourself: by going into a collaboration with a builder. He undertakes construction of the building, keeps one floor, and the house-owner continues to own 75 % of the property – which consists of the basement, stilt level parking and three floors. The builder also pays a substantial cash  amount. At the end of it, the home owner has the luxury of continuing in his own home in familiar surroundings, on three brand new floors and a basement plus car parking space for 6-8 cars within the property.  According to Sanjay Khanna of Kailashnath projects Pvt Ltd, “ When  i meet somebody who is planning to sell his/her house, I always discourage him. I tell them that if they sell the property they would face lot of issues to settle. Hence, it is better to unlock their property. It would serve their cause in  every possible manner,” adding “ I recently met an old doctor couple living in a sprawling 1000 yard bungalow in Greater Kailash 1 for the last 30 years. The estimated value of their property in today’s market is Rs 45 crores. They’ve been contemplating selling it for some time, since they need to clear a Rs 6 crore bank loan. The idea was to find a 500 sq yard plot in GK1 itself (Rs 20-25 crore), pay off the loan, spend part of the money on setting up their two children (3-4 crore) and live off the remainder, still a substantial amount at Rs 10 crore. They found a buyer, took a bayana of Rs 30 lakh, and ironically enough, deeply regretted it, almost immediately. They were wracked with doubt and began questioning their decision to sell within 24 hours itself.”  Realty experts say that sellers should keep in mind that when they sell their property and buy another, they have to pay a broker’s commission twice, for both transactions. The commission you pay varies between 1and 2 % of  the cost of the property. Then there’s a 6 % stamp duty for every property transaction, so, when you sell the buyer pays stamp duty, but when you buy you pay the entire stamp duty. By the time you wrap up the deal, you could have lost as much as 10 % of your gain in money.  And, in case you are wanting to buy another property with the proceeds of the sale you could end up losing as much as 20% of the value as transaction costs in the entire process. Apart from this financial setback, there’s the ephemeral but very real emotional loss that comes with selling a house that’s been home for decades.      “I find many times, that people are even overwhelmed at dealing with the huge cash component in property transactions and they have also grossly overestimated the amount they need to live,” Khanna said, whose firm is among the pioneer in developing residential properties. Narrating his own experience of  unlocking his huge Rajouri Garden property,noted Hindi and Punjabi poet Prof. Pratap Sehgal said that there close to 300 sq.yard house was built in early 60s. He was not in a position to redevelop it due to paucity of funds. “ Then i talked to various realty firms who are in to developing residential properties. After lot of ground work, we zeroed on one developer who has a proven track record. He built some floors on our house,kept two for himself and gave everything to us along with good money as well. We are happy with this arrangement,” Prof. Sehgal concludes.  Jasuja says as the value of real estate has doubled in the last 15 months and continues to shoot up  year on year,  bungalow living is bound to become a thing of the past in Delhi. People are questioning whether they should be living on property worth so much. Now that property is easily divisible, the older generations are keen to build it out to prevent property disputes that could arise amongst their legal heirs in the future. The property, once developed, is much more valuable, and far more liquid, if you still eventually want to sell.