Home Truths. Buying a house after retirement

It was nothing more than an informal meeting of retired and semi-retired people. But a casual mention by Mr Raman that he was buying a house turned it into an interesting discussion.

After the expected round of congratulations, Mr Bansal, who believes in ensuring that numbers add up, expressed his surprise. “Why would you invest in an illiquid asset that is not even giving inflation-matching returns?” he asked.

Why buy

“As a Railways employee, I was transferred often, and never lived in a house that I could call my own. After retirement, my wife and I knew where we wanted to settle down,” said Raman. He added that he and his wife also want to leave a property as inheritance to their daughter.

Mrs Nair gave an understanding nod and said that her family had a large bungalow, but close to retirement, she and her husband downsized. “We bought a new house that is smaller. The bigger house needs to be sold or re-developed at some point, but we moved out as the new house is easier to maintain,” she said.

“I considered buying a house in a retirement community after I got out of service,” chipped in Mr Gowda. “But the costs were over 20 per cent more than regular houses in the same vicinity. Maintenance was also around 30 per cent higher. So, my wife and I decided to buy a flat and defer the senior-living decision by 10-15 years.” He added that life expectancy has increased, and retirees have over 20 years or more to plan for, after retirement.

Mrs Patel, also an advocate of buying a house, said that being a tenant has issues. “My mother-in-law lives with us. Frequent shiftings — if owners ask to vacate, or ask for over 10 per cent rent hike annually — is not an option. Earlier, we used to rent. We have now bought a house, and installed skid-free tiles, hand rails and other safety precautions,” she said.

Why rent

But Mr Joseph, who has been a tenant all his life, disagreed and said that renting is a better option for most retirees. “I have my retirement funds invested in a well-balanced portfolio spread across different asset classes. These give a return of 10-15 per cent as income and gains. Investing in a house will make me asset-rich and cash-poor,” he said.

Mr Bansal, the number cruncher, gave the thumbs-up to Mr Joseph: “Renting is a better financial decision, given high property prices and low rental yields of 2-3 per cent. This maths of rent versus buy is true for nearly all cities. There are also other costs such as taxes and maintenance to consider.”

Mrs Manian concurred and added that property taxes in Chennai tripled recently, and upkeep costs can add-up very fast.

Pointing out another advantage of renting, Mr Rao, who now works as a consultant after a long-stint at a PSU, said that renting a house close to his client’s place suits him. “I can continue to work, as it gives me income, and keeps my mind active. With a rented house, there is flexibility in switching assignments,” he said.

Weighing in

Miss Latha, known for her well-rounded perspectives, now weighed in on the discussion. “For most seniors — be it those who ran a business, have a pension or plan with a retirement corpus — there are a few key factors to consider. One, the choice really depends on one’s financial situation. If your pension or other regular income is good enough to meet your current and anticipated needs, investing in a house may not hamper your lifestyle. First, be sure that you have enough liquid assets, insurance and monthly income.

“Two, if you need to buy a house for personal requirements, consider if your situation will let you own it for about 10 years. There are high transaction costs in buying and selling property, not to mention the hassles. So, think for the long term and buy something that will let you grow old comfortably — size, features, location and costs.”.

She added that buying a house for rental income or as an asset that will appreciate does not make much sense. “Do it only if real estate is a small part of your portfolio, and you have ways to manage the property,” she said.

Now, Mr Raman asked if he can take a loan for the house that he plans to buy. Pat replied ex-banker Mrs Patnaik: “Lenders are not keen on loan to retirees. Most home-loan providers, including SBI, PNB and Bank of Baroda, require that the loan be repaid before the borrower turns 70. LIC Housing Finance also requires a guarantor if the loan is taken after retirement. United India Insurance’s loan scheme for retirees is only for pensioners.” Speaking from his experience, Mr Ahmed added that banks such as Dena Bank allow business owners to repay a home loan until they turn 75. “Other lenders, such as Home First, offer tenures of 10-25 years for seniors,” he said. But stressing on the affordability angle, he cautioned that EMIs must ideally be less than half of one’s income; so, a shorter tenure may increase EMI.

Mr Bansal agreed: “You can increase your chance of getting a loan by adding a co-applicant — your spouse who may be still working, or your children.” He added that the tax benefits of home ownership can be helpful, especially if you have other income sources.

The writer is co-founder,RaNa Investment Advisors

COMMENT NOW