Consider this situation that surfaced recently. A middle class family man working for the central government built a small house on one independent plotsOn the outskirts of his city in the 1980s. Son Ram went abroad after studies. Daughter Geeta was married in a similar family that lived in an inherited house in the same city. His parents have no other property, earned less pension And left the house and deposited a small amount of the bank, satisfied that he did well. Rama returned to India a few years ago and brought down the old structure to build a large haveli on the inherited land. Geeta lived in another city as her husband had left the job. Her in-laws house was on rent. There didn’t seem to be a problem with these life choices, while running was good.
In an unfortunate turn of events, Geeta lost her husband to Covid. He was never given a job. She has two daughters, one of whom is divorced and the other suffering from a chronic illness that keeps her at home. Geeta’s husband worked as a consultant for a private firm, changing jobs every time, so the savings or assets were not much. Geeta was now the owner of the property inherited by her husband, the only son. It is worth a few crores, just for the value of the land on which it stands; The building itself is very old.
He also legally had a share in the land on which his brother had built the haveli. Ram was going abroad with his family and wanted to let Geeta use the house he had built. So there should be no problem with the Gita in the books. He had assets worth a few crores and a generous brother. However, here were his problems: he didn’t have revenue, Her husband’s house was old and was rented out for a nominal amount due to poor maintenance and old fixtures. He had no money to repair or renovate it.
The mansion built by his brother was three storeyed. It came with a garage and servant quarters. But it stood in a middle class area. Someone who can rent such a large space would not live in that area; Or may choose to buy instead. The design did not allow it to be rented in parts. Converting it into a serviced apartment was tough as the location was too far from an IT and industrial hub that might be interested in renting. The brother was not ready to spend on rebuilding the house. Letting his sister use it as she wished, he could do as much as he wanted.
The story of Gita is not unique. There are thousands of such homes in the congested streets of Delhi, in the suburbs of Mumbai, Chennai and Bangalore, and Gulf-funded Kerala and Mangalore in between. Built long ago, held for generations, very valuable, but unable to generate any income. The heirs are not ready to sell. Valuable money locked in property that is of no use to the owners. What are the alternatives of Gita? His income requirement is high due to ongoing medical Expense of his daughter. The divorced daughter quit her job as she went through her separation and came to live with her parents. He is qualified and experienced and should get work and take the responsibility of stabilizing the family income.
Geeta can move to her husband’s ancestral home, living with her limitations, to save on rent and live in a city that enables her to negotiate property sales, one daughter to find work and the other daughter Enables access to medical assistance. There is no option but to sell the house to generate wealth to make the family safe and stable. Ram can be persuaded to sell the property. It doesn’t need to be presented as a demand but needs to be negotiated carefully.
Ram’s wife also did not like that area and if they return to India again, they may not stay in that house. If he sells the property and invests in two flats that are better and rentable, he will enjoy a better appreciation in their value, giving his sister a better deal. She can live in the flat; or buys a small flat for his needs, releases his share of funds for his use; or rent. The flexibility of the Gita increases. If Rama was realistic and smart about his choices, he would sell and reinvest the financial assets. This will greatly increase the flexibility that they can both enjoy. Her sister will be able to draw whatever she wants from the capital, instead of just focusing on income. It will also be easier for both Geeta and Ram to pass on the property to the next generation.
When I proposed these solutions, both Ram and Geeta reacted with shock about selling the property. It should never be sold; It only appreciates; It cannot be repurchased; It’s so valuable and so on. These reactions made me very sad and somewhat angry. What are the lessons? Firstly, the inherited property is passed from one generation to the next, its value is not felt by anyone. We should see it as an asset to be used. Second, land may cost, but buildings fall into disrepair. Or turn to the sub-optimal for living, whether dilapidated or modern. The feeling that a buyer feels for a home, will not feel. That sentiment cannot be monetised. Third, we buy assets so that we can use them.
There are more uses that open an asset to liquidation than to remain unused or sub-used. Fourth, the property should work for our changing living conditions. We own them; They are not our owners. Fifth, an asset is better when it meets our needs. A house, gold or piece of land is not a valuable asset just because it is there. It is worrying how many lives have been reduced to poverty and suffering despite owning property of significant value, simply because many believe that housing properties should not be sold. We are all prisoners of our beliefs. We fight to change them. We choose to suffer instead.
(The author is chairperson of the Center for Investment Education and Learning.)