With some interesting comments from our readers in the last post, thought I’ll do one more post in this series. This being primarily to identify situations where apartments are better than independent houses purely on an investment basis.

Anyone who has read part 3 & part 4 would know in which direction my views lie. But if I have learned anything in life, it is that there is an exception to every rule and a negative to every positive and vice versa and inside out and forward backward. That’s why the world works and remains interesting to us. To cut short on the philosophy front and getting to the point - not all independent houses are necessarily superior. The ‘location’ matters a tremendous amount.

If you go and buy a villa/bungalow in a village/small town thinking it is a better investment, I am sorry!! You can wait till elephants roost on trees and relatively nothing would have changed on the price front for your villa. Real estate price increases is largely centred around urban centres and will continue to be so. Only exception I know of is Kerala where land prices have increased tremendously even in villages. The reason is unique to it - NRI Keralites are treating the entire state as a retirement home.

One of the good things when you buy an apartment is that you are naturally protected against the foolishness of buying something in a remote corner of the country. The apartment builders who are sinking in their money would have ensured that the location is relatively alright and ripe for future urbanisations. And the degree to which a locality gets urbanised is what will eventually determine the future value of homes in that area. When I say urbanised, I don’t mean noisy-polluted streets; rather that it is an area of job creation so that people will immigrate to it than emigrate from it.

 So, to sum up the investment theme on homes:

If you are an average joe who doesn’t want think too much but want a good investment that is sure to appreciate, shut your eyes and buy an apartment in any of the top Indian cities. You will not regret it.

If you think you are smarter than the average guy and feel that you have what it takes to make indpendent decisions involving relatively large sums of money, buy a villa near a locality that you judge to be ripe for urbanisation. Reward is more if urbanisation happens; but if your judgement is wrong, prices can stay flat for upwards of 10 years..

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We had very briefly covered what we felt was the right way to value a property in a recent write-up. Surprisingly we got no comments questioning the approach that was suggested. We did think the measure was a wee bit unconventional, given the prevailing trends in the housing market. So in case you missed the thrust of the earlier argument, we are reiterating it once more in this post. Persistence pays, hopefully.

The popular way to convey the cost of an apartment is by using the measure ‘Rupees per square feet’. However we would like to argue that the ‘cost per sq. ft.’ only indicates the ‘price’ of an apartment, not its ‘value’. Now you will of course ask, what do you mean by ‘value’?

Like someone once said, ‘Price is what you pay and value is what you get’. In case you think value is always in the eyes of the beholder, we would like to disagree with due respect here. It is possible to evaluate on an objective basis, the monetary term associated with the value and once you do that, the measure is not so subjective anymore.

An example might make the case a bit more clear. Say you have rented an apartment with a sea view, you will get a lot of peace-of-mind from the view (and arguably we cannot measure the exact relaxation you derive) and the value you place on that peace-of-mind will reflect in the rent you pay for that place. Thus, no matter what the type of house, what its location, and how it was built; we can still estimate an objective value for the house independent of its occupants.

So next time someone quotes you a price for a house, try to dig out the value of the house; represented by the income it can generate over its lifetime. And buy it only if the value exceeds the price. Simple enough to say, tough to implement. Will see if we can run you through couple of example cases in the coming days.

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In line with our central theme of homemaking we are presenting excerpts from our interview with Bank of Baroda’s retail loan factory Manager – Mr. Mukund Hari Jachak.

 
Aavaas: Sir, please tell us more about “Retail loan factory” concept.
Mr. Jachak: One and half years back in March ‘06, Bank of Baroda launched project Parivartan to cater to different customers and their needs. The most prominent of these were Retail segment, corporate segment and Agriculture segment.
 
Under the Retail category we cover car loans, home loans, mortgage based loans. The concept of the retail loan factory is analogous to an assembly line where there is an input and a quick and efficient output.
 
Aavaas: How many such RLF units are there across the country?
Mr. Jachak: There are more than 13 retail loan factories across the country. Mumbai was the first to be launched and it was followed by Chennai, New Delhi , Bangalore etc. We have also launched RLF in some non-metro cities.
 
Aavaas: How do you choose the staff for RLF?
Mr. Jachak: We train our own bank employees specially for the retail loan factory operations. The two main units of RLF are the sales/marketing side and the back-end/processing side.
 
Aavaas: What are the trends in the market for home loans and home improvement loans?
Mr. Jachak: We started our operations in Chennai from May 2006. Our offerings from the day of inception include home loans and home improvement loans. The latter caters primarily to purchase of consumer electronic goods, furniture etc. We also cater to the needs of those who are willing to procure a second home in addition to one they already have.

Click here for the rest of the interview and a short video clip

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