I was recently quoted in Economic Times WEALTH (07-13 November 2022) in the Q&A section where a panel of experts answers readers’ questions related to various aspects of their personal finances. This one was about where a 47-year-old investor can invest his money after selling his apartment/flat because the same is not appreciating in value or yielding good rent.
The exact question is given below –
Here is the article page where the query is answered:
Here is the text version of the query and the reply –
Q – My age is 47 years and I own a flat that I bought 20 years ago for Rs 11 lakh. In 2015-16, its value went up to Rs 55 lakh, but we did not sell it due to various reasons. My hunch is that after demonetization the prices came down drastically and the flat may now sell for Rs 45 lakh. I do not need money immediately but want to sell the flat as I feel prices might not increase in the future, and might even dip down further. I am getting rent of about Rs 1.2 lakh per annum from it but I want to earn more from this investment. Kindly suggest suitable investment options which will give me good returns, as well as i, might be able to save tax also.
A – Based on your approximate year of purchase (around 2002, i.e. 20 years ago) and estimate market value (about Rs 45 lakh), if you sell the flat now, your actual gains of Rs 34 lakh will reduce from taxation purposes to about Rs 9-10 lakh of taxable long term capital gains.
One simple option is to pay the tax once and for all and have the flexibility to use the money as you wish to invest elsewhere. The other options are to purchase/construct a new property or invest in Section 54EC Exemption bonds to avoid tax payments.
Given your current rental of Rs 1.2 lakh on the property of Rs 45 lakh, your yields are about 2.7%. This is accompanied by your view that property prices may no appreciate and rather go down, you are looking at other investment avenues which offer potentially better returns.
Now nothing else about your financial profile is known – like income, expense, surplus, goals and their timelines, your past experience with equity and your risk appetite. So we will have to assume a lot of things.
But given that at 47, you may be looking for using the funds to shore up your retirement savings, you can consider gradually getting into equity funds from the sale proceeds of the house. Equity is expected to generate 10-12% average returns in the long term. So once you decide to sell and eventually receive the sale amount, you can park it in 3-4 debt funds (ultra-short / low / short duration) and then run STP to gradually transfer the money into equity funds over the next 1-2 years. Equity fund categories that you can pick are largecap index funds, flexicap funds and large&midcap funds. The eventual allocation can be 50:50 in equity debt if you are a balanced investor. If you have a higher risk appetite, then you can even put more in equity.
You also need to see how the stoppage of rental income impacts your household budget. Also, since there are a lot of unknowns here, it might be a good idea to talk to an investment advisor first with your details and then decide accordingly. One cannot look at the sale (or not) of this flat in isolation as it might impact other aspects of your personal finances and future goal plans.
You can read my previous responses in Economic Times Ask The Expert section using the below links:
- ET Wealth – Oct 2022 – (link)
- ET Wealth – July 2022 – 2nd (link)
- ET Wealth – July 2022 (link)
- ET Wealth – June 2022 – 2nd (link)
- ET Wealth – June 2022 – (link)
- ET Wealth – April 2022 – 2nd (link)
- ET Wealth – April 2022 – (link)
- ET Wealth – March 2022 – 2nd – (link)
- ET Wealth – March 2022 – (link)
- ET Wealth – February 2022 – 2nd (link)
- ET Wealth – February 2022 (link)
- ET Wealth – January 2022 (link)
- ET Wealth – December 2021 (1st) (link)
- ET Wealth – December 2021 (2nd) (link)
- ET Wealth – August 2021 (link)
- ET Wealth – July 2021 (link)
- ET Wealth – June 2021 (link)
- ET Wealth – March 2021 (link)
- ET Wealth – November 2020 (link)