Why does property age matter when buying a resale property?

The age and physical condition are among the many aspects of a property that buyers consider before making an investment. This is applicable for both new and resale properties. However, since resale properties have had previous owners, they require more maintenance and are prone to wear and tear much faster than new properties. These factors also impact their pricing and future resale potential. Moreover, there are legal aspects that should not be ignored when buying a resale property. In this guide, we understand the impact of property age on a property deal. 

Pricing and resale value

In any property transaction, negotiation and pricing are based on various factors, including the property’s size and layout, location and connectivity, amenities, construction quality, age, and condition. Therefore, property age has a direct impact on the final price, particularly in the case of resale properties. The older the property, the more likely it is to fetch a lower price for the seller, unless it has other advantages, such as a prime location and redevelopment potential. Older properties tend to be less expensive than newer ones. Well-maintained properties have a higher chance of selling at a better price than those that are poorly maintained. Buyers still are at an advantage when negotiating the price for a resale property. 

However, this may not be entirely beneficial in the long run. The reason is the lower resale potential such properties will offer. In real estate, property value reduces over time due to age and wear and tear. This is referred to as depreciation. There are some exceptions where older properties sell at a premium price. These mostly include heritage properties or those located in prime localities, such as the Central Business District (CBD). 

Construction quality

Construction quality is a crucial aspect buyers check before finalising a property. Good construction quality means fewer chances of structural issues, such as cracks, water seepage, and foundation issues, ensuring the safety of the inhabitants. On the other hand, poor construction quality increases safety risks and repair costs. The quality of construction, including the use of high-quality materials and earthquake resistance, will significantly impact a building’s longevity. When purchasing a resale home, buyers must assess the construction quality, as there are higher chances of structural issues, which may result in higher maintenance costs.

Further, when buying any property, it is crucial to check whether the property adheres to various structural safety norms. They need to verify if documents such as the RERA registration certificate, occupancy certificate (OC), and no-objection certificate (NOC) from the relevant authorities are in place. These documents ensure that the property was constructed in accordance with the approved plans and local regulations. Construction quality provides an indication of how long the property will last and the resale value it will offer to the buyer.  

Maintenance costs

For property buyers, the expenses are not limited to down payments and EMIs. Maintenance costs are an essential aspect of home ownership. Maintenance charges, including utility expenses and other recurring bills, are costs that the property buyer will incur. Higher maintenance costs can make a resale property somewhat expensive for the homeowner. Property age is one of the factors that contribute to the high maintenance costs. 

Outdated lifts, plumbing, and electrical systems may require frequent maintenance, leading to regular expenses. On the other hand, the costs replacing the existing systems or making new upgrades can be equally expensive. 

Lack of facilities

An old resale home may come with limited features and facilities. Older homes may have outdated layouts, such as small rooms, low ceilings, and smaller common areas, which can extend to even the plumbing and electrical systems. Often, older properties may not come with the benefits offered by newer properties, especially the new-age amenities like gymnasium, swimming pools, etc. Some older buildings may lack essential facilities such as lifts and smart security features like CCTV.  

Thus, if a buyer is considering the purchase of a resale property, it is important to remember that such properties may not have these facilities, which pose safety and security risks, impacting the overall experience for buyers. 

Legal risks

Property buyers should exercise extra caution when purchasing an old resale property, as it can pose significant legal risks. Since the property’s ownership history will include multiple previous owners, the necessity to verify the title and ownership details becomes even more crucial, as the risks of an unclear title are higher. If the property records, such as those in case of succession, gift, or partition, are unavailable, the buyer may face the risk of potential legal disputes. 

Moreover, if structural modifications or extensions have been made to the property without due approvals from the relevant authorities, the buyer is likely to face legal trouble. Furthermore, issues such as boundary disputes, encroachment, inheritance claims, and tenant eviction issues are more likely to occur in older properties compared to newer ones.  

Home loan eligibility

Most property buyers opt for home loans to finance their property purchase.  Banks and other lending institutions consider the property’s age and its remaining life when sanctioning loans. Thus, an old resale property can impact one’s home loan eligibility. Typically, lenders sanction 75% to 90% of the property’s value as a home loan amount. However, the property’s age significantly impacts the Loan-to-Value (LTV) ratio, with newer properties attracting a higher LTV compared to older properties. This is because lenders consider older resale properties riskier than newer ones. For older properties, lenders may lower the loan amount. It can then be difficult for the buyer to finance the house purchase due to the higher down payment. 

Redevelopment potential 

There is a correlation between a property’s age and its redevelopment potential, which every buyer investing in a resale property must understand. The age and physical condition of a structure are factors that developers note when looking for a property for redevelopment. Older properties, especially those over 30 years old and nearing the end of their life, show a higher potential for redevelopment. 

It is crucial to note that while a building’s value depreciates as it ages, the value of the land on which it is built appreciates over time, especially in fast-developing areas. Hence, older properties are sought-after properties by developers for redevelopment purposes.  

So, buyers investing in resale homes must be able to gauge the property’s redevelopment potential. Most housing societies with older structures are open to the idea of redevelopment, as maintaining such properties is costly. Moreover, in many cities, such as Mumbai, Delhi, and Bangalore, local authorities have introduced new policies, including Floor Space Index (FSI) incentives, to boost redevelopment. FSI refers to the ratio of the built-up area of the property to the plot area, which denotes the extent of construction permissible on a site.

Investing in a resale home when the building is going for redevelopment can offer many advantages for the buyer. A brand-new house with a higher market value, located in a prime area where buying a property may be unaffordable. The property may come with better amenities and a layout. However, one should not overlook the potential risks such as delays, legal uncertainties and challenges when applying for home loans. 

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Before purchasing a resale property, buyers must never overlook the property’s age, as it will have a direct impact in the long run. Older properties may mean higher maintenance and renovation costs. Buyers should conduct thorough due diligence, including a structural inspection and verification of compliance with local regulations, to prevent potential legal issues. Evaluating the total costs a buyer would incur and comparing them with those of newer properties is a key step to ensure the investment is profitable. The pros and cons should be carefully weighed to achieve affordability, minimise risks and gain long-term value.

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