Consider this situation that came up recently. A middle class family man working for the central government built a small house on an independent plot, on the outskirts of his city in the 1980s.Ram, the son, moved abroad after studies. Gita, the daughter, married into a similar family that lived in an inherited house in the same city. Their parents did not have other assets, earned a meagre pension and left behind the house and a small amount of bank deposits, satisfied that they did good.Ram returned to India a few years ago and brought down the old structure to build a large mansion on the plot he inherited. Gita lived in another city as her husband moved jobs. Her in-law’s house was rented out. There seemed no issue with these life choices while the going was good.
In an unfortunate turn of events, Gita lost her husband to Covid. She has never been employed. She has two daughters, one of whom is divorced and the other suffers a chronic disease that keeps her home bound. Gita’s husband worked as a consultant for a private firm, changing jobs every so often, so there was not much of savings or assets. Gita now owned the property her husband, the only son, inherited. It is worth a few crores, just for the value of the land on which it stands; the building itself is very old.
She also legitimately owned a share in the land her brother built a mansion on. Ram was moving back abroad with his family and was willing to let Gita use the house he built. So in the books, Gita should have no problems. She had assets worth a few crores and a generous brother. However, here were her problems: She had no income. Her husband’s house was old and rented for a paltry sum due to poor maintenance and old fixtures. She had no funds to repair or renew it.
The mansion that her brother built was three stories tall. It came with garages and servant quarters. But it stood in a middle class locality. Someone who could afford to rent such a large place would not live in that locality; or might choose to buy instead. The design did not permit renting it in portions. Converting it into a serviced apartment was tough as the location was far from the IT and industrial hub that could be interested in renting. The brother was unwilling to spend on redoing the house. Letting his sister use it as she wished was the most he would do.
Gita’s story is not unique. In the crowded lanes of Delhi, in the suburbs of Mumbai, Chennai and Bangalore, and in the middle of nowhere in the gulf-money-funded Kerala and Mangalore lie thousands of such houses. Built long ago, held for generations, worth a lot, but unable to generate any income. The heirs remain unwilling to sell. Precious money locked in assets that are of no use to the owners. What are Gita’s options? Her income requirement is high because of the ongoing medical expenses of her daughter. The divorced daughter quit her job as she went through her separation and came to live with her parents. She is qualified and experienced and must find work and take on the responsibility of stabilising the family’s income.
Gita can move into her husband’s ancestral house, living with its limitations, to save rent and to live in a city that enables negotiating a sale of the property, enabling one daughter to find work and getting medical attention for the other daughter. There is no choice but to sell the house to generate funds that will secure and stabilize the family. Ram can be persuaded to sell the property. This need not be presented as a demand but needs to be negotiated carefully.
Ram’s wife did not like the locality either and perhaps they wouldn’t stay in that house if they returned to India again. If he sells the property and invests in two flats that are located better and amenable to renting, he would enjoy better appreciation in their value while also giving his sister a better deal. She can stay at the flat; or buy a smaller flat for her needs, releasing her share of funds for her use; or rent. Gita’s flexibility increases. If Ram was realistic and smart about his choices, he would sell and reinvest in financial assets. That would significantly enhance the flexibility that both of them can enjoy. His sister would be able to draw what she needs from the capital, rather than only focusing on income. It would also be easy for both Gita and Ram to pass on the assets to the next generation.
When I proposed these solutions, both Ram and Gita reacted with shock about selling property. It should never be sold; it only appreciates; it cannot be bought again; it is so valuable and so on. These responses left me very sad and somewhat angry too. What are the lessons? First, inherited property moves from one generation to another without its value being realised by anyone. We must see it as an asset to use. Second, there may be value to the land, but buildings deteriorate. Or turn suboptimal to live in, whether dilapidated or modern. The sentiment one feels for a house, a buyer won’t feel. That emotion cannot be monetised. Third, we buy assets so we can use them.
There are more uses that open up from liquidating an asset than letting it remain unused or suboptimally used. Fourth, assets must work for our changing life situations. We own them; they don’t own us. Fifth, an asset is superior when it funds our needs. A house, gold, or a piece of land is not a precious asset just by virtue of being there. It is alarming how many lives are reduced to penury and suffering, despite owning assets of significant value, simply because many believe that housing properties should not be sold. We are all prisoners of our beliefs. We struggle to change them. We choose to suffer instead.
(The author is CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING.)