Investing in second house doesn’t bring good returns

Home and house, though sound same, but mean different. House is where you live and home is where you long to life or get back to relax. So, it’s an important and critical decision in one’s lifetime.

The most common preferences include while making a home purchase are criteria based on vicinity that includes the proximity to education, work, hospitals and household market. This along with the budget, affordability, the funding options and cost of future maintenance is considered typically. Sometimes, we would also factor in the likelihood of prospective growth of the locality, the expansion of the city/ town, etc.

What’s increasingly seen in especially in the urban housing is that majority of home buyers opt out of their first home after a period (about a decade) to a newer house with some completely different locality and surroundings.

The reason is the increased affordability of the buyer, the prospects of the newer location, the perceived/realised growth of the earlier purchase, the need to shift for other reasons like kid’s education, work, etc. If not for a change of work area especially of a city, then the purchase of a newer home within the same city is not a great investment decision.

Most of these are funded either through banking or related institutions and even from the existing corpus either entirely or partially which would drain the financial cushion and bring in an additional burden of either to clear the outstanding or create liquidity within ones cashflow. And imagine this exercise at least for twice in the prime earning period of an individual or family. It would dent the entire planning which could adversely impact the future decisions like children’s education or retirement.

The former need being emotional and as the timelines mostly fall in an individual’s working period ensures the requirement is met with all the might and thus potentially threatening the latter requirement of retirement. With the average lifespan on an expansion, the survivability has increased and to be taken for granted. It’s the quality of life that matter the most.

I’m not saying that one has to give up the dream of owning up of a house or even adding up one more. The idea I wanted to present is being more considerate on the probable changes and be more imaginable while making a home purchase. That would include the modifications in the city’s mobility, our own transformations in connectivity, revolutionary alterations in the way we work, commute, communicate and live.

According to a survey done by UVA demographics research report on US metropolitan areas in 1990 (orange line) and in 2012(brown line), up to a third of the younger group i.e. the age groups of 22 to 34 years prefer to stay in a neighborhood at the centre or near to the city’s centre.

The preference falls to more than half as the distance is increased to 30 miles from the city’s centre. What’s more interesting is that the trend remained almost similar and the curve is a bit steeper in 2012 in living at the city’s centre. And this is natural age group of the first-time home buyer. What I’m inferring from the data is that despite the technological advancements particularly in the way we work or the actual work that has undergone huge changes, the psychological needs remained same.

This preference hence could weigh in while making a purchase decision but one could be more inventive on what trends could impact. The progressions in terms of mobility i.e. autonomous cars, ride sharing and cheaper electricity generation would clearly impact the way we live in the future.

Automation would not only provide for a great driving comfort but also could partly kill the very need to drive to work every day. Distances from city centres’ or working hubs wouldn’t make for a great worry for a peaceful living. I’m again not trying to push across an idea of living away from city or in suburbs but the chances of us migrating from the concrete jungles to real ones is not far stretched.

Why now? the International Energy Agency (IEA) has a target of 12.9mn electric vehicles (EV) on the road by 2020 which is just less than three years from now, though it just represents a meagre of the overall units. This is where the technological changes impact. For instance, the average battery costs, the main ingredient has come down drastically to less than one-fifth in just 7 years and it would be exponential as the trend catches up.

This is what happened with computerization or with mobile technology, before we realize they became ubiquitous. It’s an entirely different story that it’s more profitable to invest in cobalt (core of all new batteries) mining companies than in a house but all I’m bringing to the thoughts is the ingenuity required while making one’s home purchase.

(The author is Head – Research and Planning with Wealocity, a Wealth Management Company and could be reached at [email protected])