N Pattabhi Ramiah thought of investing in a new house, some years ago when he got a decent sum as his retirement corpus. “The house that I was staying was fetching me around Rs 60 lakhs, I thought of pooling in around Rs 10 lakhs from my retirement corpus and move to larger 2BHK house at Andheri in Mumbai,” he informs.
But for Pattabhi (66) and his wife N Giribala (63), the move was just the beginning of his troubles. “Firstly I have to pay more than double of what I used to pay as monthly maintenance. Initially I never realized it. But at times it does becomes a bit difficult for retired people like us to pay the huge sum,” he explains.
He has to pay around Rs 6000 per month as monthly maintenance and other charges to the housing society where he lives. He also says that as his house is new, he still doesn’t have to worry about keeping a corpus for taking care of the repairs and the upkeep of the house as yet.
“But eventually I would have to think about that as well,” he says. He confesses that at times, he does regret making this shift as he was a lot happier earlier living in his smaller house.
While having a bigger house is a matter of pride for most, but for retired people like Pattabhi with virtually no income ( Or very little income), the cost of maintaining the property may put a burden on their retirement corpus. It could also adversely impact their travel and their retirement plans.
How the costs escalate
A larger house needs more furniture and furnishings and uses up more electricity. Other than that there are lots of expenses that escalate as the size of the house increase.
Expenses like the monthly maintenance charges are based on the square feet space in the house and go anywhere between Rs 3 to Rs 8 based on the amenities and the locality of the apartment. So for example if the flat size is around 1000 square feet and the monthly maintenance charge comes to around Rs 5 per square feet, then you have to pay around Rs 5000 per month to your society as maintenance charges. (Rs 5 * 1000= Rs 5000 per month).
Other than monthly maintenance charges, one also needs to pay out the property tax on the value of property to the government. It is the local tax on building and is paid to the local municipal authorities.
The authorities consider factors like the age of the building and the location as some of the factors before arriving at the rate able value of the property. (The ratable value is based on fair and reasonable annual rent of the property /premises) A standard deduction of 10 percent is allowed on it. Generally the taxes are 75% to 80% of the ratable value for residential premises. ( Depend on the age, location and the amenities).
There are other taxes too like the water tax levied by the local municipal authorities. ( Again based on the ratable value)
Insurance charges for your property are another expense that you should factor in. In addition to protecting your house, the home insurance covers your valuable personal property as well. Your personal property could consist of your furniture, clothing, stereo, computer equipment, jewelry etc.
Generally you have to give constructed area in square feet, type of construction and the details of all assets & equipment like furniture, electronic equipment, air conditioners/ refrigerator, jewellery along with year of purchase and purchase price to the insurance company. Based on the information, the insurance company decides on the premium. So you would need to pay a higher premium for the personal property you keep in your bigger house.
A bigger house would also need a larger corpus to be kept aside for its repairs and long term upkeep.
Downsizing as an option
Pankaj Kapoor, Managing director of Laises Foras informs that downsizing to a smaller home is probably one of the most inconvenient options especially for those that have been in a property for a long time which may also hold a lot of family history or sentiment.
However the financial benefits for retired people could be much more as they don’t have to maintain a big home and they benefit financially by moving into a smaller dwelling. Lower maintenance, lesser property and other taxes are some of the advantages. Plus you would also be able to save a good amount of difference money by selling your bigger house and shifting to a smaller one. The difference amount saved can also go in your retirement corpus.
Kapoor explains that there are few factors that you should consider before you take the step. “Make sure you are emotionally ready for it as you have made friends and relations over the period of time. Also if the new place is well connected and conveniently located. You must find out more about the new location and also take your future into account,” he adds.
Making the most out of it
If you are worried with the mounting expenses of your big house post retirement, you also have the option of either taking in paying guests (PG) or renting out a part of your property. There is a huge demand for PG accommodation in the city, so if you let out a part of your property, most of your expenses like the utility bills and monthly maintenance expenses are split.