Premise: Residential apartments tend to age over a period of time and hence need to be divested from and the returns need to be reinvested in newer properties to ensure optimal return on capital.

Background for Delhi NCR: High Rise apartment communities are a relatively new phenomenon in Delhi NCR and owing to the unprecedented bull run in property prices over a 15 year period from the mid 90’s till about 2010 prices of all apartments irrespective of age or specifications were multiplying non stop for 15 odd years. However as the market has matured and slowed down, and with decent supply in the market, and with apartments of all vintages available in the market, things are unlikely to be as simple as they were. Investors must now wisely decide to exit matured properties once they have peaked in value and enter newer residential properties to ensure that their investment keeps reaping them the right return (both from a rental and capital appreciation perspective).

Assessment:

• Our assessment is that properties tend to peak in price within the first 5 years of completion (not accounting for the general uptick in the market owing to appreciation in prices of land) and any appreciation post that is owing to the general up tick in the prices of that micro market as a whole.
• After the 5th year till the 10th year prices generally tend to remain stable and in line with the market post which the newer properties tend to command a premium.
• Properties which are more than10 years old tend to depreciate in value in absolute terms in a stable market and in relative terms (in comparison to newer properties) in a rising market.

Reasons for This to Happen: End User Buyers + Investors and Tenants Prefer Newer Properties (Thus creating more demand and hence price appreciation relative to older properties):

• In the residential space buyers typically prefer a newer property as it is likely to have lesser legacy issues like seepages etc.
• Newer constructions have the benefit of better construction quality using the latest technology / have in vogue design and also provide the latest conveniences within the apartments themselves (fully automated homes as an example)
• One cannot upgrade the common infrastructure for the property - the plumbing / electricity/elevators etc being common can only be maintained and upgraded once all stake holders are brought on board (this consensus is very hard to build). Hence for example the newer property may have high speed elevators while the older property may still be running the old low speed elevators.
• Newer properties generally have better facilities (which are more in tune with the current market requirements - heated indoor swimming pools for example) than older properties. The common areas and the facilities cannot be modernised without the buy in of all the apartment owners. And since contributions have to be done proportionally not everyone is interested in bringing the common facilities up to scratch with the current facilities being offered by the new societies.
• One does not have a direct ownership of the land the condo complex is built on hence one does not get complete appreciation from the appreciation of the land over a period of time. So even when the market as a general moves up the prices of older properties don’t move up at the same pace. Hence people prefer to buy newer properties even from an investment perspective.

Features to Look for In New Property While Investing: The new property should be superior to the older property on all fronts. The basic things to look at while evaluating the property are as follows:

• Location: Same or superior to the existing property.
• Project Level Specs: Layout / Density / Design Concept / Landscaping / Lobbies / Parking’s / Power Backup / Security / Construction Quality
• Apartment Level Specs: Layout / Flooring / Bathrooms / Kitchens / Air Conditioning/ Ceiling Height / Parking’s etc.
• Facilities: Sports Facilities (Swimming Pool / Tennis Courts etc) / Socializing Facilities (Lounge / Movie Theatre / Multi Purpose Hall / Kids Play Area) etc