It is often thought that people who buy homes for their personal use are not too interested in the property’s potential to appreciate in value. These buyers, usually referred to as ‘end-users’, simply want a safe and comfortable place to live; only investors are interested in price appreciation.
This is nonsense. If people merely wanted homes to live in, renting homes would be enough for them. They would not put all or most of their savings into making a hefty down-payment on a house, and then commit to paying EMIs for anything between 10-20 years.
Who is more serious about property purchases: End Users or Investors?
When Indians buy homes, they make investments as much as investors do – even if they do not intend to make money out of the property. An owned home is not just a ‘status symbol’ – it is also a precious asset that can be borrowed against or even sold for a profit in the future. It is the ultimate investment even for so-called ‘end-users’ because it does not sit in a demat account or bank locker, but is actively used even as it becomes more valuable.
This is why, just like gold, real estate is bought at auspicious times during the year. Of course, ensuring the family’s wellbeing is a significant consideration when purchasing a home on auspicious days. But the central fact is that Gudi Padwa, Diwali, and Dussehra are periods which are favourable for wealth growth. This is why so many Indians try to buy high-value assets, including real estate, during these festive times.
In this respect, both ‘end-users’ and investors have the same objectives. ‘End-users’ also desire the value of a property to go up once they have purchased it. But there are also critical differences between the end-user and investor approach to property purchase.
The power of emotional connection
Like in the case of gold, investors want to buy good properties at the lowest possible price so that the price appreciation is better and faster. They purchase properties from a pure profit motive, which surely does have advantages in the case of gold and stocks.
Many investors own multiple properties and keep them until their prices have appreciated enough. But end-users tend to choose better properties precisely because of their emotional connection with them. For them, a home is not just a tradeable commodity to rent out and then sell. It becomes an extension of the family, reflecting its values, desires and life concerns.
Evaluating a location
Investors often do not study the immediate neighbourhood to determine if it is suitable for children to grow up and elders to spend their golden years in peace and comfort. They will mainly study price trends and look at the neighborhood as a future ‘target clientele’. What is the average purchasing power of the area today, and what is it likely to be five years from now? They will think of the current and upcoming infrastructure primarily as an ‘ultimate selling proposition’.
End-users will consider the neighborhood and infrastructure from a much more serious and personal perspective. Is it immediately usable and advantageous? How much can a public transport node help save money on daily commuting? How is the air quality now, and can it deteriorate in the future? Will their children and elders be able to make good friends here and participate in exciting activities?
Investors are usually more interested in the area’s development potential. How soon will it reach saturation so that prices will begin to rise? End-users look at the same pace of development and wonder – are there enough green spaces to support the family’s health, now and in the future? Is it possible that the open spaces available now will be built up sooner or later?
Wanting this assurance, they will often buy a home in an integrated township where the entire development plan is legally committed and designated open spaces cannot be consumed by more development. They buy township properties because, as a family, they want the assurance of round-the-clock water and electricity supply and a school and hospital nearby. They picked highly liveable properties which have vastly superior resale values.
Liveability vs. profitability
Investors will often not see properties through the lens of such liveability but instead focus on potential profitability based on organic price growth in the area. Investors often sell homes they may have visited only a couple of times since they bought them. When end-users finally sell their homes, they put properties on the market that have passed the liveability test.
The fact that they have lived there for a long time is proof for the buyer that the property and location tick all the right boxes. Unlike investors, they will not sell their homes at break-even or even loss-making prices if the business requires cash flows.
Far too often, the difference between ‘end-users’ and investors is seen as the difference between amateurs and professionals. Nothing could be further from the truth. Families buy their homes with far more care and planning than investors do. They are the most serious buyers who examine every detail of a home before they make their final choice.