Many of us are guilty of obsessing about our children. Parents beam in that halo of martyrdom that places children first, and make it their life’s mission to “leave behind” something worthwhile for the child. Time to wave the bright red flag.
So, are you the one who has bought one house for yourself, and one for your child, perhaps one for each of your children? You now imagine that this house that you would leave behind as your legacy of love is the best thing you did for your child. An asset that will be worth a lot, only getting better with time, generating a nice and steady income, and to cap it all will have the child’s name in the records. This is all awesome only in your imagination.
Is your child likely to come back and live in this house that you fondly bought? Seriously? Step back and consider the past 30 years of your life. Don’t you measure your success by how you moved from the rented chawl to the one-room kitchen and then to your own three-bedroom flat in a complex that has a jogging track and a swimming pool? The house you just bought for your child is equivalent to the chawl where you began. If development is the mantra in your head that will make this property a nice “investment,” the flat you just booked for your dearest child will be 25 years old by the time you bequeath it to your child. Think about it.
But then you are adamant. You cannot stop thinking about how the remote deserted lands have now become part of the city. You have been so taken in by the stories of smart decisions that some of your friends, or their fathers made. You are unable to give up on the idea that a house is an appreciating asset and one should therefore have it. What you have not considered is the burden this will impose on your beloved child.
Do you really think that your child will spend the precious two weeks of annual vacation, returning to your city, looking up the house? Or remember to pay the society’s dues and property taxes, each time dealing with different office bearers of the housing society who they have never met? Imagine the hassles of renting out 11 months at a time, and doing the paper work each time. Consider the pain of persuading the broker to strike a 33-month deal and agreeing to pay the entire brokerage upfront. This is apart from the renovations, repairs, maintenance, painting and modernisation that the house will demand. Unless your child is likely to actually live in the house you bought, this investment is a pain.
But then you tell yourself that the house represents a lot of wealth. The idea that you will your child will be worth millions, appeals so much to you. It is a good deed you simply have to do, to get your child off to the great start. But how will your child use those millions? They probably cannot sell one bedroom and the balcony to raise money for higher education. Nor can they mortgage such a large value asset for their marriage expenses or honeymoon. They would be too worried to raise a loan to start a business, lest they lose what they have. And whenever they think of selling the property, spooky facts about how a house will only grow in value and how every seller rues his decision will appear in their nightmares. What is quite likely is that your child will bequeath the property to his child, and pass the albatross. Alas, an asset that was never used.
Hold on, you are now screaming at me. You tell me that your child is not so dumb, but will use this asset to build other assets. So, is the house in the child’s name? My job brings with it the privilege of hearing stories that people tell about money and their lives. One story I hear a lot is that property is the source of a lot of discontent, and therefore parents should not give up what they have before they die. Therefore these large assets are in your name, or in the best case jointly held with the child. Another set of hassles.
If you will your property to the child, the will has to be registered and probated before the property moves to the child after your time. This will need trips to the court and payment of fees. Then the registration and stamp duties will take time, effort and cost. The paperwork will also involve other siblings, and lets hope for your sake that your extended family is cordial and amicable with each another. When your child wishes to sell the property, there would be the hassle of dealing with the cash component that is a sad part of property deals in India (yes, you can hope for it to go away in their time, but you are still just hoping). The paperwork to acquire, transfer or sell will also include dealing with the by-laws of the society. What you see as prime assets are actually burdens you impose on your children. The road to hell is indeed paved with good intentions. Pardon the cliche but consider the point.
When you think of assets for your children, think about ease of operation too. Financial assets such as deposits, equity shares, bonds and mutual funds make immense sense since all you have to do is name your child as a nominee. After your children turn 18, you can name them as joint holders. They can access the assets electronically, anywhere in the world and get the benefits right into their bank account in the currency of their choice. Do not compromise this immense flexibility for your adamant view about what is the appropriate asset to accumulate and bequeath.
Real estate is too much of a gamble and too ridden with questionable practices. Love thy children. But do not buy houses to evidence that love.
(By Uma Shashikant, Chairperson, Centre for Investment Education and Learning)
• ET Realty