Pros and Cons of Buying a Property for Children in India

As parents, most people want to give their kids the world. Right from enrolling them in the best schools and colleges that pave the path to a great future to ensure they secure the best of food and nutrition for wholesome growth; parents leave no rock unturned if it comes to doing whatever they can to safeguard their children’s happiness. Similarly, buying a property and leaving behind credible real estate assets for their children are other significant milestones that many parents plan for once they have built reserves for education and future wedding expenses. However, is buying a property the proper security to invest in, especially for the purpose of passing it on to the next generation? What are the benefits and pitfalls? This blog will take you through.

Pros of buying the property for Children

Let’s discuss the critical facets of consideration you must keep in mind before buying a property and making a financial commitment on behalf of your kids.

1. Sentimental Value: There is something deeply sentimental about dwelling in the house we grew up in for most of us. The atmosphere is warm with fond memories and recollections of some of life’s most cherished moments as a family. Most parents want to provide a permanent roof of sorts for their beloved children. As a gesture, the act of buying a property for children ensures that they have a permanent residence in the long-term irrespective of whatever circumstances life may throw at them.

2. Creation of Long-term Wealth: Land is a scarce resource. As the population grows and cities expand, residential real estate prices stay on a steady upward trajectory, although this market does see a short-term correction in prices. Buying a property and holding it over the long-term can yield considerably handsome returns. At best, it could grow multi-fold and leave you laughing all the way to the bank at the time of sale. At worst, it’s an able medium to beat inflation year on year. The growth I value of real estate assets can provide long-term stability and security to your children as they begin their life and embark on multiple career aspirations.

3. Loan against property: Many endeavours such as starting a business, pursuing an educational qualification, or settling down in a foreign country require a relatively large corpus which is generally accessed through a loan. While there are many forms of financing prevalent in the market today, securing a loan against property is one of the more acceptable, easier-to-process methods in the market today. What’s more, is that the serviceable interest for a loan against property is far lower than other loans available. Buying a property for children also safeguards them in this regard.

4. Fixed income asset: A vacant property can provide a fixed income asset for those who may move cities for work or simply outgrow a particular residence after a few years. Whether you’ve invested in a home or a commercial property for sale, the premises can be leased out to interested tenants. This can spark the start of a rental income that can supplement an existing primary income, which can come in handy in creating a steady corpus for the next generation.

5. Community: When you live in a house over multiple years or decades, as the case might be, you tend to become part of the inherent community that resides in the housing complex and the locality at large. This is specifically true for most homebuyers who have lived in flats in Kolkata over multiple generations; they have become part of the extended social fabric of the area by involving themselves in the local affairs and activities. As intangible as it sounds, this is probably the most significant benefit of buying a property for children- you may leave them with a wholesome life they can enjoy for a long time to come.

6. Increase in land value: There are various types of investments that could be made for children. There is the stock market that is volatile at any given time, or there are all sorts of saving accounts. What you should really look for is what would be the return on investment for these? With stocks, there are huge risks, and with saving accounts, they are solid, but the interest gained is low. Now let’s consider real estate in India; let’s assume that you invest 300,000 in buying a property at the time of your child’s birth. If the land appreciates even by 5-10 percent per year, by the time your child is 20, that property you bought a few decades ago has doubled in its original purchase price.

Cons of buying the property for Children

Now, every coin has two sides. Since we have explored the positives of buying a property for children. Assisting your children onto the property ladder may feel like a good idea. Still, it is critical to consider all the options and be fully aware of the future risks, specifically the risk of future relationship breakdowns or divorce, which can result in the sale of the property and risk a loss of family wealth. Let us look at the cons of buying a property for children:

1. Premature death: In case of premature or accidental death of parents, the children in that time would be minors, and they won’t be able to manage the property. Because of the absence of the will, there are high chances that the property can fall into the wrong hands of acquaintances or relatives. Make sure you make a will after buying a property or place the property in a trust, stating when, how, and to whom it is to be transferred if you were to die unexpectedly if you are planning to buy a property for your children, it is highly critical for you to complete these formalities. It is also essential to choose the will’s executors and trustees carefully.

2. Creditors: Any interest transferred to a child is subject to that child’s creditors. There are some situations where a child’s creditors could become a problem. These includes:

1. Personal injury claims against a child can put (your child’s) home at risk. If a grandchild is involved in a vehicle accident while driving the child’s car, the claims could be huge.
2. If a child suffers from bankruptcy, the property would be constrained to the bankruptcy court’s jurisdiction and control.
3. The property can be taken to clear the debts of your children like taxes, debts to the state for the benefit programs received by the child, unexpected medical expenses of the child and obligations incurred because of business difficulties or loss of employment, or simple overspending on the child’s credit card.
4. In the event of a divorce, the property you bought for your children would become an asset of the wedding, subject to court jurisdiction. 

3. Property disputes: Almost 66% of civil cases in the country are associated with property or land disputes. In comparison, according to the center for policy research, 25% of those cases are decided by the supreme court to involve land disputes. While buying a property for your children, you must also take into account that the property may give birth to differences among siblings. Chances for this are more if a single property is needed to be split among two or more siblings, because they may not choose to live together in the later years of their life. Even if you make a will, property disposal is generally open to dispute after the parents’ death. Besides, archaic property laws make sure that the judicial resolution takes several years, in addition to a lot of money.

4. Reverse Mortgage: If you wish to pass on the property, whether it’s luxury flats or commercial real estate in India, but,  you realize that your children do not need it or that you lack funds in your sunset years, you can go for a reverse mortgage. This will not only help you generate additional income for yourself while you are alive but also offer a good way of disposing of it after you die. It is because the lending institution will sell the property after your death, and the children will not have to deal with it. But, if they want to retain it after you pass away, they should have the knowledge that they will need to have enough funds to pay the loan and take possession.

5. Heirs: If you transfer your home or buy a property for your child, and that kid predeceases you, his assets will be transferred to his heirs. Consequently, the gifted assets could end up in the control of your son-in-law or daughter-in-law or a grandchild with whom you don’t share a close relationship. It is prevalent to hear that the child’s surviving spouse is trying to evict the parent from the house. Some protection from this scenario can be acquired by retaining a life estate. But a child’s heir may be less cooperative in obtaining an equity loan or reverse mortgage or returning the property to you for avoiding a transfer penalty. This is one of the issues that suggests that using a trust for the transfer is a wise choice.

Conclusion

Buying a property for your children is one of the most rewarding deeds a parent can do. As said by David Weliver, “if parents are capable of helping their children to purchase a house without compromising their finances and retirement plans, then helping their children buy a home can help the child get settled sooner and deduct the amount of debt they have to begin life with.” The best thing about investing in real estate in India, whether it’s ready to move in flats or under-construction properties, is that you just sit and wait until the land appreciates. Wait for the correct time to sell, and make money off something that needs little to no maintenance. But at the same time, with all the benefits you have in your mind, make sure to know the potential risks it has with it. Make sure to make your decision after thinking about it.

The transfer of a home or buying a property for your children may be a helpful planning technique. However, there are various reasons not to make such as big move. It is essential that you consider the implications before signing the deed. Above all, consult with an attorney who is familiar with elder law issues and Medicaid, and title issues.