65-year-old brother wants to sell Rs. 4 crore share of inherited property: Should I buy or invest?

Ans: I offer my following suggestions for your points of concern :
01. The Buyer will make payment to the owner of property. Has property been transferred in favor of both of you ?
If Yes, then he shall make payment to both of you, separately, as desired by you.
02. The buyer should not make any direct payment to your sister.
After receiving the sale proceeds, both of you, may Gift some amount to your sister. It will be a separate transaction. Please note that your sister will not have any income tax implications, in case of gift from brothers.
03. You are free to use the sale proceeds of property in any way, even for re-payment of housing loan.
04. You need to work out LTCG in both ways, i.e., 20% with Indexation & 12.50% without Indexation. You may choose the option, in which you tax liability is minimum.
Most welcome for any further clarifications. Thanks.

Ans: Given your situation and your priorities, buying your brother’s share in the property involves both financial and personal considerations. Let’s break it down:

Financial Consideration: Purchase for Rs. 4 Crore
Investment Potential:

If you purchase your brother's share for Rs. 4 crore, this is a significant outlay. This amount would be locked in the property, and you will not have liquidity for other investments.
The potential annual rental income of Rs. 7.2 lakh (Rs. 60,000 per month) from the ground floor would give you around 1.8% return on your investment (before expenses).
While the property provides rental income, it is important to evaluate whether this income is enough to justify tying up such a large sum in real estate. With Rs. 4 crore in fixed deposit or RBI bonds, you could earn around Rs. 32 lakh annually (at an 8% interest rate), providing better liquidity and diversification.
Liquidity:

Investing in property reduces your financial flexibility. If you need funds quickly, liquidating property could take time and may not be as efficient as keeping cash in a fixed deposit or bonds.
Fixed deposits or bonds would offer guaranteed returns and the flexibility to access funds without the complexities associated with property ownership.
Peace of Mind vs. Financial Flexibility:

Your main concern about purchasing the property is to ensure peaceful living. While this can be a valid reason for staying in the property, from a financial perspective, an alternative investment like fixed deposits or bonds might provide a better balance of risk, return, and liquidity.
Comparing Bank Fixed Deposit vs Property Investment
Bank Fixed Deposit:
Interest income of Rs. 32 lakh annually (assuming 8% return on Rs. 4 crore).
High liquidity, no maintenance hassles, no risks associated with property market fluctuations.
You can invest in RBI bonds, which also provide tax benefits and security.
Property Investment:
Rental income of Rs. 60,000 per month (Rs. 7.2 lakh per annum).
Long-term capital appreciation potential, but not guaranteed.
High investment lock-in (Rs. 4 crore) with limited liquidity.
Property maintenance, taxes, and the possibility of tenant-related issues should be factored in.
Legal Question: Selling the Terrace Share
Your brother wishes to sell his share in the property, including the terrace rights. Here’s the challenge:

Undivided Rights:
The terrace is an undivided right shared between you and your brother. This makes it more difficult to sell it separately unless both parties agree to sell the entire property or agree to transfer the right to one party.
Selling Procedure:
Since the terrace is an undivided share, your brother cannot sell it without your consent unless there is a formal agreement. You both need to either:
Execute a separate agreement on the share of terrace rights.
Decide whether the property sale includes the terrace rights, or if he will only sell his ground-floor rights.
Recommendation:
If your brother is serious about selling, you may want to get a lawyer’s opinion on how best to formalize the sale of terrace rights. If you wish to maintain control, you might want to agree to a sale that retains your joint ownership of the terrace.
Redevelopment Proposal
There are multiple builders interested in redeveloping the property, which presents a few options:

1. Redevelopment for Additional Floors
Pros of Redevelopment:

Redeveloping the property into a four-floor building with basement and stilt parking could significantly increase the value of the property.
New, modern construction could offer higher rental income and capital appreciation in the future.
If the builder offers you a share of the redevelopment or compensation for temporarily moving out, it might be an attractive deal.
Cons of Redevelopment:

The process of redevelopment can take years and may cause inconvenience, especially if the work is happening around your existing residence.
Redevelopment may lead to uncertainty about the final outcome, as builders may face delays or changes in plans.
You may be asked to move temporarily, which can be uncomfortable and time-consuming.
2. Selling the Property
Selling the Property:
If you prefer peace of mind and less involvement with the property, selling to a third party may be a better option.
The sale could generate significant liquidity (Rs. 4 crore), which you could invest in financial instruments, giving you higher flexibility and more options for growth.
However, this would mean losing the rental income and potential capital appreciation from the property.
3. Keeping the Property As Is
Keep the Property:
If you are satisfied with the current rental income and your primary goal is a peaceful living environment, keeping the property could be the best choice.
This option avoids the disruption of redevelopment or selling but may limit future financial growth if the property does not appreciate much in the coming years.
Recommendations and Final Insights
Financially, Based on Your Situation:
If You Prioritize Peace and Stability:

Purchasing your brother’s share might be a good option for ensuring peace of mind. You would secure full control over the property and avoid interference from new buyers. However, the financial return on investment is modest when compared to other options.
However, this comes at the cost of reduced liquidity and potential for more efficient investments in fixed deposits or bonds.
If You Prioritize Higher Returns:

Keeping the Rs. 4 crore in fixed deposits or RBI bonds would generate better returns (Rs. 32 lakh annually), with much higher liquidity and safety. You can continue to live in the property as it is and enjoy stable rental income.
Selling the property (or your brother selling his share) could allow you to reinvest in higher-return investments, but it would also mean giving up the peace and stability that comes with staying in the inherited property.
Legal Considerations:
For the sale of the terrace, you must have a clear agreement between both parties on how to handle the undivided rights. This could involve getting a legal professional to create a formal agreement if your brother decides to sell his share to a third party.
Redevelopment Options:
If you and your brother are both open to redevelopment, carefully assess the offers from builders. Consider the long-term benefits of redeveloping the property into a four-floor building with basement parking. However, you need to weigh the inconvenience caused by redevelopment and the potential risks.

Alternatively, if you prefer stability and don’t want the hassle of redevelopment, keeping the property and enjoying the rental income might be a more comfortable choice.

Finally, given your specific situation, it would be helpful to discuss this in greater detail with a certified financial planner to ensure that the right option aligns with your overall financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You have built a strong financial foundation. You own a bungalow and a flat in Gujarat. You have Rs. 3.5 crore in NRI fixed deposits and Rs. 20 lakh in mutual funds. You also invest Rs. 3 lakh annually through SIP. Your daughter is studying in the U.S.A.

You want to retire and travel the world with your wife. Your focus should be on financial security and sustainable cash flow.

Retirement Readiness
Your annual income is Rs. 35 lakh.

Your assets generate passive income, but some are not inflation-protected.

You must ensure stable cash flow to fund travel expenses.

Your investments should balance liquidity and growth.

Expense Planning
Estimate yearly travel expenses, including flights, stays, and experiences.

Maintain an emergency fund for unexpected medical or travel needs.

Adjust lifestyle costs based on your preferred travel style.

Account for healthcare costs in India and abroad.

Income from Existing Assets
Fixed deposits offer stability but generate taxable interest.

Mutual funds can provide inflation-adjusted returns.

Rental income from your properties can add to cash flow.

SIPs should continue for long-term financial health.

Investment Restructuring
Reduce exposure to fixed deposits gradually.

Increase allocation to balanced and growth-oriented mutual funds.

Keep a portion in liquid funds for easy withdrawals.

Use systematic withdrawal plans (SWP) for monthly cash flow.

Tax Considerations
Review tax liabilities in both India and your country of residence.

Optimise withdrawals to minimise tax impact.

Check mutual fund taxation as per new rules.

Consider the best way to repatriate funds if needed.

Final Insights
You are financially well-positioned to retire and travel. Ensure a mix of liquidity, growth, and passive income. Regularly review investments and expenses for long-term sustainability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment