It is the general trend in a civilized Society that people
do earmark a portion of their income for meeting unforeseen circumstances and
for meeting the future needs of self and family during the lean period
including old age. Financial management if adopted in a scientific way would
bring in attractive returns on the investments made. The Investor should be
prudent enough to select a proper scheme from out of various options keeping in
mind the safety for his investment with assured good return. Till recently,
Bank deposits, stocks, mutual fund, insurance policies and bullion were the
most opted options by the people. Presently, Bank deposits, insurance policies,
mutual funds have become unattractive because of low returns while the stock
market is unpredictable and volatile. Moreover, the investment avenues in stock
market need close monitoring. With the globalisation of the business, many more
options for investment have unfolded and the investment strategies have become
very complex. This has led to the emergent of specialised investment Advisers.
According to many investment Advisers, investment in real estate is safe and
high yielding. But, the investment in real estate is a long-term investment
needing considerable capital.The liberalised scheme adopted by the Government
of India has awakened the hitherto dormant Indian economy and many
Multi-National Companies have set up their offices providing employment to a
large number of people. The Foreign Direct Investment in real estate and the
creation of Special Economic Zones have also given a fillip to the real estate
sector.
Reverse Mortgage:As a welfare measure, Government is considering introduction of a
new banking system called Reverse Mortgage system to facilitate the elderly
persons to get housing loan upon mortgage of their immovable property to meet
expenses of certain specified categories such as medical expenses, repairs to
the dwelling house etc. on the security of his dwelling house. The Borrower can
repay the money borrowed along with interest during his life time in
installments or allow the debt to accumulate to be realised on the death of the
Borrower. The amounts outstanding will be a charge on the property. Thus,
investment in immovable property would not only help the Investor to have shelter
over his head till death, but also get financial assistance without any
commitment of repayment of amount borrowed during his life time.
The manifold increase in the pay packets of the staff of
Multi-National Companies and the migration of rural people to urban centers in
search of assured income jobs and the desire to have shelter of their own have
given a boost up to the real estate market. It is now the desire of every young
person to have a house of his own in metropolis like Bangalore, as a matter of
pride and also to avail I.T. rebate available on investment in immovable
properties. Since investment in property is huge, the Investor should be
cautious and consider various factors before making any investment in real
estate.
Determining Factors:The yield in the realty market has to be calculated on the
capital invested and the annual rental returns less property tax, income tax
and annual maintenance charges.This return varies according to the type of
property: residential, commercial or office space. In Bangalore, the returns
are about 6% for residential, 12% for office and commercial space.
Selection of a proper location is a primary determining
factor in property investment. There is equal demand for all types of space in
metropolitan Cities. The demand and supply position of each sector such as
residential, commercial and office space need to be carefully examined.
Residential property calls for smaller investment. Commercial and office space
need higher investment. In metropolitan Cities the market trends are
transparent on account of competition and frequent dealings. In smaller towns
there could be higher returns because of shortage of accommodation with limited
transactions.Local Government politics also plays a role in determining the
returns from the investment in properties.
The investment on agriculture properties other than the City area and farm
houses, they are not remunerative. The income from the Agricultural property is
seasonal and depends upon weather and climatic conditions. Further, the sale
and purchase of agricultural lands has many statutory restrictions and cannot
be purchased by everybody. The farm house demands good maintenance which proves
costly and at many times the income there from may not meet the maintenance
charge even.
Procedure:
The real estate investment involves complicated process like title verification, land use according to local Laws, Floor Area Ratio, restriction on sale for certain period and certain type of lands, compliance with the rules, regulations and Laws made thereunder. Property Laws are very complex and varies from State to State. Tracing of title of the property is the most important and specialised job in property matters. To trace the title of the property, examination of age-old records may be necessary and in many cases, these records may not be available with the parties or even in jurisdictional Sub-Registrar's Offices making the tracing of title difficult. Further, Legal Scrutiny is based on the documents produced for verification and therefore, the honesty and integrity of the Seller should be above board since certain hidden facts like; pending cases, prior agreements and Government notification of the property cannot be traced easily by verification of the documents. However, paper notification about purchase of property would help to a certain extent.
The real estate investment involves complicated process like title verification, land use according to local Laws, Floor Area Ratio, restriction on sale for certain period and certain type of lands, compliance with the rules, regulations and Laws made thereunder. Property Laws are very complex and varies from State to State. Tracing of title of the property is the most important and specialised job in property matters. To trace the title of the property, examination of age-old records may be necessary and in many cases, these records may not be available with the parties or even in jurisdictional Sub-Registrar's Offices making the tracing of title difficult. Further, Legal Scrutiny is based on the documents produced for verification and therefore, the honesty and integrity of the Seller should be above board since certain hidden facts like; pending cases, prior agreements and Government notification of the property cannot be traced easily by verification of the documents. However, paper notification about purchase of property would help to a certain extent.
Type of returns:Real estate investment offers two types of returns to the Investor; [a] recurring and [b] capital gains on sale of property. Monthly return in the form of rentals or the returns on the lease amount invested in Bank securities or in business can be considered as recurring income or return while the profit on sale property after lapse of a period can be considered as capital gain attracting capital gains tax under the I.T. Law.The rental income from the properties is in the range of 0.5% to 1% p.m. on the investment. Apart from this income, the value of the property appreciates regularly. Whereas in the case of Bank deposits, the value of the money deposited gets eroded on account of inflation.
The amount to be invested in a property also depends on the
mode of returns expected. Generally, leasing of property is attractive only for
business people. Lease amount does not attract interest. Commercial property
and office space yield high returns to the extent of 15% whereas, the
residential property yield about 6% per annum.
Rise in property value:The value of immovable properties are always on upward trend
and hence any investment in immovable property would not only give the Investor
the recurring return by way of rental income, but also gets him the higher
value for his property whenever sold and thereby he would get capital gains
over his investment. Further, the investment in house property do get the
Investor income-tax rebate both in respect of repayment of the principal amount
borrowed and also the interest paid on the amount borrowed up to a certain
limit.
Limitations:
[a] Liquidity:Unlike in stocks and shares and Bank deposits, the capital
invested in property cannot be encashed quickly. It requires searching for an
intending Purchaser, discussions and negotiations, settlement, arrangement for
finance by the intending Purchaser, preparation of Sale Agreement and Sale
Deed, Registration of document and handing over the property on receipt of sale
consideration. All these steps consume considerable time. Further, the
appreciation of value of the property is normally slow, but it is certain and
stable unlike in stocks and shares.
[b] Government Policies:The major source of revenue to the Government is from the
transactions of immovable properties in the form of Stamp Duty, Registration
charges, VAT, service tax, property tax etc. It has become the practice for the
Government to revise at frequent intervals the tax structures on immovable
property leading to speculations in property transactions.
[c] Other adversaries:
There are several other adversaries, which play a crucial
role in determining the value of the property. For example, introduction of
one-way traffic and construction of flyovers near the property would decrease
the value of the property. Similarly, the property not conforming to the Vaastu
specifications would have limited Buyers of such property.A critical analysis
of the advantages vis-a-vis disadvantages in investment in real estate and
other securities would go to show that investment in real estate would score
more than the other type of securities and the Investor in immovable property
would be a Gainer in as much as he would get the recurring rental income, tax
exemption on the amount borrowed and the interest paid thereon and the higher
resale value when the property is sold at a later date.
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