PROPERTY INVESTMENT IN INDIA

Earning money is important but
increasing that money is a smart move. Investment planning is
something that nearly every individual who earns, looks at. Property investment is one of
the most typical and crucial decisions involved in investment
planning. Whether you are buying a family house or a commercial space
or a property purely as an investment, it requires a lot of research,
awareness, calculations, etc. You need to be sure about what is the
purpose of your investment, what is your expectation out of that
investment and is that going to be a successfully affordable
investment. Once these basic doubts are cleared, we move to another
set of questions concerning location, true worth and choice of a
property.

Before we forward to the tips
for buying property, we need to understand the pros and cons of
buying property and in which case we should go for it.

Step 1 – Should you invest in real estate or property in India?

 Is
buying property a good investment option?
Of
course, investing in property requires a fairly great amount of
investment. One with a few holdings can’t go for it. You need to have
a large amount of surplus in hand. Unlike equities or gold investment
where you can start with a few thousand, the property requires a
handsome number of lacs.
For this investment to produce
some significant profit you need to give it time. The property
requires a couple of years to grow in worth and even more to perform
better. If you want to get returns in a year or less, property is not
a good option for you even if you have a large amount to invest. Say,
you buy a property today and you plan to sell it after 12 years
because you would be having an event which requires expenditure. In
such a case, you won’t have any significant profit in hand. The
reason is the value of property do not increase in such a short
period of time and even if it does then after taking out the
additional costs such as maintenance cost. Taxes, etc. from the
profit you are not left with anything attractive.
Also, the time-taking feature
of property investment does not allow circulation in investment. The
amount and kind of investment can’t be modified as in equities or
gold. So, one needs to have patience while opting for this.
Let us consider some benefits
and disadvantages of real estate for a better understanding.
Benefits of Real Estate Investment
1. Real estate always enjoys
appreciation in its value. So, there is no risk of losing the
investment.
2. It performs great in a
long-term, says 5 years & above. You can enjoy great profits. At
times, up even 100% of your investment.

3. This means of investment can
also be used for other than just the investment purpose. You can own
it as your family house, rent it or use for commercial purpose.
Drawbacks of Real Estate Investment
1. This option of investment
comes into play only when a large investment is involved. For small
investors, it is certainly not a feasible option.
2. It takes time to grow. The
investment needs to be kept for a few years to produce a good profit.
People who are looking for returns within a year or so should think
hard before going ahead with it.
3. Money is blocked for a
considerable duration of time. Thus, the investment can’t be
regulated or disturbed before a specific time of length.
Since, real estate investment
is a big decision, one needs to be clear with all its aspects before
making a mind to go for it. And once you are done with it & have
taken the decision, here a couple of things that are required to be
taken in concern while choosing a property.


Step 2 – If property is the right investment for you, then what are the things one must watch out for?

Checklist
for a successful real estate or property investment
The basic necessity for a
successful investment is to be completely clear with why you want to
invest, how will the investment serve your needs and what will be its
impact on your future. Once you are sure with these things you have
already progressed towards a great and productive investment.

  1. Location – The major purpose behind any
    investment is to increase your money. So, it becomes important to
    invest in something that has a good potential to do that and
    investing in best option available with you will maximize your
    returns. In case of real estate, the performance of property depends
    greatly on its location. For example, if you are looking for a house,
    choose the colony that has a nice maintenance system or a good
    infrastructure. Look if it is near any public facility zone such as
    market or metro station etc., or if you are investing in a commercial
    land make sure or lies in a commerce or business hub, all these
    things add up to the worth of the property. People often buy property
    at remote places or in unauthorized localities. This creates a
    problem at the time of sale as there may be only a few people
    interested in your land which can make you settle at a lower price
    than the one expected. Moreover, appreciation in such areas is too
    low. Thus, choose the location taking in consideration its present
    state as well as future development prospects.
  2. Land
    rates  – 
    After when we are done with
    the location and property is chosen what comes next is the pricing.
    Never settle with what the first person tells you. Research the
    market well. Different sellers and dealers may provide you different
    rates. Every locality in India that is authorized by the development
    authority for that area, has pre-defined rates which can be easily
    found on the official website. These rates are decided by the
    government formed development authorities. Falling prey to
    overpricing will make you invest more in the property than its worth.
    So, be conscious about it and search the market a bit so that you are
    well informed and aware.
  3. Effective
    cost  – 
    One major problem that is
    often seen is that at the beginning people do purchase the property
    but they are not able to keep it for as long as it should have been.
    In other words, people buy property but fail to maintain it. This
    happens because of poor calculations or no calculations at all. At
    the time of purchase, people consider only the purchasing cost and do
    not take a decision pre-considering the future expense. The
    affordability of the house does not depend only on the initial cost
    but also on other costs like maintenance costs, yearly taxes, etc.
    One should take note of all such elements that are either certain or
    uncertain to occur. If you raise a loan for the property, its EMI
    must be well incorporated and you should analyze how easily you can
    repay it so that later on if you fail to do that, it does not cost
    you your investment.
  4. Future
    planning
     –  
    Another reason why people end
    up selling off their property without realizing any real profit is
    due to lack of planning. They put their money in real estate without
    taking note of its upcoming need and are therefore forced to dissolve
    their investment. Suppose, one has a surplus of 20Lacs today which he
    needs to invest and there is an upcoming event after year which may
    roughly require an expenditure of 15Lacs. Now, in such a case the
    person can either take a loan against the property which will add up
    to the holding cost of the property or he can dissolve it. If the
    person chooses to sell the property, he will have an unsuccessful
    investment. Selling out property in such a short period of time does
    not provide any significant profit. Thus, after one year he is at the
    same value. Had he invested in some other option that provides
    returns in a comparatively shorter period of time, he would have been
    in a better position. Therefore, one should be clear with the tenure
    they can keep their investment.
Step 3- Tax Implication of Real Estate Investments – Capital
Gains
In India, this is one
important feature of selling property which should be taken in notice
at the time of purchase only. This will help you plan better for how
long you should keep your investment and when is the right time to
dispose it.

What
is capital gain?
Capital gain has broadly two
main aspects-
a. Tax on earnings
b. Tax on holdings

Tax on earning is applied at
the time of sale. In India, most forms of earnings are taxable. When
we sell off a property, the profit that is generated is our earning
or capital gain. So, a certain percentage of these earnings goes to
the government as tax. Now, why this should be considered while
deciding on the life of investment is because the tax rate varies
with the time in which you dissolve your investment. 
If the profit from the
property is earned in a short time, the tax rate is higher than the
rate that applies when the same profit is earned from a long-term
investment. 
Also, if the profit gained is
invested in another property, they are non-taxable.

Consider, two investors X and
Y invest 10lacs in two different properties. X realizes his profit in
a short-term and sells his land for 15lacs whereas Y sells it off
after long-term investment at the same rate as X. Even though, their
profit is same i.e., 5lacs, X will pay a higher tax. Also, if any of
them re-invests these 15lacs in any other property, no tax will be
levied on these earnings.
Another kind of tax that
applies on your capital gain is the tax on your holdings. The
government puts this tax in order to promote investments and to
prevent blocking of money. This tax levies on the earnings from real
estate that are kept uselessly for a long period of time. The
government of India provides a tenure of 3 years to invest your
earnings, not necessarily in property only, after which tax becomes
applicable on it. Suppose, X who earned 15lacs from his investment
deposits this money in his account and he does not happen to use this
money either for investing or for his other needs. So, after a term
of 3 years, he will have to bear a tax on this amount. Even if he
uses some proportion of his earnings, the residual will be taxable.
Owing to these features of
capital gain, it becomes important to take it in concern at the time
of purchase and include it in your calculations so that you do not
face a problem in the later phase.

Step 4- Conclusion

In our country, most of the
people are not able to build more than one or two properties in their
whole life. So, it naturally becomes a very important and
sophisticated decision of one’s life. Thus, it should be taken very
wisely and patiently. Finalizing your land with full research and
calculations may take a few months but that’s okay. A good decision
will shoot up your financial position whereas a wrong one can cost
you heavy.
To know more about investment options that suit your risk profile, talk to a qualified investment professional today. Visit FinVizer.com to talk to handpicked investment experts who can help you meet your financial goals.

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