(Bangalore property|2bhk apartments
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Man does not live only for his basic needs or for himself. He has
certain responsibilities to provide for his family and also for himself during his
old age. This makes him to save some portion of his earnings and to invest in
lucrative portfolios. After getting the basic needs, he strives to improve his
standard of living to enjoy the fruits of his hard earned money.
Investment avenues are
many. But, the Investor should be prudent enough to select a proper area, which
is safe and secure, with assured reasonable returns. Earlier, the Bank
deposits, stocks, mutual fund, insurance policies, etc., like these most of
them were opted. Now, with increased business, globalisation of economy has
unfolded many more areas. The investment has become very complex and has led to
the emergence of specialized
investment Advisers.
Bank deposits, insurance
policies and mutual funds have become unattractive because of low returns and
many companies have failed.Stock market is unpredictable and volatile.
Moreover, these investment avenues are for short-term which need close
monitoring. But, the quantum of investment is generally small. Recently, past real estate investment has
emerged as safe and high yielding investment opportunity. Investing in real
estate is long-term and needs a considerable amount. It’s not just money even
emotions are filled with investments.
The liberalization
initiated by the Government has opened up the hitherto dormant Indian economy
and many Multi-National Companies have set up their offices in major
metros.Nowadays, even the vast middle class population has started investing in
many ways. The desire to own a roof over their head has become easy and the
migration of rural people to urban centres in search of assured income jobs has
further expanded the real
estate market.
In today’s scenario, the
market has regained its potential. Only serious Vendors and Endorsers are
operating in the market. 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 i.e., residential, commercial or office space. In Bangalore, the
returns are about 8% for residential, 12% for office space and for commercial
space 12 %. There are certain determining factors, which play a crucial part in
the property investment.
There is equal demand
for all types of space in Metropolitan Cities and market trends are more
transparent on account of competition and frequency of dealings. But, smaller
towns have potential of increased returns because of dearth of space. Local
politics also plays its role in determining the returns in small towns.
Types of investment are
as follows:
1.Huge Investment: Investment in real
estate needs higher amount and the minimum entry level will be in multiples of
lakhs, it would be about Rs. 20 lakhs for residential and much more for office
and commercial space.
2.Time factor:The sale of property requires
long time for finding a suitable Purchaser and for complying with the legal
requirements. Further, the appreciation of the capital value of land is slow
but, it will be certain and stable unlike in stocks and shares.
3.Local Laws:The realty investment
calls for more discretion and involves complicated processes like title
verification, land use according to Local Laws, Floor Area Ratio (FAR),
restriction on sale for some period and many more Laws and rules depending
upon the political environment.
4.Tax factor:Uncertain tax rules and
rates which vary every year need to be considered. Property tax is an annual
commitment, in which it is being increased every year by self-assessment or
capital based assessment. Rental income also attracts income tax to be paid
annually; sale of property attracts capital gains and purchase invites Stamp Duty and
Registration charges. Property tax & Stamp Duty varies from State to
State.
5.Type of property:It may be residential,
commercial or office space, but the type of property is very important. The
demand and supply position of each sector needs to be carefully examined.
Residential property calls for smaller investment. Commercial and office space
needs higher investment.
6.Type of returns:Real estate sector
offers two types of returns namely:
a)Monthly return in the
form of rentals and the returns on the lease amount invested in the Bank
securities or in business,
b)The other type is the
sale consideration on sale of the property.The amount to be invested 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 is about 8%.
7.Risk Factor and
Limitations of Legal Scrutiny:Tracing the title of the property is the most important step in
purchasing the property, which has to be done by an Experienced Advocate who is
well-versed in Property Laws. Property Laws are very complex and it varies from
State to State. Further, many times the age-old records needs to be examined
which may not be available with the parties or even in the Jurisdictional
Sub-Registrar's Offices. Further, Legal Scrutiny is based on the documents that
will be produced for the verification. However, it is not the duty of the
Advocate to certify the genuineness of the documents from the concerned
departments. Honesty and integrity of the Seller is very important.Certain
hidden facts, like pending cases, prior agreements and Government notification
of the property cannot be traced easily by verification of the documents.However, the paper notification about purchase of property would help to
unearth some claims.
8.Liquidity:Investment in real
estate cannot be immediately converted into cash unlike stocks, deposits.
However, the property is most sought after security for Bank loans and rents
may be securitised by obtaining loans from the Banks.
9.Maintenance charges:Property needs periodical maintenance,which
involves a considerable amount.
10.Landlord Tenancy
problem: Most
of the Indian Laws are pro tenant offering maximum protection to the tenants.
But, gradually they are being amended to strike a fine balance and even now, it
takes much time to evict a tenant, who has defaulted in payment of rents or who
has violated the terms of agreement.
11.Political
Environment:Government has maximum control on real estate sector. Sale or purchase
of agricultural land has many restrictions in Karnataka. Land use restrictions
exist in many towns. The major source of revenue to the Government is from the
immovable properties in the form of Stamp Duty and property tax. In case
of acquisition by the Government, the compensation paid is much lesser than the
market value.
12.Price cycle:It has been observed
that, the real estate has regular ups and downs where the prices go on
increasing for some period and slide down for some time.But, this cycle is a
long-term trend. Though the investment is huge, the Investor needs to be in
patience to have a good return which takes a long time. It would be suicidal to
expect appreciation in short run. Two components,the building and the land move
in opposite directions, the building value gets depreciated and the land value
gets appreciated.
13.Other factors:Some factors are
remotely linked to this sector and play a crucial role in determining the
price. Introduction of one-way traffic and construction of flyovers near the
property decreases the value of the property. Today, Vaastu has become more
important in one’s life. Another area of concern is want of information in the
property market.The available information is too insufficient and often
contrasting. Even the transactions recorded in Registrar's Office will not
reveal the real price of the property as the amount other than what is
mentioned in the document might have been paid.
14.Rental Income: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 investment in agricultural properties and farm houses are not
remunerative. The income from the agricultural property is seasonal and depends
upon the weather and climatic conditions. Further, the sale of
agricultural properties has many restrictions. The farm house demands good
maintenance which proves costly and many a times the income from that might not
even meet the maintenance charge. The investment in real estate is a better
option.
Real estate is the only
sector which yields better returns apart from capital appreciation provided the
Investor is prudent and has taken necessary precautions.
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