There are many ways to invest. But the investor should be prudent enough to select a proper area, which is safe and secure with assured reasonable returns. Few years ago, bank deposits, stocks, mutual funds, insurance policies and bullion, were the most opted field. With increased business, globalization of economy has unfolded many more areas. Investment has become very complex, which has led to the emergence of specialized investment advisers.
Bank deposits, insurance policies and mutual funds have become unattractive because of low returns and failure of many companies. Stock market is always unpredictable. These investment avenues are for short-term investments, and need close monitoring too. These days, real estate has emerged as a safe and high yielding investment opportunity. Investment in real estate is a long-term investment and needs considerable amounts.
The yield in the realty market has to be calculated on the capital invested and annual rental returns, less property tax, income tax and annual maintenance charges. This return varies according to the type of property. There are certain determining factors, which play a crucial part in the property investment.
Investment in real estate needs higher amounts and the minimum entry level will be in multiples of lakhs, for residential, and much more for office and commercial space.
The sale of property requires a long time to find a suitable purchaser and comply with the legal requirements. Further, the appreciation of capital value of the land is slow but certain and stable, unlike in stocks and shares.
The realty investment calls for more discretion and involves complicated process like title verification, land use according to local laws, floor area ratio, restriction on sale for some period, and many more laws, rules, etc, depending upon the political environment.
Uncertain tax rules and rates, which vary every year, need to be considered. Property tax is an annual commitment which 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 and stamp duty vary from state to state.
As stated earlier, the type of property is also very important. It may be residential, commercial or office space. The demand and supply position of each sector needs to be carefully examined. Real estate sector offers two types of returns.
This is monthly form of returns in the form of rentals, or the returns on the lease amount invested in bank, securities or in business. The other type is returns 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. While commercial property and office space yield high returns to the extent of 15%, residential property yields about 8%.
