Monday, May 27, 2019

Why making quick bucks in real estate is far from reality?

Author: Sachin Gupta | Find me on Twitter

Many of us invest our savings in various investment instruments such as stocks, bonds, fixed deposits, real estate, gold, etc. There is always this great desire that our investment runs smooth and yields highest possible returns. Of all the investment class, real estate has become a much bigger asset class in India. Within real estate investment, there are different categories of investors. One, who would buy a home for end-use which effectively hedges them against inflation, second category of property investors would primarily buy offices or commercial spaces to make money on rentals. There is however, the third category of investors who would indulge in property trading. These investors would invest in under construction residential projects and sometimes would book multiple apartments, hoping to sell them at higher prices to other buyers or end-users. These short-term investors would be betting that property prices will appreciate substantially as happened from 2003-2007 and they would be able to make windfall profits. However, things don’t always turn up as one imagines:






























Here is why?

Liquidation issues:
Real estate is one such asset class that is always prone to liquidation risks. During our survey with some of these short term investors, we noticed that, majority of them are finding it increasingly difficult to sell these apartments within their desired time-frame. Due to this, these investors would end up selling the apartments at much lower price. In Delhi NCR, especially in Gurgaon, an apartment that is available at Rs 6000 per square feet from the developer is being sold at Rs 4400-4500 Rs per square feet in the resale market from these short term investors. Now, why would an investor sell at low prices? Most of them would book the apartment in early stages of an under-construction project as per construction linked plan. And accordingly, they would make initial payments equivalent to 10-12% of the property value. However, as construction advances and there is demand for the next installment from the builder, these investors would have no other option but to sell the apartment at much lower prices.

Capital Gains Tax:
Now, having sold the apartment within a short period (less than 3 years) of booking it would attract capital gains tax. The short term capital gains tax stands at 30% of profits booked.

For example, an investor buys an apartment at Rs 3000 per square feet in early stages of an under-construction project. And he paid the booking amount of 10%. He sells the apartment at Rs 4500 when the builder is charging Rs 6000 per square feet. In this case, the investor would be liable to pay 30% of Rs 1500 per Square feet as capital gains tax.

Now, many of you would question that who pays capital gains tax in India? Right… and all of this lead to rapid influx of black money into the real estate sector.

Transfer charges:
Having identified the next buyer, the investor would now transfer the apartment in the name of this new buyer. Transfer charges are costly and would range from Rs 50 to 100 per square feet.

Transaction charges:
Identifying the next buyer is always difficult and one would have to pay a transaction fee of about 1-2% of property value to real estate agents. Let us assume the apartment size was 1000 square feet and since it was sold at Rs 4500 per square feet, the transaction fee at 1% of property value would come out to be Rs 45000.



Here is the illustration:























Therefore, as shown in the picture above, the returns are not as expected by the short term investor. There are many factors that one should look into before jumping into the business of property flipping.

As the saying goes, invest for a long term and cherish the rewards that come along with it.

Cheers


Have any Questions?

29 comments:

  1. This blog appropriately to say that change to the necessities for install, maintain and repairing site real estate investment. and right of entry have power over Systems will be changes day to day.

    ReplyDelete
    Replies
    1. Hello Everybody,
      My name is Ahmad Asnul Brunei, I contacted Mr Osman Loan Firm for a business loan amount of $250,000, Then i was told about the step of approving my requested loan amount, after taking the risk again because i was so much desperate of setting up a business to my greatest surprise, the loan amount was credited to my bank account within 24 banking hours without any stress of getting my loan. I was surprise because i was first fall a victim of scam! If you are interested of securing any loan amount & you are located in any country, I'll advise you can contact Mr Osman Loan Firm via email osmanloanserves@gmail.com

      LOAN APPLICATION INFORMATION FORM
      First name......
      Middle name.....
      2) Gender:.........
      3) Loan Amount Needed:.........
      4) Loan Duration:.........
      5) Country:.........
      6) Home Address:.........
      7) Mobile Number:.........
      8) Email address..........
      9) Monthly Income:.....................
      10) Occupation:...........................
      11)Which site did you here about us.....................
      Thanks and Best Regards.
      Derek Email osmanloanserves@gmail.com

      Delete
  2. I really like your blog about real Estate in India. Thanks for sharing with us great blog about real estate. New Residential Project in Bhiwadi

    ReplyDelete
  3. This comment has been removed by the author.

    ReplyDelete
  4. Good blog keep sharing searching for properties in Thane or mumbai get details Or buy flats in thane.

    ReplyDelete
  5. Thank you for the information. Was a Good read. Looking for more information
    Flats in Mumbai & Thane

    ReplyDelete
  6. This comment has been removed by the author.

    ReplyDelete
  7. This comment has been removed by the author.

    ReplyDelete
  8. Thanks for sharing the great information.

    ReplyDelete
  9. Your blog is very fantastic with impressive images and post also. Marvelous work!. Blog is brilliantly written and provides all necessary information. Thanks for sharing the great information.
    https://www.bharattaxi.com

    ReplyDelete
  10. Thank you for sharing this wonderful information
    visit : http://www.nagpureventmanagement.com/

    ReplyDelete
  11. Very significant Information for us, I have think the representation of this Information is actually superb one. This is my first visit to your site. Blog land real estate

    ReplyDelete
  12. Nice blog. Love to read it. You can also Buy Property in Jaipur at the reaonable rate.

    ReplyDelete
  13. Thanks you for sharing such information. Please visit Ganesh Housing for investing in Real Estate Properties in Ahmedabad

    ReplyDelete
  14. Nice blog. Thanks for sharing. Visit Shivalik Group to buy property in ahmedabad

    ReplyDelete
  15. Thanks you for sharing such information.

    ReplyDelete
  16. Very nice informative post... it brings real estate investor closer to reality, thankyou!

    ReplyDelete
  17. Contact the real estate solutions company that can help with buying and selling residential properties. Check more options with us the professionals.
    residential real estate investing

    ReplyDelete
  18. Invest with 200$ and get a returns of 5,000$ within seven business working days.
    Why wasting your precious time online looking for a loan? When there is an opportunity for you to invest with 200$ and get a returns of 5,000$ within seven business working days. Contact us now for more information if interested on how you can earn big with just little amount. This is all about investing into Crude Oil and Gas Business.

    Email: investmoneyoilgas@gmail.com

    ReplyDelete
  19. Invest with 200$ and get a returns of 5,000$ within seven business working days.

    Why wasting your precious time online looking for a loan? When there is an opportunity for you to invest with 200$ and get a returns of 5,000$ within seven business working days. Contact us now for more information if interested on how you can earn big with just little amount. This is all about investing into Crude Oil and Gas Business.

    Email: investmoneyoilgas@gmail.com

    ReplyDelete
  20. This comment has been removed by the author.

    ReplyDelete
  21. How the individuals can utilize the porperty for house, shop, winning source. Be that as it may, on the off chance that anybody needs to worry in Hajj and Umrah fields, I intend to get the Umrah Packages 2020 or Hajj Package then he/she can reach me with no delay.

    ReplyDelete
  22. Interesting Article. Hoping that you will continue posting an article having a useful information. Houses for Sale in Prestons

    ReplyDelete