Real Estate Investment always looks lucrative and has great potential in India. It is advisable by many experts to diversify your investments. Besides investing in the stock market, mutual funds, one should also invest in real estate, if one’s earning is good and can save a good amount for it.
It is true that investing in real estate requires a lot of money. But, anyone can start with a small amount of savings and in this post, I will discuss the benefits of investing in real estate in India and how you can strategize your investment.
Potential in Real Estate
As you know, in the last 10 years, there has been huge investment in and many projects initiated towards infrastructure of India by the Government. These infrastructure projects have an indirect effect on real estate nearby locations. The price jumps suddenly with good returns, whenever any infrastructure projects gets announced and can’t even think of higher returns when once these infrastructure gets completed.
One of the articles of Economic Times – India has seen 9% year on year growth in the Housing sector. Bengaluru has seen 42% year on year growth, Hyderabad and Pune has witnessed 10% year on year growth. Bengaluru has witnessed the highest jump of 21% in one year in the Housing Sector.
You can witness this growth in real estate value in your area or where the government has increased their investment. It is not a hidden fact but the question arises – From where will you get the investment to invest in real estate?
If you have your own ancestor property or have some back through which you start, it is good and better to start like this. However, I would like to share different strategies through which you can start your dream of investing in real estate.
Estimates of Indian Real Estate till 2047 on Statista.com
Different Strategies for Young Investors
1. Start as a property dealer: this will help you in understanding the market without investing too much. You can help your contacts or relatives to sell or rent the property through you for which you can charge. This will also help in building a circle from where you can get more details and knowledge of real estate. You can also become an agent of a big housing project where you can easily get a good commission for the sale of each flat. Even if you are able to sell 10 flats of that project, you can assume how much you can earn.
2. Co-living/PGs: I should not explain the PG concept to you. Everyone must have heard of it. You can contact the person who has the building but no time to manage or invest. By using this technique, you can start managing a PG and get a commission every month from it. You will also learn how to manage PG or co-living spaces, how to provide facilities and attract tenants.
3. Fractional Ownership: In India, fractional ownership of real estate is becoming more popular as a good way to invest. Multiple investors can pool their money to buy high-value homes or commercial space with this approach, which makes each investor’s financial load lighter. Investors can get access to high-end homes or commercial space that they might not be able to buy on their own, and partial ownership can give them the chance to make big profits.
Also, partial ownership splits the risk among many buyers, making it less likely for any one person to lose money when the market goes up or down. But it’s important to do a lot of study on the properties and the management structure of the partial ownership plan to make sure that all buyers are safe and that everything is clear. Even though there is a chance for big profits, partial ownership comes with risks like market changes, problems with managing the property, and arguments between co-owners.
4. Real Estate Investment Trusts (REITs): People who want to get into the real estate market but don’t want to own buildings directly are increasingly using Real Estate financial Trusts (REITs) as a financial tool. Investors can buy shares in a real estate investment trust (REIT), which is a properly managed stock of real estate assets that make money and in return, you get dividend income from those shares.
Over time, investors can expect a steady run of earnings and capital growth. But REITs have risks, these risks include changes in the market, interest rates, and the economy. Also, REITs’ success relies a lot on the quality of the assets they own and the management’s skill, so buyers need to do a lot of research before putting money into them.
5. House Flipping: Buying run-down homes, fixing them up, and then selling them quickly for a profit is called “house flipping.” In India, selling houses has become popular because it can bring in a lot of money in a short amount of time.
When you sell houses the right way, you can make a lot of money, especially in cities that are growing quickly and where people want to buy updated homes. But there are risks that come with selling houses, such as unexpected costs for repairs, delays, market downturns, and problems with the law.
These ways you can start with a low budget and manage your investment without getting early loss in initial days.
Read GST implication on Real Estate – GST on Homebuyers and Land buyers: Detailed Guide (2024)
Important Considerations for Young Investors
1. Financial Planning: If you have money to invest, it is advised not to do it at once. Learn, gain knowledge and then, find the options to invest. Putting 100% capital at once in one project might be risky and lead to a big loss. You can approach Banks and NBFCs for business loans and invest your capital in a safe place so that it can be used as an emergency fund.
2. Location: Choosing the right location for real estate investment is a very crucial part. You may find a property under your budget but location might not be good. It will lead to your money getting locked for a long time until a good return comes in your hand. Hence, choose wisely, decide patiently in this type of business.
3. Legalities and Documentation: It is advisable to learn documentation work and legal paperwork for your client to save the initial cost of lawyers. Once your business grow, you can hire a lawyer for this work.
4. Money management and Maintenance Costs: Keep learning and work under some experienced persons to learn maintenance work, how to get work done from labor, learn about taxation and money management which is very crucial to succeed.
Legal Regulations and Considerations
Real Estate Regulatory Authority (RERA): The Real Estate Regulatory Authority (RERA) is very important for protecting owners’ rights and making sure that all real estate deals in India are clear. RERA requires companies to register their projects with the government before they can market or sell them to people. It sets strict rules for project deadlines, quality standards, and financial reports. This lowers the chance of fraud, mishandling, and delays.
When companies sign up with RERA, they agree to follow the rules and laws set out by the organization. This gives buyers more trust and security in their investments. Homebuyers should always check with RERA to see if a project is registered before deciding to invest in it. This is to make sure that the project meets legal requirements and protects their interests.
Stamp Duty and Registration Charges: When you are buying a home in India, stamp tax and licensing fees are important parts of the total investment cost. So, calculate your cost accordingly and for your buyers too. The amount of these fees varies from state to state and is based on the type of deal and worth of the property. The state government charges a tax on sale and purchase of land or flat is called “stamp duty.” The tax depends on the value of property.
When buyers make their budgets for buying a property inclusive of these taxes, because they can have a big effect on the total cost. To avoid any shocks to your buyer during the purchase process, it is important to educate them about the stamp tax and licensing fees that apply in the state where the property is located.
Tax Implications: In India, owning a home and getting rental income can have different tax effects that sellers and renters need to think about. Property owners must pay property tax to the local government based on how much the building is worth. Also, rental income from renting out a building is taxed as regular income and must be reported to the government.
In addition, property owners can get tax breaks on some costs linked to upkeep, debt interest, and the loss of value of their home. People who own property should talk to a professional accountant to find out what the tax effects will be on their situation and to make sure they are following all tax laws and rules.
Conclusion
Recommend starting with smaller investments like co-living or REITs to gain experience before venturing into larger property purchases. It is also encouraged that you should build connections with real estate agents, investors, and mentors for valuable insights and guidance.
Always stay updated with the latest trends, government policy, and new projects so that new opportunities can be tapped in the initial days itself. Always try to seek professional advice from financial advisors or real estate experts for personalized guidance. You can follow news, blogs, real estate websites and professional advice, to make your investment safe in this sector.
