Much have been talked about the Indian real estate in recent times, especially after the demonetisation of 500 and 1000 currency notes. People, in general, are now concerned about what’s next since the cash payment in real estate used to account for more or less 80% of the total transaction value. But, the reality is that nothing serious is going to hamper the real estate market in India due to this demonetisation. Rather, as pointed out all the leading bankers in India, this demonetisation is going to be proved as a bliss in the long-run though there may be some inconveniences in the short-run.
The current slowdown in the real estate sector started some 2 – 3 years back especially after 2012 – 13 period during which the real estate sector received 70% of the total money spent by the Indians for asset creation. However, the situation has changed since then and according to Liases Foras, a real estate research firm, the next three years will be crucial for the sector to clear the backlog of supplies.
But, there has been some positive developments as well in the market. For instance, the global fund managers are increasingly taking interest in the Indian real estate sector as the means of long-term investment. The Trump Organization and its increasing interest in this sector in India can be read as a strong signal towards that direction. In short, the absence of the home-grown buyers will be made up by the foreign institutional investors.
KEY AREAS OF WEALTH CREATION THROUGH REAL ESTATE
Recurring Income through Rent
When you acquire a property with the sole purpose of wealth creation, you certainly have in mind how to generate income out of the same to make up at least a portion of the cost of owning the same. You can find a slew of options to consider here. For instance, you can rent it out to an individual, an organisation, or may choose to rent out every single room as a single unit and thus, can let them out to different tenants.
You know what the type of tenant that you choose to go with can be proved as the potential differentiator to your income from the property. For instance, when you segregate three different units within your one property, you have the choice of letting them out to three individuals and thus, you can earn more. Simultaneously, if you let out your property to a business establishment, you can charge a premium on rent and thus, can potentially increase your income.
Income through Buying and Selling
You buy a property when the market may be down or you feel it just right and then wait for a couple of months or maybe a year. Within the said time frame, you will by default see that the market value of your property has been appreciated and this value appreciation could be somewhere near 40 -50% based on the time of a year and others.
However, there is no magic formula that works here. Instead, it’s the market dynamics that propels the industry growth and pushes the price upward. You have to be a little bit observant on the real estate market and act smart. In short, sell the property when you think the time is right and make money. But, according to the current tax laws of India, you have to pay capital gains tax if sold a property less than the 5-year period.
Net Worth Appreciation
You usually make down payment at the time of property purchase and the rest you pay through mortgage loans. Financial institutions like banks may ask for at least 20% of the total purchase value (including the registration cost of the property) to be paid as down payment.
However, you buy a property on loan and then let it out. You earn rent out of the property that may be sufficient to cover up your EMI (Equated Monthly Installment) or a part of the same. Whichever the case may be with you, you keep appreciating your net worth this way.
According to the current income tax laws of India, you can claim a tax rebate on your taxable income equivalent to the amount of interest paid on a mortgage loan subject to a cap of INR 1,50,000 p.a. provided you purchase a property for the residential purpose.
In short, the real estate can truly help you create wealth provided you know how to go about the same. Do try your fortune here.