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A beginner’s guide to real estate investment in India


Stories about rookie investors making a fortune in real estate continue to inspire the majority. This is especially true for those who feel safer dealing with tangible assets rather than the complexities of stock trading.

Even for a greenhorn investor, real estate can be highly profitable, provided they have a clear idea about what they are dealing with, and what do they want from their investment. With the intent of offering some clarity on both these counts, we have compiled a list of dos, don’ts, and must-know facts of property investment in India.

 

7 must-know facts about property investment for beginners in India

1. Real estate is locally driven

Property investment is influenced by local metrics. The real estate market of India, for instance, is entirely different from the US market. Even within India, the property market in Uttar Pradesh and Haryana have their distinct features. Further on, within Haryana, the real estate markets of Gurgaon and Sonipat are not the same, despite their many similarities.

2. Real estate is a long-term proposition

If you are investing to make quick bucks, real estate is probably not your thing. Value appreciation takes a while in real estate. If you invest in a plot in an upcoming locality, it might take several years before the sale offers you tremendous gains. Nothing changes in real estate within months.

3. Real estate needs legal & financial understanding

While real estate developments have largely been unregulated in India, something that enabled investors to save on taxes, in the past half a decade, several rules and regulations have been enforced to curb the misuse of real estate investment in India. Beginners planning to invest in real estate, and build a fortune in their venture, must have a broad understanding of all these laws. Some of these laws include the RERA Act, the Benami Properties Act, and the GST Act.

4. Get assistance

While research and development are important for a beginner aspiring to make it big in real estate, they may not always be sufficient. Because of the legal and financial complexities involved, a rookie investor is better off with some help at hand. Seeking assistance from lawyers, chartered accountants, and property brokers is as important as delving deep into the basics of real estate investment in India. As is true of any subject, there is only so much that books can teach you; a large part of your knowledge comes from the experts you meet along the way.

5. You need more seed money in real estate than any other asset class

Newly initiated instruments like real estate investment trusts and infrastructure investment trusts offer low price points. However, real estate, as such, does not offer the freedom to start with negligible money, unlike stocks and fixed deposits. One must have a substantial amount in the account to take the plunge. It is hard to quote a definite figure, but local factors are the key determinants of the initial capital. It is safe to say that nothing below Rs. 10 lakhs would be appropriate.

6. Be mindful of tax implications

As is true of any income, you also have to pay tax to the government on profits gained through real estate investments. Taxes may eat into the gains made through property investments. However, various laws assist in lowering tax liabilities. Find out the legal ways to lower tax liability on real estate income.

See also: All about home loan tax benefits in 2021

7. Know about additional monetary burdens

States earn a large part of their revenue through stamp duty and registration charges on property purchases. These taxes substantially increase the cost of property investment. Factor these in while planning the amount of investment.

 

21 tips for beginners investing in real estate in India

  1. Follow every legal procedure diligently. It can take very little time for all the upward climb to go downhill due to illegal practices.
  2. Keep yourself abreast with the news, especially related to infrastructure developments. A nearly-complete metro station, highway or airport can tremendously change things for a property. The Jewar airport and its impact on real estate is a case in point.
  3. Save money to invest in real estate by using quick money generators like the stock market. It is advisable to use safer options like mutual funds.
  4. Follow social media accounts of experts with a proven track record of making it big through property investments.
  5. Using all your capital in one asset class is never recommended. Keep some money aside as a cushion.
  6. Borrowing funds is one of the best ways to avail tax deductions on real estate investments. Use a mix of saved capital and borrowed capital to invest in real estate.
  7. Don’t over leverage. This means don’t over-borrow just because there is the easy availability of finance. The rising number of developer insolvencies across India should act as a reference point in this regard.
  8. Real estate laws are different for residents and NRIs. Take that into account.
  9. Even though semi-urban and agricultural properties have greater chances of value appreciation, they are also more risk-prone due to a lack of regulatory supervision. Steer clear of any risky propositions.
  10. If rent generation is the aim, try investing in bigger cities where a large number of migrants look for affordable homes every year.
  11. Real estate is not a one-time investment. It requires regular maintenance and is subject to periodic tax payments. Invest in assets that you are sure you will be able to maintain in future.
  12. Having a property in a place where you don’t live could be tricky, especially for plots. Appoint a person who would keep an eye on your property in your absence. This does not, however, free you from making occasional visits.
  13. When you buy a property in partnership, the other person/party has equal rights of treatment and disposal of the property. This holds true even if they have not made a monetary investment for the property.
  14. Affordable housing remains a buzzword in Indian real estate. However, the luxury housing segment continues to perform because of a consistent increase in the number of ultra-rich in the country. Profit margins are much higher as far as luxury housing is concerned.
  15. Ask for reasonable rents to keep your rental property occupied. However, don’t breach the standard rent limit of the area. It might result in money drainage.
  16. Always consider if you are comfortable in your rental property. If you don’t find it comfortable, chances are your prospective tenants won’t find it comfortable either.
  17. While property is a tangible asset, documentation plays an important role in establishing ownership. Always keep the property documents in order; be it the sale deed or property tax payment receipts.
  18.  Under-construction properties could be affordable at a low price, but they could run the risk of getting delayed. A recently finished, ready to move in property would be a better investment.
  19. In most Indian cities, 2-BHK homes are the preferred option for families. The configuration of the home plays an important role in ensuring continued occupancy of the property. Pay due attention to the configuration before investing.
  20. Commercial real estate is more profitable than residential properties, where annual rental yields are restricted to 4-5%. However, commercial real estate requires bigger investment amounts too.
  21. Real estate has higher sustainability in the event of a crisis than any other asset class. How the coronavirus crisis failed to take down real estate in India is a great example of sustainability.

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