- Posted in June 18 2019
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From the period pre-history itself human being have the tendency to own his own land,or the feeling of ownership over something growing according to ages. Today in society the ownership over land or fixed asset becomes a criterion of social status. (But according to present situation there should discuss whether this image is affordable for a salaried or professional class.) The availability of loan from financial institutions fosters the urge of person to capture a building or land easier.
But the investment in real estate is somewhat different from the simple ownership on a residential set up.In India, days after the demonetization the financial investment on real estate or business related to that are actually not so fair. In actual sense the degeneration started since 2014 onwards.So before entering to real estate business in a city like Bangalore the investors should take care on it.
First with an economic analysis on real estate investment, it gives more or less the same returns as Fixed Deposit over a period of 20 years.It offers an annual rent anywhere between 2 to 5% of the total asset valuation. It is less than the returns on an FD and less than the EMI payments being made.
Secondly, It’s noteworthy that 100% tenancy is not definite. Therefore, revenues could be even smaller. These above reasons are applicable to an investor either big or small.
Besides these, in some places the estimate to entitle the land for a building is more expensive than the construction of a building. For example cost of piling is greater than the total construction of a building.
In certain cases the emotional attachments to the land hides the real income generating from the investment. In such situation the owner never try to loosen the property due their emotional attachment with ancestors, family or anything like that. These also lead to financial crises.
In addition to this, there are many liquidity challenges in real estate, For example when an investor needs urgent cash, and it might not be easy to find a buyer, and of course the urgent sale usually makes much less than the true value of the asset.
In certain cases many the investors should face many litigious problems such as family disputes, encroachment by tenants or anti-social elements, a government entity wanting the land for a public project, ambiguity in government records etc.
After these a growing investor should liable to pay taxes and utility bills, maintain it in organized condition and also find new tenants as and when needed. Comparatively, other asset classes barely require time and energy.
In certain practical senses the Value-addition doesn’t yield returns.
An investor might add fixtures; interior design and gadgets to enhance the experience of living in a property, but the next investor may want to customize the property in a different manner and will, therefore, be unwilling to compensate the seller for the extra investments made. Funnily enough, buyers and sellers often can’t agree on even vaastu considerations.
So as a conclusion ,in the present financial arena the investment on real estate sector is somewhat unfavourable, if it has not been carried out with enough study.
STUDY CONDUCTED BY RAKSH RESEARCH TEAM