I personally recommend one to allocate at least 20% of his investments in to real estates, as it can gives you an average return in the long run as a asset class. Real Estate Investment is now treated as a major case of capital budgeting by using state-of-the-art investment analysis which incorporates the future stream of income it may generate and the associated risk adjustments.
Real estate can be defined as an immovable property such as land and everything permanently attached to it like buildings. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities. Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale.
Common examples of real estate investment are individuals owning multiple pieces of real estates one of which is his primary residence and others are occupied by tenants from where the rental income accrues. Real estate investment is also associated with appreciation in the value of property thereby having the potential for capital gains. Tax implications differ for real estate investment and residential real estates. Real estate investment is long term in nature and as a financial consultant I always recommend that your investment portfolio should have at least 5%-20% invested in real estate.
The government and the SEBI (Securities and Exchange Board of India) are planning to bring in legislations for the smooth functioning of the real estate market in India. with Initial Public Offers (IPO’s) streaming in from various listed real estate companies, it will be the best time to have an REIT (Real Estate Investment Trust) which can help capture the current boom in the real estate market. A Real Estate Investment Trust is a corporation or body investing in real estate that has the property to reduce or eliminate corporate income taxes. In return, REIT’s are required to distribute 90% of their income among the investors. These incomes are often taxable. REIT’s provide a similar function as does Mutual Funds provide for stocks in the share market. The key statistics to study about the REIT’s are the NAV (Net Asset Value) and AFFO (Adjusted Funds from Operation). The Indian Government is yet to introduce REIT’s in the country.
With property boom spreading in all directions, real estate in India is touching new heights. However, the growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector. The new stand adopted by Indian government regarding foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest in Indian Properties.
The positive outlook of Indian government is the key factor behind the sudden rise of the Indian Real Estate sector - the second largest employer after agriculture in India. This budding sector is today witnessing development in all areas such as - residential, retail and commercial in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier access to bank loans and higher earnings are some of the pivotal reasons behind the sudden jump in Indian real estate.
The Reasons to invest in Indian real estate are many, but I have listed out few below:
India’s ever growing economy which is on a continuous rise with 8.1 percent increase witnessed in the last financial year. The boom in economy increases purchasing power of its people and creates demand for real estate sector.
India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space.
Presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus creating more demand for corporate space.
Real estate investments in India yield huge dividends. 70 percent of foreign investors in India are making profits and another 12 percent are breaking even.
Apart from IT, ITES and Business Process Outsourcing (BPO) India has shown its expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery where it can match the best in the world. These positive attributes of India is definitely going to attract more foreign investors in the near future.
Indian real estate sector is on boom and this is the right time to invest in property in India to get the maximum benefit.