Property has always been an investment option that beats the inflation effect. It has yielded lucrative returns and continues to do so. Increasingly real estate is becoming a part of an investment portfolio. Anil Rego, an investment consultant, has some advice for those planning to invest in property
What are the basics you need to factor in while making a financial plan to invest in property?A financial plan is a structured process of understanding your financial goals, and evaluating your risk profile, current assets and liabilities in detail. It provides a framework of how you can achieve your financial goals.One of the goals in a financial plan will be the purchase of real estate. You first need to capture the various aspects of the goal such as the estimated timeframe and cost of the property. As part of the financial plan you need to evaluate your affordability in terms of down-payment needed and EMIs to be paid on a prolonged basis.How should high net worth individuals plan their property investments in terms of cashing in on capital gains and redeploying the funds for further property investments?Any property that is sold after three years from the date of purchase will be considered as long-term for the pur pose of tax. The long-term tax applicable on a real estate investment is 20 percent (plus surcharges) after considering the cost of indexation of the investment and improvements made to it. One can also save this long-term capital gains tax by reinvesting in a property or investing in capital gains bonds to the extent of Rs 50 lakhs.
The short-term tax on a property sale cannot be saved by reinvestment in a property or in capital gains bonds.
While selling a property or while purchasing a new property, one needs to keep in mind these frames and benefits. If you are purchasing a new property, it is a good time to review your existing property holdings and check whether there are properties that you would like to exit from and derive reasonable capital gains. Further, you could judiciously break up your investments between yourself and your spouse to take full advantage of the tax benefits.
Property investments have been a sure way of beating inflation. How do you ensure you maximize returns on this portfolio?
In the long term, the returns from a property beats inflation. It is impor tant to look for opportunities to enhance the returns from real estate assets.
Some of these points can be considered: A part of your real estate assets can be in emerging areas (outskirts of the city or in Tier IIIII cities).
Maximise your tax benefits includ ing on home loan interest.
Rent out a property.
Evaluate real estate funds Evaluate commercial real estate as part of the real estate investments When a property has generated high potential capital returns, should the investor exit and redeploy the gains in multiple property options or in a single high-value project?
The overall objective of an investment is to earn returns and if a real estate investment has done well, you can evaluate options to redeploy in higher return areasproperties. Calculate the capital gains and transaction costs that impact while evaluating an exit. If property prices are expected to continue to grow strongly, you can hold on to the investment.
Whether you need to invest in one or multiple properties will depend on the circumstances including ability to use tax benefits, need for diversification, ability to monitor investments etc.
How does property work as an investment avenue for NRIs?
The law allows an NRI as well as a PIO to invest in both residential and commercials property in India. However, the only restriction is on purchase of agricultural land. An investment by an NRI will have a dual benefit. Firstly, the higher returns in India compared to both deposit returns and property price growth. Secondly, the lower borrowing costs overseas. One can take a loan abroad and invest in a property in India.
Source: Times of India