Investment in property has always been a preferred option among investors in India. Indian property market is highly unpredictable and like other investment options involves its own risks. It is crucial to consider few factors before investing in real estate.
A number of factors affect the value of property in India and involves risk:
- High amount of Investment– Usually the amount invested in real estate is higher than other type of investment options. Higher the amount invested more is the risk involved in financial transactions in property market.
- Low Liquidity-Property investment involves low liquidity in comparison to other investment options like equities and bonds. The transactions and formalities involved in property market take time, making it a tedious process. Less liquidity in real estate market at times results in lower returns when the property holder needs to sell it on urgent basis, resulting into distress sales.
- Market Fluctuations- Real estate business is highly influenced by market fluctuations. Selling and buying property in India involves equal probability of making profit or loss. Thus, dealing in property transactions need proper analysis of market conditions, wherein buying is recommended when property prices are low and selling is feasible when prices are high.
- Type and Utility of property– Investment in Indian real estate depends on the kind and utility of property you are dealing in. Investing in rental property involves regular income but risk of default payment from tenant. Investing in commercial property usually proves to be fruitful due to the surge in economic activities. With advancement in infrastructure technology, the value of existing building can deteriorate, making it less attractive to investors.
- Tax Involved-Investor has to pay various taxes such as property tax, stamp duty and income tax on capital gains and rental income. Stamp duty and property tax affect the returns on investments.
- No diversification of Risk-Investing in real estate involves huge amount and exposure to specific risk that cannot be diversified.
- Security Issue- The legitimacy of making investment in property cannot be completely known. It becomes crucial to check the title of property before investing in it. However, it usually requires expertise and time.
- Duration of Lease- The duration of lease is one of the crucial factors to be considered in property market. Most of the times the amount of profit earned depend on lease length. Renting a house for long-period ensures regular rental income even at the time of market fluctuations.
Investing in real estate provides advantage of earning income as well as capital gains. It is developing as a lucrative investment option than investing in bonds and shares. Thus, investing in Indian real estate market has its own risk factors, advantages and methodologies. Real estate sector has always been a hot destination for major investors as the market ensures huge long-term profits to the investors.