Investment rationale for retail investors in real estate

Investment in real estate is considered the safest bet in the country. It is a high capital low risk investment perceived to produce higher returns than other investment instruments. Options for real estate investment include investment in commercial property and investment in housing property. The investments pay out in the form of income through rent and capital appreciation. The investment in real estate depends on the investor’s objective. If the investor’s objective is capital appreciation, then an investor should invest in commercial property.

Investment in the commercial property

Investment in the commercial property gives better returns as compared to investment in housing property. Investing in shops is an example, when it comes to investment in commercial property. It givesbetter returns as compared to investment in housing properties. Before investing in the shop investor should consider the area of the shop, locality, and the residential complex in the area. The income you earn in the form of rent depends heavily on these factors.

Investment in office space

Investment in office space is another example. Demand for corporate office is increasing in India. Many companies are expanding their businesses. Investment in office space gives good returns, but the downside is that it requires large funds. Following the thumb rule of investment in real estate, this section too is heavily location based. The returns you get from investment in office space are directly dependent on the area and the location of the property.

Investment in land

Investment in land is another option, typically for the long term investors. Returns on plots depend on the area of the plot and the location of the property. Investors can make a construction on the plot for personal use or for commercial purposes. The second option is to sell the plot and earn a profit through capital appreciation.

The implementation of GST

The implementation of GST and Real Estate (Regulation and development) is set to have a positive impact on the sector. It will help to boost up the growth of the real estate sector in India. Currently, buyer pays the Service Tax and VAT on the purchase of the property which increases the cost of the property. In the future, the Service Tax and VAT will be included in the GST. It will help to reduce the cost of property.

GST will be imposed on under-construction property as well as completed property. GST will be not charged when one resells the property. The stamp duty charges and registration though will continue to be charged separately. Currently, buyers are paying 20%-22% tax on the purchase of property. The government has already exempted affordable housing from the service tax. The exemption is proposed to be continued under the implementation of the new tax regime. The Ministry of Finance is looking into taxing the sector at a revenue neutral tax rate.

GST is expected to impart much needed transparency to the real estate sector of India. An example of the transparency being spoken about is the payment of VAT. There is still little clarity as to the amount of VAT paid at different levels in the sale of a property. Such indirect taxes will be subsumed in the GST and the rate of GST expected to be around 14%-16%. The GST will provide an audit trail for better control and monitoring of the sector.

The Real Estate (Regulation and Development) act will also bring transparency in the real estate sector. Real Estate (Regulation and Development) act outlines the framework to safeguard the interests of investors of the sector. Implementation of GST will help for smooth flow of credit in the commercial real estate sector.