Tips to avoid losing money on property

By Anuj Puri

Real estate prices are on a high. But some factors can have a negative effect on the price of your property.

Here is a glimpse of these party poopers. If you are planning to invest in property, do look out for these!

Inflation

If you invest in real estate, you must have an idea of your overall earnings at the time you plan to sell your property. That means you need to keep the forces of inflation in mind, else the exercise of investing could be futile.

Is the interest rate earned on your savings less than or equal to the rate of inflation? Then inflation will make sure your real estate investment suffers.

If the price for property rentals in your chosen location is lower than the rate of inflation in the long term, there is no point investing in that location.

Taxes

Property taxes can sponge off your profits. Profits from the sale of property as well as rental income are generally taxable.

What matters is the amount you get to keep after the taxman gets his cut, not what you can earn from your property.

Consult your chartered accountant or an experienced real estate consultant who is aware about the ever-changing property taxation laws. You will know how valuable your property is in the long run only when you determine your post-taxation cash flow.

Fate

There is no such thing as a sure thing. You may buy property for profit, but actually end up making losses! The following are some unpredictable downturns that could result in a dramatic downslide of your property price:

• Your chosen neighbourhood may fall out of favour with buyers.
• There may be unsuspected litigations attached to the property.
• The property may seem sound but have substandard construction; it may not conform to required earthquake-resistance parameters.
• The Government may decide to acquire the land where your property stands for infrastructure development – at minimum rates!
• You may need to sell the property at a moment’s notice – and at a loss – to cover other urgent financial commitments.
• Natural calamities – floods, earthquakes – may render the entire location unmarketable.

What you need to do

Keep tabs on the following when investing in property!

• The profit your property can generate in a certain time frame.
• The cost involved in making property marketable.
• The time frame for your property to attain its highest possible market value.
• The present and the future state of the market.
• The possible losses with respect to several variable factors.
• Will the potential profit of buying a property outweigh possible risks?
• Does the current cost justify future earnings (via sale in the short term or rental income in the long term)?
• Are you financially sound enough to buy the property now or should you wait for improved financial circumstances?

The author is Chairman and Country Head, Jones Lang LaSalle Meghraj.

Original news source