Buying Property? You Have to Pay More Now...

Source – Moneycontrol

If you are among the many home buyers looking for a property to purchase right now, there is a recent RBI directive that you should be aware of, that will impact your cash flows management.

As per one of the latest notifications by the RBI to banks, stamp duty, registration charges and taxes such as VAT and Service Tax are to be excluded from property value when considering how much of a loan to give the consumer.

Let's see what this means:

What is Stamp Duty?

Stamp Duty is nothing but a tax levied on documents. Different levels of stamp duty are payable on different forms of documentation. If a document is stamped, it is considered legalized and can be used in the future as having evidentiary value in Court.

In Maharashtra, stamp duty is 5% of property value.

Registration charges are 1%. Also consider VAT and Service Tax.

On what properties is service tax applicable? What is the rate of service tax?

A builder or developer is also now liable to pay service tax if any payments are made by buyers, before the completion certificate is given. This cost is also passed on to buyers.

If payments are made after the completion certificate is given, then no service tax is payable.

Hence if a property is under construction and you as a buyer pay a booking amount, this is considered payment towards sale consideration before completion certificate is given, and hence you will be liable to pay service tax at the rate of 10.30% of 25% of the sale value i.e. 2.575% of sale value.

What is the rationale behind the RBI notification?

In December 2010, the RBI indicated to commercials banks that they should not lend more than 80% of property value in case of properties worth more than Rs. 20 lakh, and not more than 90% for properties worth less than Rs. 20 lakhs. This was put in place to keep a check on what the RBI thought was excessive lending to the real estate sector.

On Feb 3rd this year, this notification came about because it was seen that in order to artificially inflate the property value so as to give bigger loans, stamp duty, registration and other charges were included as property value, which technically they are not. Adding these charges overstated property values,

How does the RBI notification impact you?

Earlier, when you applied for a home loan, certain amounts were included in the property value on your loan application, these included stamp duty, registration charges, VAT and other government taxes.

Now, this is all excluded. This means that you have to pay stamp duty, registration charges, VAT and in the case of under construction properties service tax too, out of your own pocket.

So while earlier a bank would give you up to 80% of your applied amount as a loan, depending on your home loan eligibility, now you will get about 70 to 75% as a loan, and will have to put up 25 to 30% of the total value as down-payment, stamp duty, registration and other charges.

So here, your cash flow management can become key.

How do banks decide how much loan to give you?

A bank decides your home loan eligibility based on quite a few factors.

They will consider your age, whether you are salaried or a business person, how much your monthly income post tax is, your monthly expenses, your family, your spouse's income if any, and most importantly your existing liabilities.

The idea is to assess your surplus monthly income to see how much of a home loan you can service without stretching yourself. They want to know basically whether or not you are a safe borrower for them.

Let's see how this impacts you with an example.

Suppose our favourite fictional character Mr. Shah wants to buy a house.

He has identified an under-construction property worth Rs. 50 lakhs.

Property Value:                  Rs. 50 lakhs

Stamp Duty @ 5%:            Rs. 2.50 lakhs

Registration Charge @ 1%: Rs.  0.5 lakhs

VAT @ 1%:                       Rs. 0.5 lakhs

Service Tax @ 2.575%:      Rs. 128,750

The total value to be paid will be Rs. 54,78,750.

Before the RBI notification, a bank would give Mr. Shah up to 80% of this value as a home loan, and Mr. Shah would put up 20% of the value on his own. This means Mr. Shah has to put up Rs. 10,85,750 as down-payment.

After the RBI notification, all these charges are excluded from loan amount.

The loan will be only up to 80% of the property value, excluding stamp duty, registration charges, VAT, service tax and other charges.

So the bank will offer Rs. 40 lakhs as a loan.

The remaining Rs. 14,78,750 will have to be paid by Mr. Shah.

Conclusion

It looks like this change is here to stay. The only way for you as a buyer to move, if you definitely want to buy a property, is forward. From a financial planning point of view, be sure to have your down-payment ready, taking into consideration the additional charges. You can build up your mutual fund portfolio to plan for your down payment, if it is a few years down the line.

Remember, since you are now taking a home loan for a smaller amount, your EMIs will also be lower, so think of that as a silver lining to your future cash flows.

Also keep in mind the cardinal rule when taking on a major liability: have adequate term insurance . This way in case of any unfortunate event, the loan will not devolve on to your dependents.

Do you Know - Goverment companies are offering tax free bonds that saves tax on interest earned. Effective yield above 11% pa, excellent option to park large cash with safety and high yield. Read more only on http://crawfin.blogspot.in/2011/12/nhai-pfc-tax-free-bonds.html

Home Loan EMI

Team CrawFin/ Harshal Jawale, CFP^CM

In my last article I wrote about saving rate deregulation, although it is a bonanza for us depositors, it would also mean high cost of funds for banks resulting into higher EMI’s for loan takers. I had a chance to speak to few worried home loan takers who are facing skyrocketed EMI these days. Obvious question was how much is the increase in EMI is expected and how to bring it down?

Even though there is no choice we have than to pay interest i.e. cost of fund we raised to acquire asset, I felt they were quite unimpressed with the ideology of paying principal upfront to reduce interest burden for future years. Reducing interest rate somehow was predetermined approach they had in mind. In this article I will try to cover similar points with the help of simple calculations to show which option reduces how much amount to be paid.

For simplicity of calculations I will take INR 15Lkh as the current balance Loan amount with interest rate at 14% for 10 years tenure.

	Existing case	Case A – Int rate reduced by 1%	Case B – Pre payment of INR 1Lakh	Case C – Pre pay 1Lakh but keep EMI
Loan Amount	INR 15,00,000	INR 15,00,000	INR 14,00,000	INR 14,00,000
Interest Rate	14%	13%	14%	13%
Tenure	10 years	10 years	10 years	98 months
EMI	23,290	22,397	21,737	23,290
Total Amount Paid	27,94,796	26,87,593	26,08,476	22,76,644
Interest Component	12,94,796	11,87,593	12,08,476	8,76,644
Total Saving	--NA--	1,07,203	1,86,320	5,18,152

Case A – Reducing Interest rate by 1%

You may jump from one lender to another; a chance of reducing interest rate more than 1% in current tight liquidity scenario is not possible. As we can see in table your EMI is reduced to 22397 from 23290 for the same tenure of 10 years. Total saving of 1.07Lkh Approx.

Case B – Pre-Paying INR 1Lkah keeping interest rate same

Pre-paying 1Lakh to current lender will reduce your EMI to 21737 from 23290 with total saving of 1.86Lakh. Please note here we are considering pre-payment of INR 1lakh only once (not yearly).

Case C – Pre-pay 1lakh but keep EMI constant

Assuming we have another lender who is offering 1% less than current lender then why not switch? But still pre-pay principal and keep EMI constant for multifold benefits. Such setup will reduce tenure to 98 months; it will save about 5.18Lakh in total.

As we can see reducing interest rate or pre-paying only once does not reduce our monthly outgo substantially in terms of EMI. Both of them together but keeping EMI constant will reduce total cost of loan by sizeable amount. Most often we try to reduce interest rate with negotiations or pre-pay loan amount somehow but conveniently forget to keep EMI constant, reduced EMI serve no benefit in the longer run.

People make new investments into FD, PF, MF, Shares every year instead of serving home loan with immediate effect. I wonder how 8.5% returns of PF compensate for 14% interest charged on home loan. There is more to retirement than just PF. Asset that you are acquiring from home loan is worth several crore when you retire, mere reverse mortgage or keeping it on rent and shifting to smaller flat will solve your retirement problems.

Why go that far, when you can save substantial amount saved on interest cost (with case C) if invested into PF after serving loan will create large retirement corpus by the time you retire. Also some people think prepayment amount needs to be higher to make any noticeable effect. Please come out of box thinking and pre-pay whatever small cash surplus you have by year end, which will still take compounding effect to your cost of loan.

Tip – In above example if you continue to pre-pay INR 1lkah every year keeping EMI constant then you would close your home loan within 6 years.

Wealthy investment needs healthy methods!!!

EMI vs Rent: Selecting wise option

Team CrawFin/ Harshal Jawale, CFP^CM

Most of us face this dilemma, is it better to buy our own home or should just rent one? Where buying home seems to be ideal option, the other side provides some advantages too. I am here evaluating both options below for your benefit.

Option 1: Renting a home

Advantage 1: Flexibility

Renting a home provides utmost flexibility to stay nearby your workplace or well connected homes. Even in case if you change your job, it is very convenient to move to new place. If you are faced with any financial trouble then you can easily move to home with lower rents.

Advantage 2: Affordability

It is much convenient option to rent a home; rents are much lower than EMIs. If one invests the difference amount and make higher monetary gains. You can also rent home near to your workplace where prices are out of reach and buy affordable home at other location where appreciation in value will be much higher.

Disadvantage 1: Lack of Safety & Freedom

Landlords generally do not allow tenant to stay longer, so you have to vacate the place. Such frequent changing of home is quite nightmare. Modifications, alterations in rented home the way you desire is generally not allowed.

Option 2: Buying a house

Finding perfect home in terms of locality, finances, amenities etc is a tedious job. It sometime takes couple of years to find perfect home.

Advantage 1: Investment

Value of a home increases over time, you could generate considerable profit from your property if you decide to sell it at a later stage.

Advantage 2: Safety, Freedom and Emotional attachment

Owning your home means you can alter your home structure as per your wish. In India there is huge emotional attachment to ownership of house, something that a rented home would never give you, especially for first time home buyers.

Disadvantage 1: Unaffordable

Usually localities where you wish to really purchase a house are very costly. Although home loans are easily available these days, it means paying EMI for as long as 15-20 years. With current interest rates you would pay much more amount than twice the original price of house.

Disadvantage 2: Timing the market

Although real estate is an investment, it requires great knowledge and at times luck to reap significant returns from it. Last three years are good example of investors not being able to make profits from real estate.

Disadvantage 3: Delays & Frauds

These are practical problems that a common man faces while investing into real estate new projects. Infinite delays by builder, land issues, issues related to approval from government agencies makes such investments into horrifying experience for many. Unfortunately even the percentage of such issues is very high.

Need based evaluation

By all means it is always advisable to buy a house that gives you sense of ownership and also creates asset that appreciates in value. Yet if we look from affordability and flexibility point of view rented one seems to be scoring goal.

I feel one should be open minded stay in rented house at nearby to his/her workplace and purchase property at an affordable location which promises higher appreciation in value. Renting it will also share pressure on shoulder towards EMI.

Of course decision making can not only be based on financials, you must consider several other factors as your lifestyle, responsibilities of ownership/renting, taxes etc to arrive at best suit conclusion.

What you should know before renting your house

The two-bedroom flat in the multi-storeyed complex at Vasundhara Enclave near the Delhi-Noida border is in a mess. The flooring has cracked, the pipes are leaking and the woodwork is in a bad shape. Still, Noida-based businessman Sudhir Makhija is interested in buying it. It's because he wants to invest in property for rental income. The extension of the Delhi Metro link to Noida two years ago has pushed up rents in the area, and Makhija estimates he will have to spend another Rs 2 lakh to do up the house before he can find a tenant. "The high rental value of the locality will more than make up for the expense," he chuckles.

Buying property for rental income may seem out of place at a time when real estate prices are at high levels. Yet, there are many buyers like Makhija whose sole intention is to put up the property on rent. In fact, according to an online survey conducted by ET Wealth, the age of such investors is coming down, with almost 90% of the respondents being less than 45 years of age. For them, there are still some islands of high rental yields across India. Rental yield is the annual rent earned by a property as a percentage of its price. For instance, the rental yield of Vasundhara Enclave is 2.73%. This means Makhija, who has rented out five other properties in and around Delhi, can expect an annual return of 2.73% on his investment from the rent alone.

This unabashed focus on rent has many positives. For one, inflation is rent-friendly. Rents go up with inflation, while the home loan EMI for the property remains more or less steady. The rise in rent increases the cash flow without any hike in the expense for holding the property. When inflation is spiraling, it can also mean more tenants because high prices bring down the affordability of homes. Of course, while the property earns a regular income for the owner, it continues to appreciate in value.

However, renting out property may not be everyone's cup of tea. "My business gives me the flexibility to manage my five properties. Someone with a full-time job will find this difficult to handle," says Makhija. Dealing with tenants can also be a nightmare. Besides the usual shenanigans over delay in rent, there is the fear of a tenant not vacating the property. This is why Mumbai-based Ravi Tiwari, who owns two properties in the financial capital, does not lease these out for long periods. "I change my tenants every 2-3 years," he says. It means shelling out more to a property consultant, who finds a tenant for him, but Tiwari doesn't mind paying. "If a tenant stays for long, he may refuse to vacate the premises," he says.

Ravi Tiwari    

He owns two 2-BHK flats in Navi Mumbai and Thane.

His strategy: Lease out one flat to pay the loan taken for the other house. When he purchased his second flat in Navi Mumbai, he leased out his earlier flat in Thane, which was in a better location, to reduce his loan burden as it fetched him a higher rent.

The problem: He is unable to visit Thane regularly and misses out on paying monthly maintenance bills, water charges and property taxes and ends up paying Rs 300-400 as fines. He plans to pay the entire year's maintenance in advance.

These are just two of the issues that can crop up when you give a property on rent. There are several other aspects, such as income tax and wealth tax implications, the real cost of loan taken for the property and the soft skills required of a landlord. Here's what you need to consider before you decide to wear the hat of a landlord.

LOCATION AND SIZE

If you want good rental income, buy a property that boasts a good location. A well-connected location will always yield a higher rent. "Tenants don't mind paying a bit more if the house is close to their place of work or conveniently closer to schools, colleges and market places," says Ganesh Vasudevan, VP, Indiaproperty.com, a real estate portal. It makes sense because what they spend extra on rent, they can save in transportation and in time. The ideal neighbourhood should have a built-in tenant base. This can be a commercial or an institutional hub in close proximity, which will ensure a steady supply of working professionals and their families. A remote location, however well constructed, may not be as attractive to renters at any price.

The smaller the property, the better is the rental yield. This is because the tenant base gets bigger as we move down the income pyramid. In Mumbai, smaller flats are more in demand as they are affordable for a larger number of people. "People prefer studio and 1-BHK apartments compared to a 2-BHK or 3-BHK flat as the rent is lower," says Vasudevan. They generally compare the rent with the EMI payout in case they own the house. "In Chennai, for example, instead of taking a 3-BHK house for rentals as high as Rs 30,000-40,000, people would rather buy a house and give such a monthly payout on their home loans," he adds.

Also, newer houses command higher rents compared with older ones. However, Mohammed Aslam, COO, residential services, Jones Lang LaSalle India, states that a renovated flat in older projects can fetch almost as much as a new one. But one needs to weigh the cost of renovation with the increased rent amount. It may not be worth it if the renovation is expensive, the location is too congested or there is no adequate parking. Also, homes with more amenities fetch higher rents.

TAX IMPLICATIONS

Your investment in property is of great interest to the taxman. If you own more than one house, the second house is deemed to be rented out and you are taxed for the notional rent received from the property. According to Sanjay Kapadia, chairman, Taxsum.com, this notional rent is calculated by taking into account the municipal valuation and the fair rent of the property. If, however, a property is covered by the Rent Control Act, then the amount of rent expected cannot exceed the standard rent determined under that Act.

The good news is that the rent from the second home is not fully taxable. There is a 30% standard deduction. So, if you earn a rental income of Rs 4 lakh a year from your house, you will be taxed for only Rs 2.8 lakh. Besides, the interest paid on a home loan and municipal taxes paid can also be deducted from the income.

Unlike in a self-occupied house, there is no annual limit for the home loan interest you can claim as a deduction. If you are paying an interest of Rs 2 lakh a year and Rs 20,000 as property tax, your net taxable income from the house will be only Rs 60,000. This will be added to your total income and taxed accordingly.

Some of these rules will change when the Direct Taxes Code (DTC) comes into effect from 1 April 2012 as it proposes to remove the clause of notional rent. So, if a property is lying vacant, there will be no tax liability. On the other hand, the DTC has also proposed to reduce the standard deduction to 20%.

You also have to deal with wealth tax. If the total value of certain assets (more than one property, gold jewellery, luxury cars, artefacts, cash) owned by an individual exceeds Rs 30 lakh, he needs to pay 1% tax on the excess amount. If a property has been given on rent, it is not taken into account. But if it is lying vacant, its value is included while calculating the wealth tax liability of the owner.

THE LAW & THE TENANT

A residential lease agreement is a legally binding contract between the landlord and all co-tenants. It clearly states what is required of the tenant, how much rent is due, when it is to be paid and the consequences if these obligations are not met. Once an agreement is signed, it can't be unilaterally changed by one party. It is, therefore, important for a landlord to ensure that this lease agreement is watertight.

If the tenant has roommates, get each of them to sign the lease agreement. It will be a little cumbersome, but it puts you on solid ground. In such a case, all roommates become equally responsible for paying rent and any damages.

The landlord should ensure the inclusion of elements such as limits on occupancy, rent, repairs and maintenance, pets, and other restrictions on tenant's activities. Experts say that if a proper legal process is maintained, there is no reason why a landlord should not keep the same tenant for a longer tenure. "If the stay is long, the tenant develops a sense of trust and responsibility towards the landlord and takes proper care of the property. The landlord too refrains from increasing the rentals too often," says Vasudevan.

SMART STRATEGIES TO FOLLOW

Mind the other costs: While sizing up a property, don't just look at the potential rental income. Factor in other costs, such as maintenance charges, property tax and payment to the broker who gets the tenant. Also, keep in mind that there may be a gap of 1-2 months between two tenancies. If you have a tenant turnover every six months, you will have to make such improvements as repairs, painting and cleaning, which will add to your expenses.

Think down-market: Some of the properties most wanted by tenants may not be in upmarket locations but in down-market areas. Such properties will fetch lower rents, but given the low price, the rental yield will be higher. Locations close to colleges or work places or with direct access to public transport, but in a not-so-prime location will always be in demand for their lower rentals.

Additional facilities: New projects in suburbs offer facilities such as clubs, swimming pools and golf courses. Most tenants don't like to pay for common facilities they hardly use. If you pay the monthly maintenance charges yourself, it will affect your cash flow. Avoid buying property that offers such facilities and charges a bomb for their maintenance.

Stay clear of oversupply: Don't buy a rental property in areas where many projects are coming up as the new supply may lower rentals. If the property prices are affordable, tenants may prefer to buy instead of rent.

Resale properties offer better rentals: When it comes to properties for rent, resale (or old) ones score over new on two counts, they are ready for possession and will most likely be in a more central location than a new one. The drawback, however, is that not everyone will be able to afford the high upfront payment sometimes required for a resale property. Also, the cost of maintaining very old properties may be higher.

Renovate sensibly: When you renovate to rent out a property, don't go over the top. Stick to basic renovation, such as fixing electricity connections, checking the sanitaryware, polishing the woodwork and painting the house.

Anand Birai   

He owns two 1-BHK flats at Borivali in Mumbai and is looking for a 2-BHK house in the same location.

His strategy: Have all investment properties in the same location, so monitoring becomes easier. Birai scouted for a smaller house in the same area as he would be able to keep a check on it on a regular basis. As both his flats are in a prime location, he now plans to shift to a bigger flat in a not-so-premium location and let out the other 1-BHK house on lease too.

The problem: The housing society changes the rules sometimes (rules like no letting out flat to singles, no parties, no non-vegetarian food, additional charges for leased flats, etc), which creates problems in getting good tenants.

Don't buy outside city or state: The farther you live from your rental property, the harder it will be to monitor it. Collecting rent or taking care of maintenance will be more difficult and costly if you live in another city. However, you could appoint a close relative or trusted person to do this for you.

Estimate your rent price: Simply adding up your cost of ownership to calculate rent won't do. Check newspaper ads, call property agents and look at online classified ads to assess the price range for similar units in your locality.

Company lease is a safer bet: In bigger cities, most landlords insist on signing a company lease agreement with the tenant, which means that the company where the tenant is employed pays the rent directly to the landlord. This is the safest bet compared to a self lease or no lease at all.

Have a contract: It is always better to have the terms and conditions on which you lease out your property put down on paper. Supply the tenant with a copy of the contract, so they may refer to it if any questions arise. Also, review the contract when you renew a tenant. If you need to serve notices and warnings, do so in writing. Verbal notices will not protect you if a situation deteriorates.

Collect rent on schedule: Being consistent with your tenants is imperative. If you are too lax one month, you may have a hard time collecting rent the next month.

Kiran Shetty   

He owns a 1-BHK house and a 3.5-BHK house in Mumbai.

His strategy: Let out a property only after it is debt-free. Shetty plans to rent his loan-free 1-BHK house to take care of the partial EMI for his bigger house. As the 1-BHK house is located at a prime location, he expects a hefty rental. He purchased the bigger house for Rs 1.35 crore around a year ago. Of the total sum, about Rs 45 lakh came from home loan, the rest from his savings.

The problem: Though his house is situated in a prime location, he would still need to renovate the 1-BHK house and bear the cost to attract good customers. He will also have to bear the cost of advertising and brokerage.

How to evict a tenant?

Sometimes circumstances deteriorate and evicting the tenant is the only feasible option. If you have tried open communication but cannot get the tenant to pay rent or obey rules of the property, it may be time to start the eviction process. The rules for evicting a tenant vary between states. It is, therefore, imperative you discuss your options with a lawyer.

For security, you may want to conduct the eviction through your lawyer. Regardless of the ups and downs involved, be sure to maintain professional decorum. Do not allow emotions to come in as it can lead to legal complications. Send all your requests in writing.

The first step is to send a written notice for the tenant to pay rent, fix problem behaviour or move out. If the problem is not rectified despite the notices, file a suit. If you win this, the law enforcement personnel deliver the written notice, when the tenant may remove his items from the premises.

Investing in a second home

In a survey conducted by ET Wealth, most respondents said they considered real estate the best investment because of the rental income it yields. However, nearly half of them are unaware of the tax implications.

Source - Economic Times

Real estate investments made simple

Gold and real estate are very traditional investment avenues. Gold has evolved from its traditional investing and found its place in the modern sophisticated investment world via Gold ETFs. Similarly real estate is also emerging as an investor friendly avenue with less hassle via PMS route or private equity route. Did you ever think that investing in real estate would one day be as simple as investing in mutual funds? If no, please read on...

Real estate as an investment

Buying a dream house or flat to reside is basically not a real estate investment. Buying real estate with a view to generate income and capital appreciation is considered as real estate investments.  Real estate investments can be further classified into residential, farmhouse, commercial, retail, leisure, etc. Leisure is a relaxation place where one can spend free time or vacation.

Depending upon his/her risk tolerance and time horizon one can invest in real estate at different risk levels. It can be at the time of converting a rural land to urban land, or at the time of building development stage or in already developed city area.

Real estate and risk

Most often investors assume real estate prices will not fall down and they only go up year after year. It is not so. During the mid 2009 some of the real estate investments were quoting below 30% to 40% from their 2007 prices. Real estate investments are also prone to price fluctuations.

Real estate vs stock market

Real estate is a complex and complicated investment when compared to stock market.

Non-transparent: There is no transparency in the price. It is not easy for a buyer or seller of real estate to identify the last transacted price in the same locality. There is no price discovery mechanism.

Illiquid asset: Selling a real estate is a time consuming process. It cannot be liquidated easily. There is no organised market for the buyers and sellers to meet.

Impact cost: Stamp duty and registration charges are really very heavy when compared to the other investment products.


No regulator: there is no regulator for the real estate participants and intermediaries. Anyone can become a builder. Technical qualification is not mandatory. Also anyone can become a real estate intermediary or advisor. There is no certification or training to be completed before practicing. As there is no qualification requirement for participants as well as the intermediaries, it is very difficult to see best business practices.

Real estate hassles

The other hassles with reference to real estate investment are documentation, maintaining the asset without any encumbrances, and genuineness of the title deed.

There are some practical problems with diversification. Normally an investor invests in a real estate in his own locality. It is very rare to find someone in Chennai investing in the real estate properties located in Mumbai, Delhi or Kolkata. Affordability also limits diversification. An investor may not be able to diversify her/his investments across various cities with Rs 25 lakh (Rs 2.5 million) or 50 lakh (Rs 5 million).

It may not be possible for an individual investor to buy a land and develop a viable project in that land and sell it in the market. Managing the project development need some kind of expertise. Even if an individual is able to do it, s/he will be doing it in her/his limited ways and means.

Is there a solution for this?

Of late yes.

There are some collective investment vehicles. An investment management company promotes these investment vehicles. The investment management companies collect money from investors. Being professionals, they will identify good projects and do joint venture with the project developers. They will be able to diversify across various cities as well as various types of real estate investments such as housing, commercial, hospitality and the like. These investment management companies charge a reasonable management fees.

At times they collect money via PMS route and at times via private equity route. The minimum investment ranges from Rs 10 lakh (Rs one million) to 25 lakh (Rs 2.5 million). This amount needs to be invested over a period of three years. That is they will collect money from investors in 4 or 5 installments. After 3rd year whenever they exit from a project they will repay the principal employed in the project as well as the profit generated out of that project. End of 6th year or 7th year, the investment management company will exit from all the projects.

The advantages of this collective investment vehicle are:

• One can invest into real estate without any hassles. The professional investment management companies will manage all the hassles.
• One can invest in various real estate projects at a time
• One can geographically diversify her/his investments across India
• One will be able to apportion his total investment into small sums in large projects like township development, Technology Park, industrial estate, health city

Cost advantage because of economies of large-scale operation

This is really an investor friendly investment vehicle. Apart from the regular stocks, mutual funds and fixed deposit investments investors can consider investing in these real estate products also. This will give better diversification to your overall portfolio. Also investors need to be careful in choosing such investment options. Background of the investment management company and their transparency levels are more important. Investors can seek the advice of the professional financial planners before investing.

This investment vehicle is in its primitive form only. It still needs to go a long way. As of now there are only a very few companies in India that specialise in promoting collective real estate investment products. But in a few years time these kinds of products will be available from various investment management companies and in different varieties like our present mutual fund schemes.

Source - Rediff