4. What is the competition?
• Their own business
• Spending on depreciable assets
• Financial instruments like : Stock / Mutual
Funds / Bank deposits / Life Insurance
• Precious Metals: Gold / Silver / Copper
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5. How does it fare?
• Real estate investment is the only investment
which gives all of the following:
– Recurring income in case of constructed property
– Capital appreciation
– Full security (gold can be stolen, companies can go
bankrupt, banks may close)
– Ability to consume cash component
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6. Comparison Table
Gold Shares/ Bank Deposit Bonds Real Estate
Mutual funds
Capital Yes Yes No No Yes
appreciation
Recurring No Not Much Yes Yes Yes
Income
Scarcity Yes No No No Yes
Safety of No (can be No Yes Yes Yes
Investment stolen)
Can be Yes No No No Yes
consumed
Cash Yes No No No Yes
Component
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7. Other Benefits:
• Capital appreciation linked with inflation, so
investment is automatically hedged against
inflation
• On a rental property the loan repayments are
partly done by rent, so you get full returns on
part of capital invested. For example: You
invest Rs. 50 lakhs in a flat of Rs. 1 crore,
(remaining amount is a loan) then from day
one you earn return on Rs. 1 crore.
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8. Other Benefits:
• You can invest as little at 10% and get benefits
of full 100% (schemes like subvention)
• Unlike Stock markets you don’t have to daily
monitor the prices
• Provide a second home for leisure – farm
house
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9. Other Benefits:
• Leverage: Real estate investment can be
mortgaged, unlike stocks and mutual funds.
• Home loan has income tax benefits. Also
rental income attracts lesser tax than Interest
income on Bank FD
• Recent budget has given further tax benefits
on home loans for first home buyers
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10. Type of Investors
• Speculators
• Flippers
• Income stream investors
• Eventual Users
• Developers
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11. Type of investments and returns:
• Apartment : Capital appreciations and rental
• Bungalows: Majorly capital appreciation
• Office / shops: capital appreciation and rental
• Preleased properties: lesser risk
• Plotted Land: capital appreciation
• Agriculture land: capital appreciation and
retention of status as a farmer
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12. So how to convince:
• New property:
– Pay 25% right now to start earning 10% return on
100%
– So book a flat for Rs. 25 lakhs an 1 year later you
get a appreciation of Rs. 10 lakhs (as the flat value
is Rs. 1 crore)
– When you sell it once its completed, usually the
property appreciates approximately 25%
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13. So how to convince:
• New property:
– With a subvention scheme, 10% is paid right now
and remaining 90% at the time of possession
– This is even easier to convince as the bank
releases the payment to investors only when the
construction get over in stages
– Saving on interest costs as bank usually charges
interest from builder, while cost of property is
fixed, so saved from inflation
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14. So how to convince:
• Old property:
– There is no risk no delay in delivery or non
delivery of real estate due to construction delays
– The property can be touched and felt
– The property can be bought on loan so in case
liquidity is a problem, it can be solved
– Usually comes with some finishing, more carpet
area and neighbours.
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15. So how to convince:
• Recurring income or Yield based property:
– The yields of pre leased properties have fallen
drastically in last 5 years. From as much as 12%
net return in 1 year to 5% subject to service tax.
– The important factor is : return should be
calculated only on the white portion of the
property
– A McDonald will give a lesser yield than a mom
and pop store: Stability of income is more imp
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16. Risk Factors
• All investment options have risk factor.
Remember there is no return without risks.
• Liquidation is the biggest risk in real estate.
• Another risk is maintenance, as most
properties require some expense even if
empty.
• Clear title, paperwork and time to do
transaction are few problems.
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17. Risk Factors
• Educate investor looking for recurring income
that they need to furnish the property also
• If the tenant leaves the income may stop(but
capital appreciation doesn’t)
• Delayed project completion may affect the
returns of the investment. But usually the
capital is safe.
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18. Always remember:
• Advise the investor to invest in a property only
if you are sure that you can match the
customers expectation from the property like:
– Resell at 25% higher amount after 2 years
– Get a tenant
• So do not over commit or you will loose your
customer for life.
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