Here real estate market is a seller’s market!
By » [Sajjad Bazaz]
One of the most attractive investment avenues has been real estate sector. Sale, purchase and renting out of immovable property for earning a profit are summed up as real estate activities. Jammu & Kashmir is a place where real estate has outperformed almost all investment options. The margins in real estate deals are so attractive that once an investor parks his money in the sector, he stops looking at other investment opportunities around him. This they do despite the fact that real estate is an asset form with limited liquidity and is highly cash flow dependent.
The problem with this sector is that even a commoner tries his hand in real estate investment to make not quick but big bucks in a single deal. He hardly acquaints himself with the risks associated with this kind of investment. What I have observed is that these raw real estate investors get themselves into negative cash flow that too for a period that is not sustainable. This immediately forces them to resell the property at a loss. In many such cases I have seen people going bankrupt.Negative cash flow is an investment situation where cash expenditures to maintain an investment ( taxes, maintenance, etc.) exceed the cash income received from the investment. In other words, when a company spends more than it receives during a set period of time, the company is said to have a negative cash flow. This is often viewed as an indicator of financial ill health.
So for the lack of knowledge about the real estate market dynamics, these investors make big losses instead of accumulating big bucks! The common real estate activities at our place are sale and purchase of built houses and land. Investing in land is a very different ballgame. With new market drivers coming in, investing in a plot of land having appropriate dimensions for residential/ office purpose in an area has become an investment attraction. We see lot of such areas here, especially in the periphery of Srinagar city and even beyond that where real estate investors have been developed plots for residential colonies etc. and have begun to saturate. This saturation has led to increase in value of the plots manifold and has also turned the real estate market into a seller’s market. Precisely, it’s the seller who dictates the price of a plot or any other property in such conditions.
So, investing in land is a magical investment which can earn you huge margins in a single deal. But let me tell you investing in land is not as simple as it appears. The first thing which an investor has to bear in mind that there might be a series of legal requirements to meet and procedures to follow before a piece of land is converted into a saleable item. Let me explain – we have agricultural and non- agricultural land. As far as agricultural land is concerned, you cannot construct any kind of structure on it. It’s simply banned. For non agricultural, you still need clearance from the various authorities to build on it.
You also need to avoid in investing in a land which is included in some other developmental plan drafted by the government. You can own the land but will have no right to do anything with it. Even, may be, you cannot sell it.
Remember, there is no getting around the government’s prerogative of eminent domain. There is a high risk when you consider investing in land situated in the cheaper rural areas. Precisely, when you decide to invest in land, you should ensure that it has a clear title and is demarcated properly. Land gains value only over periods of time. If left unattended, encroachments take place and this raises legal issues. So to keep the land marketable, you should not overlook to develop it further, even thought it was already developed when you owned it.
Lastly, you should seek knowledgeable guidance for investing in real estate if you want to mitigate the risk of being cheated. You need to engage the services of a real estate consultant in the case of sale or purchase of land. It’s the consultant who only can foresee all the difficulties that can emerge with any kind of property which you intend to own. You should know the person fully from whom you are purchasing the land – be it a property dealer or an individual.
I haven’t seen at any point of time the prices of real estate falling. What I have come across is the careless attitude of retail real estate investors while purchasing a piece of land. Over a period of time, I have also observed that the real estate sector in our state is witnessing an upward trend where people approach it as a lucrative business venture rather than treating it as a channel of investment.