REAL ESTATE ANALYSIS
Real estate
investment is made on various basis, particularly in India investments are made
on the following points below.
• General consumer
• HNI/ANGEL/OTHER INVESTORS
• Real estate is purchased with stock market profits.
• Real estate investment trusts (REITs)
How does the Real Estate Circle
work?
• If the inflation rate increases,
construction costs will increase, material costs will increase, and developers
will find it hard to invest in real estate, and they will look for third-party
financing ex: banks.
• Now, the bank will give a loan based
on the current market, the developer will buy based on the current market, and
the developer will sell the property based on the current market; in the end
consumer will buy it based on the current market, and they will approach third
party ex: bank.
• Circle will keep moving with
government, developer, bank & consumer.
• All the following organizations will
profit; every organization will have risks/ Profits.
Government Perspective
• Whenever the market declines or
collapses. Government agencies develop real estate and re-engage the market.
Once the market is back on track, Developers understand demand and supply, and
based on demand & supply, they decide on investments.
• As they develop a building for
selling, they keep the property's value per the location, economy &
consumer perspective.
• Government is also in the business of real estate; they participate in Low-income groups, middle-class income groups, and economically weaker sections of people; they make much profit through various direct and indirect taxes/certification and approval. Ex- capital gain tax
BUYING REAL ESTATE WILL REQUIRE YOU TO TAKE OUT A LOAN, FOLLOWING ARE DETAILS OF BANK MAKING DECISION ON LOAN
Have
you ever wondered how a bank makes a loan decision?
Banks have a
standard formula for deciding on a loan; the bank will ask for collateral if
the customer wants to take a heavy loan. The points listed below provide
insight into how a bank makes a loan decision.
One
word which keeps the whole market fluctuating is 'interest rate.' In business,
every person lends money/takes a loan; both sides depend on one thing, which is
the 'interest rate.' On the % of interest rate, every person thinks about
whether to invest or not. Interest rate is the most important thing for a
person in real estate. Following points given below determine the interest rate.
• Based on appreciation and
depreciation.
• If the
property is appropriately maintained without any structural issues, it will be
appreciated based on how many years it has been served.
• If the
property needs much reconstruction and is not maintained correctly, it will be
depreciated based on how long it has been served.
HOW FUNDING IN REAL ESTATE WORKS?
World Bank, Japan International
co-operation Agency, Banks, and financial institution has given loan based on
future cashflows, which are generated based on profits; profits are shown by
doing market research- market research is a prediction done by a consultant,
which is accurate as a consultant is the best to check for profits.
All cashflows are analysed by
considering future potential; all valuations are based on future profits, which
are predicted based on the purpose of valuation.
As the purpose of valuation changes with
the type of property/asset class, the discount factor also changes with the aim
of valuation.
The interest rate used in discounted
cash flow (DCF) analysis to assess the present value of future cash flows is
referred to as the discount rate.
RISK IN REAL ESTATE
Real estate totally
depends on the consumer’s perspective and profit; it must consider various
risks as given below:
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