Real Estate Analysis

Written by Mr. Prashant A. Gawali | Apr 28, 2023 5:57:42 AM

REAL ESTATE ANALYSIS

Real estate investment is made on various basis, particularly in India investments are made on the following points below.

Who can invest in real estate, and how does it work?

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

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.

DO YOU KNOW HOW REAL ESTATE GIVES CREDIT?

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 analyzed 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:

Mr. Prashant A. Gawali
MBA in Construction Project Management
(2021-2023)

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