Posted on June 22, 2016 by adminLast updatedJune 27, 2016

Finance Act 2016: Tax advantages for home buy and lease paid

The finance bill, was presented in the parliament on February, 29, 2016. It became a law, after receiving the president’s assent, from May 14, 2016. This Finance Act 2016, has certain provisions, which will benefit individual tax payers, with regard to home loan interest and rent paid.

 

Extension of time for completion of construction

Until now, a tax payer, who borrowed money for an under-construction property for his own residence, was eligible to claim Rs two lakhs, beginning from the year in which construction was completed and possession taken. However, to claim this tax benefit on interest u/s 24(b), construction of the house was required to be completed within three years, from the end of the financial year in which the money was borrowed, failing which, the entitlement for interest for booking an under-construction property used for self-occupation was reduced to Rs 30,000.

Owing to rampant delays in construction and handing over possession by developers, beyond the three years, many tax payers were unable to avail of the full benefits. To mitigate such hardship to tax payers, the period for completion of construction, has been extended to five years, from three years.

 

Additional benefit for interest on home loan taken by a first-time home buyer

Under section 80EE, an individual who borrows money for the purpose of buying a house, will get an additional deduction of Rs 50,000 from his income, if certain conditions are satisfied.

The first condition for claiming this benefit, is that the individual tax payer should not own any house on the date on which the home loan is sanctioned. Secondly, the amount of home loan should not exceed Rs 35 lakhs, for a house which does not cost more than Rs 50 lakhs. Moreover, the loan should be sanctioned between April 1, 2016 and March 31, 2017.

This additional deduction of Rs 50,000 is available in respect of an under-construction property, even during its construction period, because the provision does not require that the construction of the house for which the loan is taken should be completed, unlike section 24(b) where you can start claiming the interest deduction, only from the year in which the construction is completed.

This will be useful, for people who are buying a property for self-use and where the maximum allowable interest is restricted to Rs 2 lakhs, including the pre-EMI interest which you can claim in five equal annual installments, beginning from the year of completion of construction.

 

Enhanced tax benefits for rent paid

Section 80GG provides for tax relief to individuals who are salaried and are not in receipt of any house rent allowance (HRA) from their employers, or are self-employed, with respect to the rent paid for any accommodation occupied by them. The deduction is allowed, only if the tax payer, or the spouse, or minor child, do not own any residential accommodation in the place where he ordinarily resides. Moreover, the tax payer should not own a residential house at any other place, which is treated as self-occupied for tax purposes.

The amount of deduction available, is the excess of rent paid over 10% of total income, subject to 25% of the total income. Earlier, the deduction was restricted to Rs 2,000 per month. This low limit failed to provide any major benefit for the tax payers, who were paying huge amounts as rent. The Finance Act 2016, has raised the ceiling from Rs 2,000 per month to Rs 5,000 per month.

 

Posted on June 21, 2016 by adminLast updatedJune 22, 2016

Real Estate Trends to Watch Out For in 2016 – An Overview by Rxprt

TREND 1: Women’s Influence Is Growing In Real Estate Ownership

Another very interesting fact in the 2015 real estate scene has been the growing influence of the woman buyer, both as an individual and as the active participant in joint ownership. With success in her profession and exposure to various knowledge and informative mediums, more women are interested in calling the shots while buying property too.  As more single working women are moving out of their family home to lead an independent life, to learn the tricks of management at a personal level. The married woman, whether working or not, is an equally resolute partner in choosing and finalizing the dream home. A very positive development indeed.

TREND 2: Vastu and Feng Shui is making a Comeback

With time, many things change like fashion, lifestyle, music, and then certain things make a comeback too like some customs. Right now it’s the comeback of Vastu. Real estate developers are promoting their projects as Vastu compliant, not just residential but commercial ones too. And the buyers are also actively scouting for Vastu compliant properties. Whether this is based on true faith or simply a fad, only time can tell. But one thing is true that these principles based on mathematics, physics and astronomy do hold true. After all, there is nothing wrong in following good things to welcome positive energy and wellness in one’s home and life!

TREND 3: NRI interest in Indian property is rising 

The much sought after NRI is also a darling of the Indian real estate sector. Every NRI worth his dollar/ pound/ dirham wants to own a property in ‘Mera Bharat Mahan’. And this is the perfect time to do it. With up to 20% lower property rates even in top metropolitan cities like Mumbai and Delhi according to recent estimates, an average NRI has tried and succeeded in buying a lucrative property.

The Top 5 Global cities from where maximum NRI interest in Indian property were:

1) Dubai
2) Muscat
3) London
4) Singapore
5) Riyadh

The Top 5 Indian cities eliciting maximum project interest from NRIs were:

1) Mumbai
2) Pune
3) Bengaluru
4) Hyderabad
5) Chennai

With the demand for both commercial and residential space heading north, smart NRIs should take this opportunity to invest in either or both kinds of spaces to reap a good return.

TREND 4: Government Support Is Increasing For Real Estate Reforms

Last but definitely not the least, the kind of push the Reserve Bank of India and Government has given to the real estate sector in 2015, is almost heaven sent. Lowering of basis points, the ease in FDI policy, and the introduction of smart cities are just some of the decisive factors that will give a boost in the arm to real estate sector. Buyers are being enticed with all kinds of freebies to make them invest. But please don’t invest blindly. Check, check and again check on the builder, the properties and the location. Do check on the legal papers before putting your hard earned money at stake.

We hope these trends have made you more up to date on the market scenario and  role in helping you find your home in 2016. Happy Home Buying!

 

Posted on June 18, 2016 by adminLast updatedJune 18, 2016

Trends and Scope of Private equity funding in real estate

Private Equity Funding, known as PE, has created a big opportunity for real estate builders and fascinating investors in real estate market. Big amounts of funds are geared up for investment opportunities in real estate market in expectation of a positive outlook and fresh funds to be allocated to this asset class. Indian Real estate has faced major transformations in last one decade and Private equity funds have contributed majorly on this part. PE is the source of capital to rejuvenate failing business and certainly real state market is a huge growth factor for job growth rate in the country. Moreover, Political stability along with continuous and focused efforts by the government strengthens economic revival and growth oriented interest by the global investor community towards India. Adding to it, relaxation in FDI norms, policy announcements and reforms to revive the real estate, establishment of Real Estate Investment Trust ( REITs) sparked the positive outlook for the project finance and real estate investment market.

“Best Investment on Earth is on Earth”

Since the sector have been going through a downfall and but now emerging gradually from its slowdown, it is creating a Big-Bang Universal opportunity for PE investors; no doubt opportunity for Project finance in real estate market is humongous.

Real estate market is a big contribution to the India GDP, and so investors are keen to avail the opportunity. It was one of the major reasons, in year 2015 many joint ventures being created between large investors and established developers.

Venture Intelligence studies shown many examples in the league of big investors and builders, example Standard Chartered invested Rs2,000 crore in Tata Realty. Another reason for gearing up is Land pooling, a provision introduced under Delhi Development Act 1957, where small chunks of land can combined together to build bigger infrastructure and a part of land is deducted as cost of building the infrastructure to reform bigger colonies.
Though the biggest issue yet to be resolved in the real estate capital markets is lack of liquidity in the debt markets. Certainly the positive outlook of Investors is much larger than current slowdown in real estate, which is of course coming out gradually.

Another point to be considered is FDI, for adding the ease for investment in real estate market; government has declared eased rules for Indian construction and built-up Infrastructure. It majorly covers building townships, built-up infrastructure, housing and construction development projects because these areas or sectors have huge and vast potential for increasing and improving employment in the country. These sectors directly influence ancillary industries such as steel and cement. The cabinet has approved Department of Industrial Policy and Promotion to relax the norms relating to FDI. It includes norms like minimum capitalization has been reduced from USD 10 million to USD 5 million. Another ease is the three year post completion lock-in period, where an investor can now exit on completion of the project and also even after the development of trunk infrastructure, such as construction of roads, water supply and drainage and so on.

Posted on June 16, 2016 by adminLast updatedJune 16, 2016

Affordable Housing: The pros and cons

While the price of an affordable housing unit may be alluring, there are challenges associated with these projects that prospective buyers should examine closely

In a recent newspaper advertisement, the developer of an under-construction housing project in Gurgaon, offered a two-bedroom flat at a price of Rs 22 lakhs. Property prices in the region, where the project is situated, are already high and speculative. A two-bedroom apartment in Gurgaon, in a regular housing project, is generally priced between Rs 60 lakhs and Rs 80 lakhs, depending on its location and the colony. In the recent past, a number of developers, like the builder in Gurgaon, have announced affordable housing projects across the country.

These projects offer units having one to four bedrooms, in the price range of Rs 15 lakhs to Rs 60 lakhs, which varies according to the micro-market and the city. A unit in an affordable housing project in Mumbai, is likely to cost more than one in Noida or Greater Noida. For example, a two-bedroom affordable house in Gurgaon may be priced below Rs 30 lakh, while a similar unit in the upmarket central suburbs of Mumbai, may be priced between Rs 40 lakhs and Rs 60 lakhs.

While some houses may be available through outright sale, others may be sold through a lottery system, under the government’s affordable housing schemes. Gurgaon has several projects, where the allotment is done through a lottery system by the Haryana Urban Development Authority (HUDA).

Advantages

The demand for affordable housing in the country is huge. Moreover, the interest shown by a number of large corporate groups in this segment, is likely to facilitate timely delivery of projects, which remains a nagging issue in the realty sector. Consequently, buyers in this segment may not have to wait indefinitely, like their counterparts in other segments.

Disadvantages

A closer look at the upcoming projects, indicates several challenges, in spite of their price advantage. “Most of these projects are located on the outskirts of cities and in far off areas. So, the absorption in these projects could remain low, despite the demand for affordable housing,” feels Prabhat Ranjan, chairman and MD of the Mumbai-based Olympeo Infrastructure Pvt Ltd. Buyers still prefer central areas, even though they may have to compromise on the size of the flat.

The present slowdown in the market, could affect the sales in these projects. Thus, even if the developer completes the project, subsequent occupancy may remain a challenge. Owing to the dearth of buyers, the formation of the society or the residents’ welfare association may be delayed. Consequently, the maintenance of the projects’ premises will be affected and buyers may have to depend on the developer, for the same.

While the units in an affordable housing project are cheaper, than those in the mid-income and premium housing segment, most upcoming affordable projects may not provide the basic amenities on account of their location. “A majority of these projects are being launched in remote areas, where the development firms get land at cheaper rates. Most of these areas still lack basic social infrastructure.”

What should buyers do?

The prevalent situation indicates that it is a buyer’s market. Prospective buyers should bargain for greater discounts on the quoted price, advises Manju Yagnik, vice-chairperson of the Nahar Group, a Mumbai-based real estate firm. “Negotiating with developers may be easier, under the current circumstances,” suggests Yagnik, referring to the trend, where markets across India are witnessing poor sales and high inventory pile-up. Buyers can also expect some rationalization in property prices.

 

Posted on June 14, 2016 by adminLast updatedJune 14, 2016

Coming soon: Clause in real estate bill to check bias against religion, sexual orientation, diet

The anti-discrimination clause will provide recourse to buyers who are denied a house by builders owing to their caste, ethnic origin, gender, sexual orientation, dietary choices or any such factors.

The Centre is set to introduce an anti-discriminatory clause in rules under the real estate Act to curb the practice of builders refusing to sell their apartments based on a buyer’s religion, marital status or dietary preferences.

The Real Estate (Regulation and Development) Act, 2016 (RERA), passed earlier this year, has paved the way for setting up a regulatory authority and tribunal to regulate all transactions between buyers and sellers, with specified punitive measures in case of violations. The Ministry of Housing and Urban Poverty Alleviation (MHUPA) is expected to notify the rules under the Act by October 31.

“Since the Constitution itself provides for non-discrimination, we will insert such a clause in the rules. However, it will desist from specifying the exact nature of discrimination as we don’t want to risk excluding any kind of discrimination by way of omission,” said a ministry official.

The anti-discrimination clause will provide recourse to buyers who are denied a house by builders owing to their caste, ethnic origin, gender, sexual orientation, dietary choices or any such factors. Once the rules are notified, those affected can approach the state-level regulatory authority, followed by the appellate tribunal.

Under the RERA, builders failing to adhere to the tribunal’s orders are liable to face imprisonment of up to three years and/or a monetary fine, according to the legislation.

“There have been several reported instances of access to housing being denied based on prejudices arising out of a person’s religion, caste, etc. Ideally, such an anti-discrimination provision should have been part of the Act for it to be more effective but I am glad at least it is being included in the rules,” said Selja, a former MHUPA minister under the UPA government.

However, with RERA only covering transactions between builders and home-buyers and not between landlords and tenants, the protection against discrimination would not extend to those looking to rent homes.

Ministry officials said they were deliberating on including a similar anti-discriminatory clause in the draft model Rental Housing policy which will be notified soon. The model policy doesn’t have the same enforceability as RERA.

“Moreover, we may not be able to impose such a rule when it comes to privately-held property,” said an official.

This would be the first time that India is bringing into force such an anti-discriminatory provision in its housing sector. The US has had the federal Fair Housing Act for the last 50 years that outlaws refusal to sell or rent a house to any person based on his religion, race, colour, sex or national origin. Most of the member states in the European Union have a similar anti-discrimination legislation, too.

Some countries such as Denmark, Ireland and Norway make an exception only for those who let or sublet a room within a home that they live in.

Housing apartheid, especially in cities such as Mumbai and Delhi, has manifested itself in various forms, including denial to sell or rent homes to Muslims, singles or even non-vegetarians.

A study released by the UN University World Institute for Development Economics Research in May 2016 documented how Muslims face serious disadvantages when it comes to finding a rental accommodation in Delhi, Gurgaon and Noida.

It showed how Muslims have to apply to 60 per cent more houses than upper-caste Hindus so as to elicit any response from landlords. The study also noted a bias, though not statistically significant, against those from Scheduled Castes or other backward classes.

JAIL, FINE FOR BUILDERS

* Those affected can approach state-level regulator, then appellate tribunal.
* Builders flouting tribunal’s orders may face jail of up to three years and/or fine.
* New clause pertains to buyers; officials consider separate clause to cover those renting homes.

Posted on June 13, 2016 by adminLast updatedJune 13, 2016

This is how building materials demands will rise due to Real Estate Act

The Real Estate (Regulation and Development) Act, 2016 is set to change the Indian real estate face. The Act which for the mostly protect the right of home purchasers will support the interest for Affordable housing, which prompts the interest of concrete  utilized for building construction.

The Act will cover both housing and commercial real estate projects and should be enrolled with the Regulatory Authority.

The Act plans to improve timely project completion and increase transparency in real estate. According to the Real Estate Act 2016, Real Estate Regulatory Authorities (RERAs) will be framed and it will minutely screen every stage and approvals of the building construction.

Typically real estate ventures slowed down because of budgetary crunch and it prompts delay in conveyance. To guarantee the time execution, RERAs will ensure developer’s deposit 70 percent of collections in a dedicated bank account towards the cost of construction.

This buyers friendly Act will bring the certainty among home purchasers and urge them to purchase Affordable housing.

India Ratings and Research said in its ‘FY17 Credit Outlook’ report that ‘The effective usage of the bill (Act) will lay out the landscape to enhance buyers, moneylenders and investors confidence, which is critical for long term growth capital for developers. The bill may affect the trade streams of developers in the short term; in any case it will bring about a more dependable industry.”

As all the more housing interest will ascend the nation over after the usage of the Act, the interest of development construction materials will jump.

According to the PropTiger report, Affordable housing (scope of Rs 25-50 lakh) request has hopped 38 percent in January-March quarter in 9 noteworthy urban communities, which is prone to bounce further after the usage of Real Estate Bill (Act).

Heavy construction equipment market is to restore which was limping because of slowed down base tasks over the division for most recent couple of years. Presently the government  is contributing intensely and doing policy revival to meet the housing, roads, highways, railroads, ports, aviation, power and other infra projects to take care of the rising demand.

Both new and utilized concrete equipment interest will grow because of rising affordable housing. The expansion in development tasks will drive the matter of concrete equipment manufacturing companies in India.

Posted on June 12, 2016 by adminLast updatedJune 12, 2016

Exit policy will help revive slowed realty projects in Noida

Authorities in Noida – Greater Noida region one of the biggest housing markets in the National Capital Region may soon execute an exit policy for builders hoping to surrender surplus land, even as Noida Authority decided to increase land allocation rates in the city by 14.19, much to the disappointment of developers struggling to cope with slow sales.

The policy was announced as realtors owe around Rs 25,000 crore in land dues to the authorities. Several developers have failed to deliver projects in Noida and Greater Noida due to financial stress. This has affected nearly one lakh homebuyers In Noida alone who have not got their flats despite paying the full amount.

These developers may have build a stage or two of their approved projects, however given the present economic situations and the tight liquidity situation they are not keen to launch another phase. Several developers have defaulted on their payments for land to the authorities.

The dues to YEIDA, for instance, are over Rs 3,000 crore. If the policy is implemented, builders can get rid of the excess land and utilize the refunded cash to fund fulfillment of their existing projects that have been going moderate.

The authority will return 70 per cent of the deposit after deducting 30 per cent money. With the refund a realtor can complete another project, which is nearing completion. The three authorities will then allot the returned land by a fresh allotment process,” said Arun Vir Singh, chief executive officer (CEO) of YEIDA.

The money will be refunded to the builders at allotment rates. Authorities can then allocate the surrendered land to other builders at current market rates. A similar policy was implemented in Uttar Pradesh in 2010 however was eliminated in 2012.This will help 4.5 lakh homebuyers in Noida and Greater Noida affected by realtors’ failure to complete housing projects.

If new players in Noida and Greater Noida pump in funds to develop undeveloped land, it will bring positivity in the realty sector, thereby helping buyers. Housing projects are stuck because many builders have not been able to sell unsold inventory that helps in raising funds. The proposed policy can bring money, hope and positivity, which will ultimately impact buyers

Posted on June 7, 2016 by adminLast updatedJune 8, 2016

DDA’s Master Plan 2021: Impact on Realty Prices in Delhi NCR

The Land Pooling Scheme under the 2021 master plan of Delhi Development Authority (DDA) will help in checking the high appreciation in the costs of housing units in Delhi NCR, According to the NCR developers. The Land Pooling Scheme intends to counteract selling of land without the oner’s assent and guarantees fundamental changes in the method for procurement and development of land in Delhi.

The business specialists expect that the rates of housing units will be no less than 15-20% less in the coming 3-4 years when contrasted with the anticipated costs. Furthermore, this is on the grounds that it is gone for hitting the interest supply imperative for both developers and the buyers.

As per Anshuman Magazine, CMD of CBRE, Delhi Master Plan 2021 presents the biggest real estate opportunity as far as state confirmation and demographic interest for urban development and advancement in the nation. As per him, the Land Pooling Policy which was endorsed on fifth of September 2013 will help in illuminating issues identified with the accessibility of area for essential real estate improvement and infrastructure formation for India’s constantly expanding urban populace. The plan will help in production of urban green spaces, open spaces and mass housing for EWS and low-salary bunches. There are incomprehensible open doors sitting tight for both engineers and speculators in the nation’s realty segment.

Under this plan, the land owners will be permitted to build home on their territory by their own or through any developer. The Master Plan Development Plan proposes the improvement of a few hundred acres of land of area for obliging an extra populace of 48 lakh by 2021, up from the current 1.6 Crore. The expanding advancement will help in diminishing the costs of housing units. Imperatively for the power, this will be an other option to the obligatory area obtaining and transfer process, he said. Be that as it may, the new land acquisition bill will make it troublesome for the developers to gain arrive yet the DDA sees the all-inclusive strategy as the other option to the necessary area procurement and transfer process.

Muzaffar Zia, chief, Glorice Consultancy likewise said that “the costs of up and coming private units in Delhi NCR would rely on the area however on a normal, these future 15-20 percent lesser contrasted with the anticipated costs of the moderate housing units in the NCR areas”

As indicated by him, the lower costs of housing units will help developers to achieve most extreme number of buyers or the end clients and the value rise check would debilitate the financial specialists in the real estate market.

At the point when gotten some information about the experimental rate of the financial specialists existing in the present business sector situation in NCR Zia said, “It is hard to give definite information yet on a normal, such speculators exist to the tune of around 35-40 percent in initial two years of the undertaking dispatch however wash their hands off from the stifled units, as the ownership time frame achieves nearer in light of the fact that by and large, they get around 50-60 percent return on their venture.”

As indicated by a representative of the Amrapali Group, today’s greatest obstacle for real estate developers is the land acquisition but the area pooling plan will make it less demanding for the developers and impact the NCR land proprietors to take after the suite. Developers are anticipating that things should get to be less demanding as it takes around balanced and half years in finishing the conventions of area obtaining and related clearances.”

The Land Pooling Scheme under the 2021 end-all strategy of Delhi Development Authority (DDA) will help in checking the high thankfulness in the costs of housing units in Delhi NCR, According to the NCR developers. The Land Pooling Scheme intends to counteract offering of area without the proprietor’s assent and guarantees basic changes in the method for procurement and advancement of area in Delhi.

Posted on June 2, 2016 by adminLast updatedJune 2, 2016

Crucial Tips for NRI Investors in Indian Real Estate

Majority of the world’s millionaires owe their riches to real estate which has either been procured or acquired by them. For any individual, real estate gives the possibility to create returns by both capital appreciation and rental yields.

Non Residential Indians (NRI’s) holding Indian visas, dissimilar to outside starting point individuals, hold comparative rights as Indian inhabitants in property possession standards under FEMA rules. They can put and own Land as Residential and Commercial units, aside from forest and agricultural land. Keen NRI’s have exploited these rights and good swapping scale differentials to purchase properties for their venture potential and once in a while a future retirement home.

In any case, it’s not generally smooth cruising for them. Stories are around of NRI investors falling prey to wrong property investment choices including fake ones. Real Estate, similar to every single monetary venture require appropriate due determination with respect to the purchaser.

Here are some tips for the observing NRI Investors specialist who needs to put resources into the Indian Real Estate Market:

NRI Investors intention

NRI investors are encouraged to comprehend their danger craving and put resources into Indian Real Estate with a reasonable reason. On the off chance that its profits that they are keen on, they can get immediate presentation by purchasing real estate units in a created range and afterward leasing it out. They could likewise purchase value shares of listed real estate developers which could give them a backhanded presentation. NRI purchasers here and there additionally search for a future retirement home, and this could lead them to putting resources into a creating range.

Reputation of developer

It is basic for any client to do an exhaustive check of the reputation of the developer on the off chance that it’s an essential deal. Past deferrals in task execution and history of conforming to laws will give a decent sign of the dependability of the developer.

Legal title/documents checks

It would be advisable for the NRI investors to likewise check the lawfulness of the property. Affirmation ought to be looked for about current proprietor, past history, any lawful debate, and neighborhood administrative endorsements before any arrangement.

Location

Like any real estate deal the world over, location is important. In a nation like India where infrastructure lacks demand, a location nearer to better infrastructure would yield more noteworthy long term returns.

Government policies

Real domain in India is vulnerable to changing government controls. Interest in forest, plantation and agricultural zones are a no-go for NRI’s. Policies related to leasehold, freehold, zoning areas require watchful understanding in addition to  future plans of the government for that location.

Tax Implications

NRI’s investors ought to likewise thoroughly consider the tax implications including withholding charges, TDS at the time of purchase, rental taxes and property taxes should be properly understood with the help of a tax attorney. For NRI’s searching for capital appreciation, it is recommended to stay contributed for no less than three years to keep away from short term capital gain tax.

Finally, property management is vital. NRI’s would do well to hire a decent property manager or an agent as they may not be in the nation constantly. This joined with a sound way out procedure at the proper time with great returns will give the genuine feelings of serenity each meriting NRI ought to get when they put resources into the Indian Real Estate market.

Posted on June 1, 2016 by adminLast updatedJune 2, 2016

REAL ESTATE INDUSTRY ANALYSIS 2016 – COST & TRENDS | Rxprt.com

Real estate Industry is a big business generating billions of dollars in revenue annually, and there
are several opportunities for entrepreneurs to turn a profit. Last year there were approximately
210,000 companies operating in the residential brokerage and management field, which generated
$200 billion in revenue; there were 35,000 companies operating in the commercial brokerage and
management field, generating $35 billion in revenue.

Real Estate Industry Background

Real estate Industry is a cyclical industry, reacting to macroeconomic trends such as interest rates,
population growth, and economic strength. It offers diverse opportunities for the entrepreneur,
including some hedges against these trends when they’re moving in the wrong direction!

The real estate industry consists of three primary fields: brokerages, leasing, and management.

Real Estate Brokerage

Real estate brokers bring together buyers and sellers of property, assist in price negotiations, and
facilitate the work involved in deals from initial interest expressed through money being exchanged
at closing. Examples of services provided include property appraisals and inspections. Generally,
the seller of a piece of property pays a commission based on a percentage of the sale price (usually
5 or 6 percent). This commission is split between the buyer’s broker and the seller’s broker.

Since commission is based on property value, brokers make more money for higher-priced deals.
The value of a real estate investment is determined by many things – but location is key (“location,
location, location” as they say!). Factors controlling the value of a location include public
transportation access, the quality of the roads and schools, income levels and the strength and
stability of the local economy.

Real estate brokers must be licensed in the state in which they work, and while it is estimated that
there are over 1 million licensed brokers, most are either inactive or consider brokerage activity as a
secondary line of work.

Leasing Agents and Management Companies

Leasing agents work with property owners to handle the complexity involved with finding, vetting and
signing tenants for their properties – and handling all the paperwork!
Management companies operate buildings and other properties, making sure they are running
properly, paying utilities, hiring staff and performing maintenance. Many management companies will
also act as leasing agents for the property. Since most property expenses are fixed, maintaining low
vacancy rates is critical to management companies profitability.

State of the Real Estate Industry in 2016

The real estate industry is divided into residential and commercial real estate services, although
some brokerages and management companies engage in both. Both the residential commercial
segments are quite fragmented. In each, the fifty largest companies make up about thirty percent of
the industry’s total revenue.

Real Estate Industry Risks

Before considering an investment in any industry, it’s best to be aware of the risks. In the real estate
industry these include (but of course are not limited to!) the following:

 Macroeconomic factors beyond the control of the business owner, such as downturns in
the local or national economy

 Changing demand – a location once coveted can change quickly and properties can
become less desirable. Of course, the reverse is also true – skilled selection of properties
can reap profits in up and coming areas.

 Increased supply – building of new properties, and/or newly for sale properties in the area
can drive rental or property prices down as well.

 Changing priorities or requirements for building management companies, particularly
for aging properties. For instance, indoor air quality liability can be a serious legal issue, as
can required removal of mold growth.

Real Estate Industry Opportunity

More than ninety percent of people use the internet before purchasing real estate, and brokers have
embraced online marketing with pictures of properties and virtual tours in order to prime their
potential customers. Better educated purchasers, while potentially more discerning, can also speed
up the sales cycle by knowing what they want and need.
While there are fears that this will eventually eliminate the need for brokers all together, it’s unlikely
to happen anytime soon. There is an expertise and skill to correctly marketing and showing a
property – and it takes a lot of time. Property owners, particularly homeowners, can not dedicate the
time to sell a home on their own, even with online tools smoothing out the process.