Property investments yield high returns

admin — Tue, 17 Aug 2010 13:34:44 +0000

As economic conditions improve globally, the cheer is coming back into property market. It is good time for those who want to invest in property, both residential for own use as well as from an investment perspective. Investments in property bring diversification to an investors’ investment portfolio. Historically, it has been proved that a property investment is low-risk option with high returns over a long-time. Usually, price volatility is quite low in property market. Due to global recession, property prices corrected in the recent past, thereby improving market conditions with increased demand.

Investments in property market offers short term returns in terms of rental income and long term returns in terms of capital gains. Hence it is suitable for short-term as well as long term perspectives. The Indian government also provides the income tax exemptions for those invested in the residential property. In general, investment in property require a significant upfront investment, hence becomes important to plan well while entering into property investment. Location and price are the two most important that very much decide the returns from the property investment. Here are some options available for the investors:

Residential property

Investors who do not have their house of their own should first look at buying a residential property. The Indian government gives an income tax exemption on interest paid against a housing loan, to a maximum of Rs. 1.5 lakhs per year. Also, investors can claim a rebate in income tax on the principal repaid, to a maximum of Rs. 1 lakh.

The government is planning to increase the limits of these exemptions in the new tax code. In addition to these, attractive housing loan schemes are available in the market and the interest rates on housing loans are lower than the interest rates on other borrowings.

Site

A site is good for those who can keep a regular watch in it. An investment in a site requires relatively more attention at the time of purchase. The percentage returns on sites at good locations is mostly higher than other options. The value of a site in developing areas has appreciated many times over the last few years.

Commercial property

A commercial property investment is also good for those who looking at high rental income and capital appreciation over long run. The price of commercial property is quite high. However, commercial property in a prime location has the potential to earn 10 to 12 percent returns in terms rental income.

Hence there are two avenues in property investments – buying a house to live in and an investment for capital appreciation. Buying a house to live in should be done as early as possible as it saves tax, and creates long term wealth. An investment for rental returns and capital appreciation should be planned well.

Corporate Actions and their implications

admin — Fri, 11 Jul 2008 16:47:14 +0000

A company may issue bonus shares to its shareholders in case of huge reserves. It can also distribute part of the profits earned to its shareholders by way of dividend and can raise additional resources by issuing rights to existing shareholders. All these actions are termed as corporate actions. These corporate actions have implications on the market price of the company. Thus announcement of bonus shares or dividend pay out is always accompanied by an upward trend in the price of the scrip. This is seen by the market as an indication of the company doing well. After the Ex-date (date after which shares are traded Ex-bonus/Ex-rights/Post-split), the price of the scrip is adjusted by stock exchanges. This is because after ex-date, buyers of scrip are not eligible for these corporate actions. We will understand this by way of an example.

Examples
i. A company ABC comes out with a bonus issue of 1:1. The price of the scrip is Rs. 100 and you are holding 100 shares. This means that you will be entitled to 100 bonus shares and your total holding will increase to 200 shares. As holding of each shareholder post-bonus will double, the stock exchange will adjust the price of the scrip to Rs. 50 on ex date (Rs. 100/2). The scrip will start trading from these levels on ex-date.

ii. A Company comes out with a right issue of 1:2, indicating a right to subscribe for 1 share for every 2 shares held by shareholders. The current price of the scrip is Rs. 100 and rights have been offered at Rs. 50. Post-rights, the price of the scrip will be adjusted at Rs. 83 [(200+50)/3]. This is because the total acquisition cost of 3 shares is Rs. 250, hence the price of 1 share on ex-date will be adjusted accordingly.

iii. In case of dividend pay-out, the yield expressed as a percentage market price is low. This is because dividend is paid on par value of shares. However the market price may be way above par value. Thus pay-out expressed as a percentage of market price is not that high. Hence stock exchanges do not adjust the price based on dividend on ex-date.

iv. In case of stock split, the price is adjusted based on the ratio of stock split. Par value of shares is Rs. 10 and stock is split in ratio of 10:1, indicating 10 shares of Rs. 1 par value each for every 1 share of Rs. 10 each. The price of the scrip is Rs. 100. Post stock split, the price will be adjusted to Rs. 10 (100/10) to reflect the split ratio.

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Property investments yield high returns

Corporate Actions and their implications