There are many projects which advertise assured returns for customers. However, you should do your homework carefully before investing in such projects.
Assured Returns is a concept that has gained immense traction over the years, throughout the mainstream real estate industry. This concept basically talks about interest or any return on the money that is pumped in by the investor at a fixed rate. It also encompasses the capital appreciation concept.
This means the asset value will increase in the future, based on the increase in market prices. The assured rate of return for the buyer will be fixed by the real estate developer and is usually determined well in advance. It is offered to all clients who are investing in a specific real estate project.
Why Assured Returns Schemes Seem More Attractive?
Assured return plans draw more buyers since developers pay out these returns to investors in their commercial or residential projects. Assured returns schemes are majorly seen throughout commercial ventures like IT parks, office spaces, retail or shopping complexes and so on. They are also seen in case of studio/serviced apartments and other residential developments.
Pros of Investing in Assured Returns Schemes
The new-age concept of assured returns offers immense benefits to investors above all else. With investors being drawn to the regular returns on their money, these schemes have always been popular in the market. They offer financial security to investors since they start getting returns from day one. It is a win-win situation on paper at least for both investors and developers. Investors get an assured monthly income along with benefits of capital appreciation of the asset down the line. The return rate works out to be even more if rental income is clubbed with capital value growth.
Many industry experts feel that these schemes help developers get finance for construction at 12-13% rates which are considerably lower than market rates for institutional funding. At the same time, buyers start making money from the outset since they keep getting assured returns.
Risks Involved
- Projects getting stuck owing to slower sales figures and issues with operational cash flows of developers.
- Risks of developers stopping monthly rental payments as a result or if the project is not monetized or leased out.
- Rates of properties with assured returns are mostly higher as compared to prices of similar projects in the area. People often end up paying close to Rs. 1,000 extra per square foot as per estimates.
- People often find it hard to exit such investments owing to the money involved.
- The taxation aspect needs to be worked out as well. The money earned in these schemes will be taken as income from other sources. You cannot get deductions on the same. However, your rental income can get you deductions. Interest on any under-construction project will also draw GST.
- Investors with the means and appetite for higher risk should get into these schemes.
- Such schemes do not usually come with construction-linked payment plans; in most cases, developers ask for the entire sum upfront.
- You will not have full control over the tenants or residents of the space that you own in these schemes.
What to Ensure?
- It is better if the developers offer bank assurance or security. This ensures a safer investment.
- The Cabinet has already banned deposit schemes that are unregulated. Hence, such plans will be called ponzi schemes by SEBI.
- Developers still keep offering these schemes with a few loopholes that enable them to do so.
- The project should be registered with RERA and the same goes for the developer.
- Real estate developers should also abide by SEBI regulations for making sure that their assured returns schemes are safer.
- The developer should be confident enough about selling the entire inventory. In situations where he/she fails to do so, there may be defaults in investor payments. Look at the track record of the developer carefully in this regard.
These are some aspects that you need to keep in mind while contemplating any assured returns scheme on commercial or residential real estate investments.
