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Investment : Why should you consider Rental Value, Cost of Property and Appreciation?

You would be surprised that majority of people who buy a property for investment, end up getting very low return on investment. They may get higher appreciation for property, but higher share of loan interest and very low rent to value ratio give them very low returns.  You should be rational and business-minded when buying an investment property than buying a home. Since you don't plan to live in there, you should do your math right and investigate thoroughly before you invest.

What's the Return on Your Investment?
Your investment appreciates over time, but this alone is not enough to calculate your net returns. To keep a property with you, you incur annual costs such as loan interest, property tax, insurance, maintenance etc. Such costs are called carrying costs of your property investment. But, as you keep the property, you also earn rental income, which adds up to your return on investment. The rental yield is the ratio of real annual rent (Rent - Maintenance) to property purchase price in terms of percentage. Your net Return is Annual Appreciation subtracted by the difference of carrying cost and rental yield.

Example 1: Over priced property with high rental potential (e.g. Prestige Shantiniketan)
Lets assume you paid 1.5 Cr to invest in a property with 30 lac investment, rest 1.2 Cr (80%) is home loan. Now assume that after an year the property is priced for 1.8 Cr (20% appreciation). Lets say, you got real rental income of 35k/month.
  1. Carrying Cost = Loan rate at 10 percent with 80 percent loan to value ratio (8 percent of the home price net)
  2. Rental yeild = 35,000*12/1,50,00,000 % = 2.8%
  3. Net Appreciation = Appreciation - (Carrying Cost - Rental Yield) = 20% - (8%-2.8%) = 14.8%
Example 2: Appropriately priced property with high rental potential (e.g. CMRS Mahavatar Heights)
Lets assume you paid 1 Cr to invest in a property with 30 lac investment, rest 70 lacs (70%) is home loan. Now assume that after an year the property is priced for 1.2 Cr (20% appreciation). Lets say, you got real rental income of 35k/month.
  1. Carrying Cost = Loan rate at 10 percent with 70 percent loan to value ratio (7 percent of the home price net)
  2. Rental yeild = 35,000*12/1,00,00,000 % = 4.2%
  3. Net Appreciation = Appreciation - (Carrying Cost - Rental Yield) = 20% - (7%-4.2%) = 17.2%
BOTTOMLINE - To have the same appreciation, Prestige shantiniketan should be appreciated for around 1.9 lacs after an year. Higher price of property purchased for investment makes it more important for the property to appreciate in higher value in order to meet a certain expected return. But, this may not be possible as the higher appreciation may make the property unaffordable.

Also, as you hold the property longer, the expected appreciation goes even higher. In the table below we calculate the net appreciation required in order to achieve a target annualised return on investment over three years.

Yearly Rent To Value % Yearly Carrying Cost % Target Return on Investment Net Appreciation Needed over 3 years

The conclusion is that holding an expensive property for three years or more in a market where the carrying cost are higher would require very high appreciation. Otherwise your return on investment would be low.

CMRS Group plans and develops all its properties in strategic location which gives high yearly rent, also as the properties are appropriately priced, your yearly carrying cost would be much lesser with significant down payment. Over the last 5 years, the properties from CMRS Group has given a net appreciation of over 250%.  Which makes your return on investment very high.

For any property guidance, free legal advice and any other assistance while buying a property, feel free to call at  +91-7676-122-000 or send an mail to


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