Financial Asset vis-à-vis Immovable Asset

Overall Assets

Financial Asset vis-à-vis Immovable Asset

Net worth of an individual or entity comprises both Immovable and Financial assets.Immovable normally constitutes real estate both residential,commercial, farmhouses and agricultural land. Financial Assets can be in form ofBank/ Corporate FDs, Shares, Government Saving Schemes like PPF, NSC, Bonds,Debentures, Mutual Funds and etc. However, everyone wishes that the assets should yield returns on a regular basis as it helps to enhance the lifestyle or even for sustainability of family needs. And the worst is for any investor is tobe “Asset Rich Liquidity Poor” which means asset which can’t be liquidated easily, the regular returns are lower vis-a-vis the value of propertyand it might take longer than usual time to sell the asset. Needless to mentionfixed assets may not be liquid as compared to financial assets which can be en-cashed in hours to 2days only. Further, it would be worstsituation in case the fixed assets yield you nothing regularly and you areservicing with high maintenance and taxes on the property and you are holding yourasset for notional appreciation.

Many investors these days, who are tempted by regular fixed returns, are being lured by builders to invest their money in commercial properties with “assurance” of 12% or even higher returns. The modus of operandi is that you buy a property which the builder arranges to put on lease and you receive lease rentals, a fixed amount on a maturity cycle. Appears attractive, but the investor is kept totally unaware of pitfalls that this investment may involve. Sometimes, these commercial real estate are only in the form of space, not demarcable, not partitioned and/or not lockable.

Some other negative features are as under:

  • Lease rent arrangement made by the builder is only for a short duration; say up to possession or for the first year only.

  • The quality of tenant and his sustainability of the rent negotiated with him.

  • The maintenance charged by the builder or society, whether or not you receive the rentals.

  • The Property Taxes you have to pay.

  • The location of the property as, the area should command decent rent in times of ups & down.

  • Location and quality of construction are of utmost importance so as to ensure salability and capital appreciation.

The above factors have therefore to remain favorable for the property tobe a good investment or else the expenses attached with the property wouldmake it a liability than asset. On the other hand investment in financial assets like say Debt Funds may provide better returns, built-in safety and more tax efficient. 

Let us take a look:

ParticukasReal Estate 
Debt Mutual Fund
Regular ReturnsYes
Yes
Taxability
High
Low
Liquidity
Low
High
Partial Withdrawal
Not Possible
Possible
Property Tax 
Yes
No
Maintenance Cost
Yes
NIL
Documentation
Yes
NIL
Risk of Discontinuation of Returns
Yes
NIL

We are observing a peculiar problem with the HNIs, especially senior citizens, where the next generation who inherits the physical assets portfolio is not ready to take the burden of handling the same. Reasons can be as under:-

  • Children do not have temperament to handle the complexities of immovable assets in India. GenNext settled abroad often has no clues about the rules and regulations prevailing in India, especially for the properties in rural India.

  • Importantly their earning and personal net worth is so high that they do not have much interest in real estate properties in India and face hassles.

Therefore, it’s important to relook your asset mix not only due to unattractive cash flow to Value of Asset and liquidity but also it might add to the woes of your posterity to handle the legacy.

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