How often should you switch a property investment?


Is it worth switching from one property investment to another seemingly better one? Consider these factors, before making a decision

Switching from one property investment to another, can be a crucial decision for investors. This situation may arise, when investors find a better opportunity for returns on investment in a property other than the existing one.

Realty experts pint out that there are two reasons for exiting a property investment:

  • Positive reason: Voluntary, where someone wants to get the best, in terms of returns.
  • Negative reason: Situations, where people are forced to switch or exit the property investment.

According to Knight Frank, “A lot of people purchase properties when it is at a very early stage and normally exit, when it is ready and where the developer has already offered possession or when people start moving in, etc. So, the full cycle is when people buy it at a pre-launch stage and exit when the property gets delivered, thereby, realising the full value of the property.”

“Property purchases should not be treated as a short-term investment. Currently, when the markets are not very favourable, one should have an outlook of a minimum of three to five years.”  – Knight Frank.

See also: A guide to creating wealth with residential real estate investment

 

Tax implications of switching/exiting from an investment

If the investor is switching or selling the property, within two years of the investment, it would be considered as a short-term capital gain. Consequently, the amount realised will be added to the income of the person and treated as per the provisions of individual income tax and the applicable tax slab. If the investor exits after two years, it would be treated as a long-term capital gain and the tax would be levied at 20%, with indexation.

“Switching or exiting an investment at an early stage, may involve a smaller tax liability. You need to pay more tax, if you wait for the project to find its hold in the market, or make an untimely or late switch. A smart investor knows exactly when and how to exit the property, as their foremost endeavour is to make profits,” says Chintan Sheth, director, Sheth Corp.

“Investors generally look to switch or exit their property investments, when there are income-generating opportunities,” Sheth points out.

 

What’s the ideal time to switch a property investment?

In general, investors are aware about the market and the situation and look out for an exceptional deal, which encourages them to switch their investment.

“One can look at switching from one property to another, depending on the prospects of appreciation. One should also consider the option of investing the gains from one property, in booking another, to avoid paying hefty taxes,” advises Rajesh Prajapati, managing director of Prajapati Constructions Ltd.

 

Experts’ take

According to experts, the whole objective of exiting or switching an investment makes sense, only if the alternative investment is more favourable. The expected rate of returns should be comfortably higher, compared to the existing investment. Otherwise, there is no point in switching.

 

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