Real estate is a lucrative investment.

Property flipping, when done correctly, turns real estate investing into a profitable venture. But why is this Western concept so new to the Indian market? Let us investigate.

Property flipping is a Western notion in which an investor purchases an item – typically real estate – and immediately sells it for a profit. The concept is well-known in Western countries, but it is still gaining traction in the Indian market. What precisely is property flipping, and why has it not taken off in India? Let’s talk about it.

What is it?

Almost 90% of the world’s millionaires amassed their fortunes through some form of real estate investment. Flipping houses is an excellent method to explore if you want to maximize your profits from real estate investing. The concept is simple: either buy a home expecting a speedy increase in the value of the house and sell it as soon as you get your predicted profit, or buy a home and remodel it to improve the value of the house and then sell it for a profit. As a real estate flipper, you want to make money. As a result, it is advisable to purchase a property that is priced below the market value. As a flipper, your duty is to discover motivated sellers who are eager to sell as soon as feasible. When purchasing a house for the goal of flipping, various aspects must be considered, including location, price, and structural value.

“In comparison to developed markets where it is rather widespread, property flipping in India is a pretty obscure idea that is limited to only a few investors. Flipping properties can be beneficial and provide good returns on investment, especially for those who are clever and well-informed who constantly conduct thorough research. However, for the ignorant, it might be rather risky,” says Santhosh Kumar, vice-chairman of ANAROCK Property Consultants.

Modus operandi

The problem in our country is that “a substantial number of properties are sold during the under-construction period.” Generally, flipping is not permitted at this time. However, once the Occupancy Certificate (OC) is obtained, selling is not a problem,” says Subhankar Mitra, managing director, advisory (India), Colliers International.

“There have been cases where investors purchased houses at the ‘pre-launch stage at a discount of 25-30% and got good returns after the project was completed,” Mitra adds.

“However, a delay in possession may jeopardize your investment.” It is therefore critical that you invest in a property developed by a reputable developer who is also registered with the Real Estate Regulatory Authority (RERA). While it can be highly rewarding if done correctly, it is a risky venture. It is always advisable to get professional assistance in order to maximize returns,” Kumar advises.

What are the challenges?

“In developed countries such as the United States, property flipping is fairly widespread and is usually described as a residence being purchased and sold within the same (one year) timeframe. Investors purchase neglected or distressed houses in desirable locations, renovate them, update them with all of the latest amenities, and then resell them for a higher price within months. This has been the pattern in the United States for many years,” Kumar explains.

While it may appear to be a simple process and a way to make money, it is far from it. Property flipping is speculative in nature. The return on investment is determined by the amount of capital gain in the near term. A slowing real estate market or a lack of demand may cause your flip to be delayed. Furthermore, if the developer is unable to complete the project on schedule, the danger is increased.

Tax restrictions

One reason this notion hasn’t caught on in India is that “any return made within two years of investment is subject to short-term capital gain, which may be as much as 30% of the realized gain.” One of the hurdles to a speedy sale of homes is a high tax rate. Furthermore, in order to purchase a house at the pre-launch stage, an investor must pay the full sum upfront, which is typically impossible for most home buyers,” Mitra concludes.

It can be profitable and help you generate decent returns on investment, particularly if you are clever, well-informed, and constantly do your due diligence. However, it can also be highly dangerous for the ignorant.