Real estate as an asset.

Real estate is regarded as the most important and popular of all asset classes.

However, this asset type is very popular for reasons other than investment. For those who have purchased their own homes, it is the most significant expense in life. The word employed here is “expense” rather than “investment.” This is because a primary residence does not typically generate income or appreciate in value at the same rate as other real estate investments. Additionally, owning a home also comes with ongoing expenses such as maintenance, property taxes, and insurance. Therefore, while real estate can provide a steady source of income through investments, owning a primary residence is primarily seen as an expense due to the lack of income generation and slower appreciation. It is important for individuals to carefully consider their financial goals and circumstances when deciding on real estate purchases. This will be addressed later, but it is important to note that in most situations, people buy real estate for their own use. This should not be considered an investment because selling it may have an adverse effect on one’s lifestyle. Real estate is also highly valued for its ability to provide stability and security, as owning a home can offer a sense of permanence and belonging. Additionally, the emotional attachment that comes with homeownership often outweighs any potential financial gains. It is tangible and can provide a steady source of income.

Real estate can be further divided into categories such as residential real estate, land, commercial real estate, etc. As an asset class, real estate exhibits several characteristics, some of which are given below:

• Location is the most critical factor influencing the performance of a real estate investment;
• Real estate is illiquid.
• It’s not a divisible asset.
• One can invest in both actual real estate and financial forms.
• Aside from capital appreciation, it can provide current income in the form of rents. In the case of real estate, transaction costs, such as broking fees and registration fees, are relatively substantial. This would reduce the return on investment.
• Before determining the return on investment, the cost of property maintenance and any applicable taxes must be factored in, which many individual investors do not. These expenses are also fairly considerable and cannot be overlooked.
• The investments acquired or sold must be accounted for at transaction price, deducting all transaction fees such as broking, stamp charges, and any other charge normally included in the broker’s contract note that are related to the acquisition or sale of investments. The investments acquired or sold must be stated individually in the financial statements.

This ensures that the true net return on investment is accurately calculated, providing a clear picture of the overall financial performance. By including all associated costs and fees, investors can make more informed decisions regarding their investment strategies.