India's real estate sector is the most profitable and rapidly growing sector. With a size of approximately $200 billion in 2020, it is expected to become $1 trillion by 2030, and it will generate different opportunities for entrepreneurs and investors.
If you are going to begin a real estate business in India, you are stepping into a thriving sector that is growing day by day because of urbanization, population growth, and growing disposable incomes. In the next guide, we will guide you through the process step by step on how to start your real estate business on a solid foundation.
How much investment do I need to start a real estate business in India?
The amount of capital to invest in starting a real estate business in India will vary based on the nature of business you aim to undertake. For a business of a real estate agency or brokerage firm, legal registration, marketing, and office space only need a minimum of INR 1 to 5 lakhs.
But if you're planning to invest in property flipping or property development, your investment amounts at the beginning will be enormous. The investments can be as low as INR 10 lakhs, but then several times that might be required as well, depending on the volume and geography of your operations.
How to choose the best location for a real estate firm in India?
While choosing a location for a real estate firm in India, consider the following points:
Market Demand: Select a location with good demand for property deals (residential, commercial, or industrial).
Economic Growth: Select locations or cities with favorable economic growth, as they bring investors and customers
Infrastructure: Select locations with proper infrastructure, like transport, schools, and hospitals, which are the most important for property appreciation
Legal and Regulatory Environment: Verify the rules and policies of the local government on real estate to do business without hassle.
Competition: Investigate competition in the locality. A location with low competition but high demand can be suitable for new ventures.
Target Audience: Select a venue which is suitable for the kind of properties you are prepared to specialize in (commercial, residential, luxury, etc.).
What are the tax benefits of real estate companies in India?
Real estate companies in India are eligible to obtain various tax benefits under a variety of Indian tax law provisions. These are available mainly for property developers, real estate brokerages, and property investors. The following are some of the main tax benefits available to real estate companies:
1. Deduction on Interest on Loan (Section 24)
Real estate companies that undertake property development or investment can deduct the interest expended on loans raised for construction, acquisition, or refurbishment of property.
According to Section 24(b) of the Income Tax Act, a maximum of INR 2 lakh annually can be deducted as home loans against self-occupied houses.
For rented houses, the full interest paid on the mortgage is allowed to be deducted, which is a great advantage for real estate investors with several rental properties.
2. Depreciation on Buildings (Section 32)
Real estate companies can claim depreciation on the buildings they possess, and this lowers their taxable earnings.
Under Section 32 of the Income Tax Act, depreciation is deductible on the building structure (not including land value), which can be between 5% and 10% of the cost of the building depending on the type of asset.
3. Capital Gains Exemption (Section 54 & Section 54F)
Real estate developers and property investors may qualify for exemptions on capital gains under specific circumstances.
Under Section 54, persons who sell a property and use the proceeds to invest in acquiring or building another residential property can be exempt from capital gains. This is offered for long-term capital gains from sale of residential property.
Under Section 54F, persons who sell any long-term capital asset (excluding a house) can also avail exemptions if the proceeds of sale are utilized in acquiring or building a residential house.
These exceptions are provided to promote reinvestment in housing properties.
4. Deduction of Rental Income (Section 80C & 80G)
Deductions on rental income can be availed by property owners by using provisions such as Section 80C (for investments in specified securities such as PPF or ELSS) and Section 80G (for charitable donations).
While these sections primarily focus on investments and charitable donations, they can indirectly reduce the overall tax burden for real estate businesses by allowing deductions on other taxable incomes.
5. GST Input Tax Credit (ITC)
Real estate businesses registered under GST can claim the Input Tax Credit (ITC) for taxes paid on purchases of raw materials, construction materials, and services that are used to build or develop properties.
This assists companies in lowering their net tax liability, particularly for construction and development industries, as it allows the offsetting of the GST on inputs against the GST on outputs collected.
How to Start your Real Estate Business
Step 1: Understand the Real Estate Market in India
Before entering the real estate business one should be aware of market forces. The Indian real estate industry is divided into four segments: residential, commercial, industrial, and retail. Residential properties have been sought after in recent years, especially in cities like Mumbai, Delhi, Bangalore, and Pune. Urban migration, increasing aspirations for owning a home, and increasing disposable income are spurring the demand.
It is also interesting to note that the COVID-19 pandemic has impacted the office space demand as most businesses prefer working from home. The trend has not only rendered commercial property relatively volatile but has also created new opportunities for warehouse properties and co-working facilities.
Understanding the market, consumer trends, and demand for different types of properties will provide you with important information as you move forward.
Step 2: Create a Business Plan
You possess a good business plan as part of beginning a real estate business. A good plan contains your objectives, target market, methods of marketing, and financial expectations. It also lets you know the amount of money required for your business.
A typical real estate business plan should contain the following:
Market Research: Find the demand for types of properties in some areas. Target high-potential areas such as tier 1 and tier 2 cities.
Investment Strategy: Decide whether to focus on acquiring, selling, renting, or property managing. All have unique business models and streams of revenues.
Financing: Estimate how much money will be needed for buying property, attorney fees, advertising, and operating costs. You may need to include money from private sources or banks.
Income Generation: Explain how you plan to make money, either by selling property, leasing, or through service charges from running properties.
With a good business plan on your hands, you will be responsible but also empowered to raise capital from banks or investors.
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Step 3: Legal Framework and Registration
As a prerequisite to beginning your Indian real estate business, you would need to gain a clear comprehension of the legal and regulatory environment governing the sector. These are:
Real Estate (Regulation and Development) Act, 2016 (RERA): RERA legislation was brought into force with an aim to foster transparency and accountability in the real estate industry. As a real estate developer or agent, registration under RERA is obligatory in most states. It ensures your business follows ethical policies and obeys rules and regulations.
Business Registration: Register your business as a sole proprietorship, partnership, limited liability partnership (LLP), or private limited company, according to your requirement. You can buy registration from the Ministry of Corporate Affairs (MCA) portal.
Tax Registration: Real estate companies are required to register for Goods and Services Tax (GST) if their turnover is over Rs. 20 lakh per year. Income tax registration (PAN) is also required for tax purposes.
Step 4: Professionals' Network
In real estate business, your network will be your best asset. Your business will run smoothly if you have a strong network of professionals. Key professionals with whom you need to network are:
Real Estate Agents: A list of skilled agents will help you identify property deals and understand market trends.
Legal Advisors: Legal advisors are required in order to keep contracts honest and transparent in real estate transactions. A property lawyer would be required to draft and verify agreements.
Chartered Accountants: In order to keep your finances organized, hire a professional accountant that can advise you on taxation, auditing, and bookkeeping.
Construction and Design Professionals: If you are ever going to build properties, a reliable contractor and designer are essential to the success of your business.
These professionals can walk you through the legal, financial, and operational complexities of doing business as a real estate company.
Step 5: Raise Capital
Real estate is a capital-intensive enterprise, and the raising of capital would generally be one of the most challenging undertakings. In India, there are quite a few different options to finance your real estate venture:
Bank Loans: Traditional bank loans are also one of the most frequently accessed sources of funding for real estate purchase. Banks normally have dedicated loans for business expansion or property expansion.
Private Investors: You can also approach private investors or venture capitalists who are real estate players. They can provide finance against equity.
Crowdfunding: There exist websites that specialize in real estate crowdfunding. You can use such websites to gather small amounts of money from various people so that you can apply them to finance large projects.
Choose a source of funding which will be most compatible with your business model and financial goals.
Step 6: Market Your Business
Once you set up your business, now you need to market it. Marketing will make you stand out from the very competitive real estate sector. Here are some suggestions to promote your business:
Online Presence: Build a website containing information regarding your services, property listings, and contact details. Make your website SEO friendly so that it ranks higher on Google.
Social Media: Facebook, Instagram, and LinkedIn are great sites to showcase your listings and brand.
Local Advertising: Newspaper advertisements, billboards, and flyers can be used depending on your target market.
Networking: Network and expand your base by attending real estate events, conferences, and trade shows.
Step 7: Stay Up to Date with Market Trends
Indian realty business is upbeat. Keep yourself informed about business trends, economy trends, and government policies dictating the trade. Read industry magazines, workshops, and online real estate websites to stay well-informed.
Conclusion
There can be really good money made on how to start your real estate business, provided it is strategically planned, adequate knowledge of the market, and astute networking.
Following the above steps, you can operate your business without any hassle, whether residential, commercial, or rental property.
Follow all legal aspects, raise enough funds, and take good measures of marketing so that you enlarge your brand name and attract customers. The Indian real estate market is enormous, and by developing a good strategy, you can have access to opportunities and build a successful real estate company.
If you are looking to boost your real estate business, start with us today!
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