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Owning a second house
FE Report
3/22/2006
Owning a second home is not uncommon nowadays with rising salaries and easy finance. Many a house-owner considers acquiring a second property purely for investment purposes. It may be a good idea if you are looking for a stable source of income.
In today's marketplace, residential property fetches a rent yield of about 4 per cent. In other words, if you pay Tk.2,000 per sq ft to buy an apartment today, expect it to earn a rent of Tk.100 per sq ft for a year or Rs.10 per sq ft per month. In the capital, residential apartments now fetch a rent of between Tk. 15-20 per sq ft a month.
But isn't four per cent a rather measly return on any investment? Not if you really delve into the numbers, points out one expert. You can today get a home loan at an interest rate of about 14 per cent a year. A flat you buy today will earn an annual rent of about four per cent a year. So, even if the value of the property appreciates by just one per cent every year, the cost of your buying the flat is covered.
Where to invest
There are also other ways to bump up the rental income. To start with, if you are toying between an independent house and an apartment, it may be wise to settle for the former if you plan to rent it out. An independent house usually fetches much higher rent than an apartment. If you are keen on an apartment, realtors point out that new apartments developed as a part of a self-sufficient township are likely to command a higher rent than a standalone complex.
Location can make a big difference to the rent that you earn from property. Properties in up-market localities earn you substantially more rent for every rupee invested, than ones in peripheral areas. Buying into upcoming areas is another good strategy.
With a rising number of expatriates looking for luxury homes here, rent yields have climbed sharply in exclusive neighbourhoods such as Baridhara, Gulshan and even Niketon.
If the time is right...
Whether you are looking to dabble in office space or in family homes, the timing of your purchase can make a big difference to the returns that your property generates. Timing your purchase well may be particularly important for your second home, because rents tend to climb much more slowly than property prices when the market is booming.
So, if you bought a home in Dhaka when the real estate market was in the doldrums a couple of years ago, you'd now be laughing all the way to the bank. Rents on residential property have climbed by 8-10 per cent over the past two years. As a result, the annual rent you earn may amount to 6-7 per cent of the initial investment, against the four per cent you will earn if you invest today. An appreciation of 15-20 per cent on the resale value of the home would have been the icing on your cake!
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