Question

Describe the characteristics that define real estate activities as a trade or business.

Answer 1

Real estate activities involve construction of residential complex, malls and other infrastructural objet for sale. The main characteristics of such business activities are:

High transaction cost: In such business, transactions like sale of plots, flats, shops, etc occur. Purchase of bricks, cements, rods, etc in bulk occurs. The value of these transactions is much more higher than other business.

Delays in business: Many approvals are required from the government at different stages of this business. This creates unnecessary delays in executing the transaction.

High working capital: Very high working capital is required as the cost of each unit of the product is high and high investment is required.

Location: The return form such business majorly depends on the location where the activity is performed. For example, the demand for residential house is high in the city than semi urban areas.

Low inventory turnover: A lot of time is required to complete the product for sale. Usually the movement of the inventory happen at the end when the construction is completed.