Posted on 10 October, 2023 by Sugee Group
The portfolio of the Indian investor is varied and includes a wide range of options and asset classes. Traditional favourites such as fixed bank deposits, gold, stocks, mutual funds and real estate offer security as well as steady income and appreciation. In recent times, virtual digital assets such as crypto currencies and non-fungible tokens (NFTs) have also entered the fray offering new avenues of investment. Even with multiple options vying for the investor’s attention, real estate continues to hold relevance and importance. It’s a testament to investor confidence that despite rising interest rates on home loans and housing prices, Indians have steadily invested in real estate this year.
Real Estate Trumps Traditional Asset Classes
For many generations, Indian’s have traditionally invested in stable investment options such as fixed bank deposits, bonds and insurance policies. While these options are considered safe, the income accrued from them is not very high and can also be taxable. Given the bullish run of Dalal Street in recently years, stocks and mutual funds have also caught the investors’ fancy. Even as this option generates regular income and it generally require considerable investment. Gold is yet another asset class favoured by Indian investors for generations. It offers a high degree of flexibility and liquidity to buyers and can be passed on as an heirloom. However, its performance can be erratic as some investors sell the precious metal to raise cash in during an economic crisis. Digital assets such as crypto currencies may offer transactional speed and protection against inflation but they remain largely unregulated in India.
For several investors, real estate is a safer option as the price volatility is lower compared to other investment classes. Findings of the ‘Housing Market Boom' report released by property consultancy firm ANAROCK and the Confederation of Indian Industry (CII) reinstate this belief. Around 61% survey participants showed a clear preference for real estate as the best asset class for investment against stock market, FDs, gold etc.
Property Preferred for Investment
The Indian residential sector reached a new milestone in the first quarter (January-March) of 2023 with housing sales and new launches crossing the 1 lakh mark. Rental demand is also steadily on the rise across most top cities as employees are returning to office. Real estate appeals to many investors because it offers tangibility unlike stocks where the value is notional.
According to a report by real estate consultancy ANAROCK Property Consultants, about 1,15,100 units were sold in Q2 2023 across the top seven cities, a 36 percent year-on-year increase from the same period last year. One of the driving factors behind this surge in housing sales is the pent-up demand from many buyers and investors who had deferred their buying decision. Moreover, the sense of security offered by a physical asset has prompted many to consider buying a home. Apart from this growing desire for homeownership, there is also an evolving need for spacious homes. It’s clear from these numbers and trends that real estate is emerging as a preferred instrument of investment. Let’s look at the biggest advantages of investing in real estate:
1. Capital Growth
The appreciation in property value is the biggest incentive for long-term investors. While it might be tempting to buy and sell properties rapidly, those who are patient and know how to hold on to their investment and portfolio can be assured of steady capital growth over time.
2. Rental income
The rent accrued from owning a property can be a steady source of income that can help you maintain and keep it running in good condition. Just remember that the rental yield depends on the type of property and its location. Nevertheless, rental income should help you cover the interest on your loan and even fetch you a profit.
3. Tax benefits
Property investment can help you pocket a neat saving as it offers multiple tax benefits:
Under Section 80C of the Income Tax Act, you can save up-to Rs 1.5 lakh on the principal amount of a home loan.
Section 24 lets you claim a deduction of up to Rs 2 lakhs on your home loan interest.
First-time homeowners can claim a total deduction of Rs 1 lakh under Section 80EE.
4. Protection from Inflation
Purchasing property can act as a hedge against inflation as real estate prices increase with inflation and this can protect your investment against inflation. At the same time, rental income trends also go up with inflation resulting in better rental yield and higher ROI.
5. Retirement Plan
Investment in property can be a reliable retirement plan as you can live off rental income during your retirement years. With a well-executed strategy, you can invest in properties that help you to retire wealthy and even early. By investing smartly in your youth, you can create a sizeable net worth and live off the income generated from real estate assets.
Wide Range of Investment Options
Even as each asset class comes with unique benefits, real estate offers a wide spectrum of options to every kind of investor. Let’s give you a snapshot of the range of investment choices real estate has to offer:
In the residential category, ready-to-move-in homes have been the traditional favourite as they offer security and immediate rental income. However new launches from branded and established developers are also finding many takers due to their cost benefits and scope for appreciation.
While major cities attract attention of most developers and buyers, emerging tier 2 and 3 centres offer options for small-ticket investors.
Several new asset classes such as co-working, co-living, student housing and data centres have come up in the last few years, broadening the scope of real estate investment.
Fuelled by the growth of the e-commerce sector, the warehousing and logistics sector has taken giant strides and is attracting institutional real estate investors.
Listed for the first time India in 2019, Real Estate Investment Trusts or REITs allow small retail investors to foray into commercial real estate. REITs are essentially companies that own, finance or operate real estate assets and are listed like stocks. In the coming years, REITs are expected to extend other asset classes such as data centres, hospitality, industrial sector, healthcare, and education.
Meanwhile, residential property retains its mass appeal amongst investors and is set to further consolidate its position with rising demand for homes. Reforms in stamp duty, government- aided schemes as well as growth of affordable housing are likely to attract more investors to this asset class.
Investors must remember that long-term real estate investment requires a lot of due diligence and research and it is advisable not to expect any immediate results and returns. Given the steady run and returns of the Indian real estate market, purchasing property makes sense in many ways. Moreover, the investment enables a good lifestyle, secures your future and leaves a legacy behind for your children.