Why is investing in real estate a good idea?

In the long run, real estate has the possibility to provide extremely high returns. It could provide consistent cash flow and offers numerous tax advantages. Here are just handful of the many benefits that property investment has over other types of investments.

Reliable source of income

The popularity for rental homes is increasing. In the April-June quarter, rental housing demand increased by 29.4% quarter on quarter and 84.4% year on year, while average rents increased by 8.4% quarter on quarter. This demand is projected to increase over the next few years, making rental properties a reliable source of income.

Real estate is also an effective hedge against capital loss if a currency's purchasing power falls due to rising inflation or any other macroeconomic trends. According to RBI data, property prices climbed by an average of 15.1% across major metropolitan areas between 2011 and 2021, far exceeding inflation rates, which averaged 6.15% during this time period. Despite setbacks such as the 2008 global financial crisis, the implementation of RERA, demonetization, and the covid-19, demand for property has rebounded strongly, restoring investor faith in the sector. 

Allows for plenty of liquidity

Real estate can also be used as collateral for loans. Because these loans against property (LAPs) are protected, they are less expensive than unprotected personal loans and are accessible for longer terms. Customers like LAPs, and the market is predicted to grow at a 14% CAGR by 2025-26. There are also reverse mortgage financing options for senior citizens who want to borrow money against their home without having to give up ownership. 

Real estate has traditionally been an expensive investment, but times have changed. Real estate investment trusts allow investors to take a smaller amount (REITs). REITs are business that own, operate, and finance income-producing real estate. They are widely known because they are SEBI-regulated, provide liquidity because they are publicly traded, and can be purchased for as little as '300-400 per share. REITs, which are currently limited to commercial property, may be allowed to expand to include other assets such as malls, warehouses, industrial parks, and possibly housing.

Leverage ability

One significant benefit of investing in real estate is that it can be capitalised with debt. Unlike some other assets such as bonds, mutual funds, or stocks, one can invest in real estate for more than his current net worth. Most borrowers only need a 20%-30% down payment. As a result of this leverage, property investment becomes a viable option for aspiring investors. Furthermore, this leverage comes at a very low cost because home loans, at 7-8%, are possibly the cheapest form of credit. It's even preferable if the house is self-occupied or rented out.

In the 30% tax bracket, the interest tax benefits lower the actual cost of the loan to just 5-6%. To summarise, real estate can help diversify an investment portfolio and offset the impact of high volatility investments like stocks and equity funds. Simultaneously, there are issues such as illiquidity and transparency. As a result, the significance of background checks, due diligence, and price comparisons cannot be overstated. To make the best decision, buyers should consult data reports and credible expert advice.

Comment