Publication: Outlook Money, 8th March 2021
Real estate is one of the safest investment avenues. Even if prices fall, your property is still useful
Owning a home is one of the greatest joys of life and often considered a sign of overall personal and social growth. The constant desire to buy better commercial, residential, and hospitality spaces; the increasing demand for luxury homes with the rise in income, and technological advancements in real estate projects have altogether contributed to real estate is one of the fastest-growing sectors in the world.
A Preferred Choice
According to IBEF’s Real Estate Industry Analysis, the real estate sector in India is expected to reach $1 trillion by 2030. Further, it will contribute 13 per cent to the country’s GDP by 2025. The demand for real estate has surged due to rising household income as well as increased urbanisation.
According to Knight Frank Prime Global Cities Index, the south Delhi market, the 10th fastest-growing prime residential market in the world, has alone witnessed a 10-15 per cent increase in capital value in 2017-19. The average luxury home prices continue to rise at 4.5 per cent on a YoY basis in quarter 1 of 2020 in South Delhi.
In 2021, the year of recovery will make the momentum go faster as HNIs and NRIs have expedited their research for homes, and is expected that they might fix the deal in the first half of 2021. The deals for homes ranging up to Rs 1.5 crore are likely to be closed in the first quarter itself.
Further, Covid-19 made people realise the need and importance of having a home as paying rents became a financial burden. As a result, it has become the preferred investment option in a volatile market scenario. The sector is now witnessing increased participation from those coming from simple backgrounds in addition to the elite and urban masses. The increase in demand is due to an improved standard of living, easier access to loans, and a good amount of disposable income on hand. Also, during the lockdown, home loan borrowers were in a better situation as they could avail of the EMI moratorium facility, thus glorifying the fact that purchased homes are better than rental payouts.
Let’s dig deep into the benefits of real estate investment:
1. Appreciates With Time
Though short-term upheavals are unpredictable, real estate values almost always increase over time. The rise is driven by increasing demand, rising income, economy, supportive government policies, demographics better infrastructure, etc. The returns are even better if you do due diligence, careful research, monitor your real estate holdings before making a buying decision.
2. Leverage and Get More Cash
Leverage is one of the popular strategies of real estate investment. The idea behind leveraging is the ability to increase your returns by putting other people’s money to invest in real estate. One can adopt this strategy to either purchase a property that costs more than the amount of money available to them or to maximize their returns by spreading out cash across multiple properties. Therefore, this unique strategy of real estate investment makes real estate a preferred investment option.
3. A Source of Passive Income
In today’s scenario, when expenses are rising every passing day and everyone wants to improve their standard of living, the desire to have a passive income has increased. Well, real estate is a great source of passive income and financial freedom. As a landlord, you earn unlimited recurring income every month depending on the amount and location of your holdings. Further, owning a real estate asset gives you various options of monetizing it apart from rental income. You can sell it anytime you need money, retain some of the newly constructed areas, or enter into a partnership with a developer for increasing your asset value, etc.
4. Tax Benefits
The government provides various tax benefits and deductions across commercial, residential, and hospitality space investment. These tax write-offs include costs associated with property tax, mortgage interest, repairs, operating expenses, etc.
5. It is a Real Asset Class
Real estate is a tangible investment and is considered a sign of your financial well-being. It has an intrinsic value due to its physical and substance properties and considered to be more stable.
6. It is a Secure Investment
Real estate investment is one of the safest and secure investment avenues. Even if the prices fall to a significant low, your property is still useful, unlike financial market investments that have only monetary value and are highly risky.
The market trends and growth projections suggest that the future of real estate looks bright and it also stands to benefit from technological innovation. Therefore home automation with a touch of human emotion and smart properties together define the future of the real estate sector.
Author: Ankur Jalan, CFO, Grovy India