Why Is Indian Real Estate Investment Still Reliable?
The real estate industry continues to be one of the preferred tools for long-term investment in India, despite short-term difficulties brought on by the Coronavirus pandemic and the availability of other investment opportunities. The recent coronavirus disaster was one of the worst challenges the human species has faced. The housing market has been experiencing historically low demand, a lack of site visits, a halt in construction, and low purchaser confidence, just like every other area of the economy. However, the real estate sector is bouncing back and exhibiting early indications of recovery following two pandemic outbreaks.
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Along with factors like the Reserve Bank of India’s (RBI) unaltered Repo rate, adjusted property prices, and increasing demand for private spaces in the post-pandemic scenario, the real estate industry has raised optimism for recovery for other ancillary sectors.
The Indian real estate market is expected to be worth $200 billion in 2021 and $1 trillion by 2030, according to the Ministry of Housing & Urban Affairs (MoHUA). In addition, after the agriculture sector, the real estate industry employs the second-highest number of people in India. The increase in India’s Gross Domestic Product (GDP) can be attributed to real estate to the tune of 7–8%.
A Trustworthy Investment: Real Estate in India
In India, investing in real estate has traditionally been a safe and low-risk option. When it comes to asset building, it has always been the top option for investors with a lower risk tolerance. Real estate is still a better choice than equity shares when it comes to market volatility and turmoil brought on by COVID. However, there has been an impact since 2020 for a year or two, but it gradually increased and has now practically reached pre-covid levels.
With so many MNCs and manufacturing firms establishing headquarters in India, the potential for investors in residential & commercial real estate is undoubtedly limitless. The tax exemption it offers in the case of housing loans is the most crucial component, and the rate of returns is also steady. Let’s look more closely at the elements that make real estate a safe investment in India.
India Real Estate Investment: Buyer’s Market
Despite being an unanticipated calamity, the COVID-19 pandemic led to a decline in real estate values & provided potential homeowners with the knowledge they needed to make an informed decision. Due to prolonged work from home arrangements & the need for online education, the demand for ready-to-move-in housing units has increased in metro areas over the past year. Buyers prefer ready-to-move-in homes and are wary of making investments in ones that are still under construction. Whether they are first-time homebuyers and seasoned homeowners seeking for a larger area.
The historically low interest rates on home loans, the removal of stamp duties by several States, such as Maharashtra. And the enticing incentives provided by numerous developers on completed flats have all contributed to the recovery of the Indian housing industry.
The number of unsold residential property units reduced to around 7 lakh units in March 2021 from 8.50 lakh units in the first quarter of 2020. According to the Reserve Bank of India’s Financial Stability Report (FSR), indicating a further improvement in home sales. Real estate research report, sales momentum in the top seven metro areas has increased by 93% annually.
Indian Real Estate Investment: Long-Term Growth
The fact that a land parcel’s value increases at a rate that is noticeably faster than that of a building is one of the primary factors attracting investors to the real estate industry. If investors have additional money, they would rather buy land than put it in meagre fixed deposits. Expectations of rapid price growth are also being fueled by increasing real estate investment.
When historical data is consider. It can be seen that from fiscal year 2005 to 2020, the real estate sector rose by 11.2 percent.
Compared to other market-linked investment options like shares and mutual funds, real estate investment has a lower volatility quotient. Due to the fact that it is a physical asset. It continues to be among the safest investment options in India.
India’s Real Estate Market: A Source of Passive Income
Real estate investors’ main objective is to generate passive rental income from their holdings of real estate. But the rental income varies according to the city, the area, the demand, and the kind of property. Compared to business assets, residential homes frequently offer lower rental yields. Top metropolises like Mumbai, Delhi, Bangalore, Hyderabad, and Kolkata offer numerous opportunities to make rental income through farm leases, commercial leases, and student housing.
In India, a property is valued more highly emotionally and is viewed as more than just an investment. One may always utilise a property as collateral with the bank. And simply raise loans against it for things like a company loan or an education loan. In addition to the growing and passive income prospects.
Low Interest Rates on Home Loans for Real Estate Investment in India
The interest rates on home loans in India are currently at a 15-year low. Home loans are offer by the vast majority of banks and Housing Finance Companies (HFCs) with annual interest rates under 7%. For clients who qualify, applicable tax savings on house loan repayment translate into an annual effective interest rate of less than 5%.
If a person uses an overdraft facility or increases the size of their home loan. They are also given an additional credit line at a rate that is equal to or 1% greater than the rate on their mortgage. Thus, in addition to the home loan, the applicant can benefit from increased liquidity. And more affordable financing for pressing financial needs.
A mortgage is one of the most cost-effective categories of bank loans in India. When inflation is at or above 6%, investing in real estate over the long run is unquestionably a wise use of a large sum of cash. It’s interesting to note that a mortgage loan can be obtain for up to 75–85% of the home’s value.
Indian Real Estate Investment: Tax Savings Through Home Loan
The interest and principal part of a home buyer’s loan repayment is exempt from taxes. In cases where multiple applicants are requesting home loans, each may deduct the maximum amount permitted. According to the Income Tax (IT) Act, a borrower may deduct up to Rs 1.5 lakh for principal payments under Section 80 C & up to Rs 2 lakh under Section 24.
There is a tax savings based on the income tax slab rate. Section 80EE permits an additional deduction of Rs 50,000 for interest payments aggregating up to Rs 35 lakhs or less for affordable housing units priced up to Rs 50 lakhs.
Real Estate Investment in India: RERA’s Prescience
Homebuyers’ interests are effectively safeguarded because to the Real Estate (Regulation & Development Act, or RERA). The RERA has enhanced investor confidence in the real estate sector as well. RERA mandates that builders disclose project information in a public notice; if the developer lacks an RERA registration number, the project is regard as invalid. The contractors are require to give periodic updates on the project’s progress. The RERA has enhanced the responsibility and transparency of the real estate sector as a result.
Indian Real Estate Investment: Portfolio Diversification
Real estate investment contributes to a person’s entire financial portfolio’s diversification. This ultimately aids in lowering the general risk connected with investing. But there are still certain dangers in making real estate investments. One must thoroughly understand the variables influencing the growth of investment in the real estate industry and carefully weigh all available investment possibilities.
High Return on Investment for Real Estate in India
It is frequently observe that the profits from real estate investments are significantly larger than the rate of market inflation. Consequently, we can give you a better return on your investment and a higher profit. Compare to other investment possibilities, real estate investments are thought to be more lucrative because the risk is generally lower. Additionally, investing in residential, commercial, or industrial real estate is quite advantageous for people because many state governments offer rebates on stamp duty and registration fees. Real estate is also a physical asset that gives investors a sense of security because it offers that.
Final thoughts on Indian Real Estate Investment
There are no “one size fits all” investment opportunities, to sum up. The investor must evaluate their risk appetite and time horizon before making a decision. Calculate the outcomes and rely on professional advice.
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