What is real estate investment?
Real estate investment means buying and owning properties like land or buildings to make money. This can be through renting them out or selling them later for a profit. But it doesn’t include buying a property to live in yourself. Real estate properties are things like land, buildings, or other fixed structures that can be owned and transferred to someone else.
Investing in Real Estate in India
The Indian real estate market has experienced a significant boom due to urbanization, middle-class expansion, and infrastructure development. Despite facing unprecedented challenges during the COVID-19 pandemic, the real estate sector in India has shown remarkable growth with a substantial increase in demand. Here are ten compelling reasons to consider investing in India’s real estate market as a prudent addition to your investment portfolio.
Real estate scenario after the Covid crisis
Throughout history, even after significant crises like the 1947 partition, wars with neighboring countries, the dot-com bubble burst, riots, global economic downturns, and other challenges, the real estate market in India has continued to thrive. With a population of 1.4286 billion in 2023, India has surpassed China to become the most populous country in the world. This constant growth in population creates a high demand for real estate in India. Now that COVID-19 is no longer a major concern, the housing market is strengthening due to an increase in demand for housing.
Flexible financing by banks
India’s home loan history has been fascinating. In the 1970s, the average age of borrowers was around 42. But as banks became more comfortable with offering home loans due to new policies allowing them to set interest rates and concepts like floating rates, the real estate home loan market experienced rapid growth and competition. Now, the average age of borrowers is around 32.
These days, customers prefer taking loans from banks over saving up to buy or build a home, thanks to the competitive loan options available. Banks have introduced various products like Home Loan Balance Transfers, plot purchase loans, and home renovation loans. Home loans now form a significant part of the banks’ loan portfolio. According to an SBI report, India’s home loan market is expected to double to 48 lakh crore in 5 years, indicating further growth and evolution in real estate financing in the future.
Rupee is lower so beneficial for NRIs
When two countries have imbalanced trade, like India and the US, it can lead to a trade deficit for one side. India’s increasing trade deficit with the US has depleted our foreign exchange reserves and weakened the rupee. As a result, more non-resident Indians are investing in Indian real estate projects like DLF. There are more reason why NRIs should consider investing in India. These include the country’s expanding digital market and modernization of processes, a simpler tax system, advantages of indexation, and the introduction of new banking products.
Returns are better than from Gold or Equity Market
Gold and equity investments can be influenced and regulated by companies, countries, or authorities. However, real estate values are primarily determined by the principles of supply and demand. When an area has amenities like schools and hospitals nearby, people naturally prefer to buy plots and build houses there, increasing the demand and raising real estate values in that area.Unlike other investment types, real estate pricing is not heavily influenced by profit and loss statements or international factors such as bilateral trades. Instead, it relies more on local demand and the availability of amenities in the area.
Safer option relatively
With the introduction of RERA (Real Estate Regulatory Authority) and GST, the real estate system in India has become more transparent. Dissimilar to other sectors, the real estate industry remains stable and is not influenced by external factors such as currency fluctuations or stock market changes.This makes it a reliable investment option for the average Indian. Even during economic uncertainties, the Indian real estate market remains strong and offers a steady income for investors. Additionally, investors can lower their risks by diversifying their portfolios. In simple terms, investing in Indian real estate is seen as a safe and profitable choice.
Infrastructure development is at a boom right now
The Indian government has been focusing on investing and improving transportation. Over the years, India’s road network has expanded rapidly with 50,000 kilometers of national highways added in nine years. This growth is not just limited to highways; the rural road network has also doubled due to the government’s infrastructure push. To support infrastructure and construction companies, the introduction of InvIT (Infrastructure Investment Trust) and REITs (Real Estate Investment Trust) has allowed them to sell assets that generate income which helps them reduce their debt burden. In the future, the Indian government plans to build and export railway trains with the launch of Vande Bharath trains. The energy sector is also experiencing significant growth, with power production increasing by 56% over the last eight years. All this development and progress directly contribute to supporting the growth of the real estate sector.
People are upgrading to cleaner places after COVID
After the COVID-19 pandemic, people want to live in cleaner and more hygienic communities. There is a growing demand for sustainable and healthy neighborhoods. People are willing to pay a little extra to live in such societies and prioritize their well-being.
Diversification and risk management
Investing in real estate can help diversify your investment portfolio. It’s a good long-term option with lower risks which means it can protect you during economic uncertainties. Real estate investments have little connection to other major assets like stocks. So, even when the stock market goes down, your real estate investments may still increase in value. Adding real estate to your diversified investments reduces overall risks and potentially provides higher returns for the risks you take.
Tax breaks, deductions and savings
Owning an investment property comes with several tax benefits. Firstly, you can benefit from depreciation as assets need improvements and renovations over time. This allows you to deduct costs over many years, lowering your tax payments. In addition to that, you can deduct various expenses related to your investment property, including property taxes, mortgage interest, property management fees, ongoing maintenance, repairs, and marketing costs. When you sell the real estate property, you don’t have to pay regular income tax on the gains. Instead, the government charges a lower capital gains tax rate, which can be more advantageous for you.
Inflation hedge
The growth of a country’s economy (GDP) is linked to the demand for real estate. As India’s economy is projected to surpass $5 trillion in the next 4-5 years according to the IMF World Economic Outlook, the real estate business is also expected to grow. This growth results in higher property prices. Even when there’s inflation, the real estate industry tries to maintain the value of money by passing some of the inflation costs to tenants and incorporating some inflation as capital appreciation. This way, the value of the investment is protected despite inflationary pressures.
Here are few frequently asked questions (FAQs) to assist you in your decision making process:
Real estate investment means buying and owning properties like buildings, land, or other tangible things that cannot be moved but can be transferred to someone else. People do this for business reasons, like making money by renting or selling these properties in the long run.
Real estate investment involves the process of collecting data, analyzing the property’s location, calculating the monthly cash flow, and determining the annual return on investment (ROI) before making a buying decision. It is essential to compare the property with others to ensure it’s the right choice. Fortunately, there are various free online tools, such as DealCheck, RentZend, Trulia, Bankrate, and Realtor.com that can aid in analyzing the potential of a real estate deal and make the decision-making process more informed and efficient.
Investing in tall apartment buildings in prominent cities like Mumbai, Delhi NCR, Pune, and Bengaluru has the potential to yield substantial financial returns. Other good options for real estate investment in India include buying fancy plots, eco-friendly apartments, REITs (Real Estate Investment Trust), office buildings, shops, and private infrastructure projects.
