Why You must Invest in Real Estate?

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People invest in several asset classes such as stocks, bonds, mutual funds, gold, commodities and real estate. Post liberalization i.e. in the last 3 decades Real Estate has offered the best returns across all asset classes in India. Below are the 7 reasons why you must invest in real estate:

1. Capital Protection – Real Estate especially land offers capital protection, in a much better way than that of Gold. Unlike Gold, real estate is not directly affected by global political or economic events as it is primarily a localized asset class.

2. Capital Appreciation / High return on investment – In the last 3 decades the prices in metros & Tier – 2 & 3 Cities have gone up by almost 50 -100x; however Sensex has only risen by 15x. Though it may not be a fair comparison yet returns on Real Estate beat that of stocks. I would like to add here that we may not get to see this kind of crazy returns in real estate in future for good. Expect single to early double digit growth going forward, still better than that of stocks.

3. Less susceptible to market sentiments – Unlike those for Stocks & Mutual Funds there is no exchange where we can find out price fluctuations for real estate on a daily basis. Thus real estate gets insulated from human emotions & biases preventing people to react impulsively to buy or sell properties.

4. Power of Leverage – Banks love to lend for & against real estates. Whether you want to buy under construction property or land to build your house or want to mortgage your property Banks happily give you loan to leverage your investment. So to buy a property worth Rs. 1 Crore Banks can lend you up to Rs. 80 Lakhs (80%) based on your eligibility. No other asset class offers you this incentive!

5. Tax benefits – Government offers several tax benefits to buyers on real estate investment such as deductions on principal payment & interest expense. Also when you sell the property you may get Long Term Capital Gains exemption in certain cases.

6. Reverse Mortgage – Perfect for old home owners as it provides income that people can tap into for their retirement. Again no other asset class offers this feature. However you need to own the property that should be free of any encumbrance. Hence if you buy property while you are in your 30s you will be rest assured that you shall have a lien free property in your old age.

7. Source of Cash Flow – You have the potential to earn rental income on your property whether it is residential or commercial. With property prices going north consistently majority of people in future may not be able to afford their own houses especially in urban areas. Having your own property can help you in earning life long rental income.

Mark Twain famously said “Buy land, they’re not making it any more.”

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