If you have been tracking the stock markets for a while, you will be aware that we are in a slump. While volatility has pushed the index back and forth, the sluggish Index of industrial production, anaemic exports and agricultural stagnation make it likely that India could be in for a longish period of slow growth. Moreover, with interest rates suppressed even Fixed Deposits are no longer a safe haven for investments.
That leaves us to look at real estate as an investment option. The market here has been sluggish as well, with prices more or less stagnant over the past few years. However, in the current scenario, there is a case for saying that real estate might be the best investment option available to investors at the moment.
1. We are in a buyers market
This is a rare situation in India, but with builders sitting on unsold inventory and Banks no longer in a position to extend them credit indefinitely, the probability of finding a good deal is stronger than ever. Whether disguised through instalment holidays or cheaper loans, there is a discount built-in to prices and a serious buyer can probably negotiate for an even lower price.
2. Stable Asset
Compared to the stock market, real estate provides stability. While stocks are volatile and the probability of a loss is as high as that of a profit, real estate values, even though cyclical, rarely result in a loss. Also, the asset is real and tangible, with the value definitely unlikely to reduce to less than the reckoner values. By contrast, shares can vary from prices in thousands to single-digits over the course of months
3. Scope for rental incomes
Real estate affords the opportunity to earn money from rent, while at the same time the price of the asset itself appreciates. India has a huge rental market, especially in the larger cities, and finding a tenant is usually not difficult. Rental yield is almost certain to be more than any likely dividend yield from shares, and though it will be lower than the yield from Fixed Deposits, the fact remains that FD’s do not appreciate in value, while Real estate is likely to do so.
4. Tax Savings
The Income-Tax Act provides considerable tax benefits on Home Loans, both on principle repayment and on Interest payment. While we have covered these aspects in detail elsewhere on this site, suffice to say that the tax benefits effectively lower the cost of a house in the sense that the benefits that accrue are substantial. Comparatively, the benefits of investing in shares are limited to investments through Equity Linked Savings Schemes which are not quite as attractive in terms of returns or safety.
Ultimately, it is not a cakewalk to invest in real estate. In terms of value of investment, personal involvement required, time taken, documentation and so on, it is far more tedious and difficult that any other type of investment, many of which can be made at the click of a button.
Nonetheless, if chosen with due care, a real estate investment is the best place to place your money during a bear phase like the present one. Place your bets wisely, and you could reap the benefits!