Why is Real Estate Still the Best Asset Class in India?

Why Is Real Estate Still The Best Asset Class In India?

It’s not surprising to have real estate as the primary investment and an asset option compared to everything else on the table. You must know that you’re not the only one having stakes in real estate, as the vast majority is considering the same. It’s a known fact that there are immense benefits of making investments in the real estate sector and keeping properties as an asset.
With a smart investment in well researched real estate assets, investors reap numerous rewards like higher returns, steady cash flow, tax benefits, etc. Also, with the implication of the right strategies in real estate investments, you can create massive wealth and fortunes.
For a long time, real estate has emerged as the prime asset class in India and, worldwide and more people are showing willingness towards opportunities in real estate investments.
Real estate tops the choice of investment in comparison to other asset classes such as mutual funds, equities, gold, FDs, etc. Real estate investments rank the first choice with more than 57% per cent of Indians favouring it.

 

Why investing in Real Estate is considered worthy in India? What are its best benefits?

So is real estate the best asset class in India? The answer to this is a definitive yes! 

A survey stated, the preference for having real estate as an asset class once again reached closer to pre-COVID levels through lockdown period in March and April after going through a decline (to 48%) because of the uncertainties that prevailed back then. 

The rising preferences are represented appropriately in the H2 2020 housing sales of 80,400 units across the top 7 cities compared to 57,900 units in H1 2020, with a 39% increase. 

 

Reasons why Real Estate is a top-class investment

Real estate has a predictable cash flow

The net spendable income through investment after all mortgage payments and operating investments are made. A good investment in real estate must provide you with a 6% cash flow.

Real estate provides appreciated returns

Real estate appreciation levels are inclining 6 per cent annually since 1968. The value also appreciated in a downturn in the economy since beginning in the year 2007, by the National Association of Realtors.

It is possible to leverage real estate

The most vital benefit of real estate investing would be leverage! This is the use of borrowed capital for increasing prospective investment return. In the transactions of real estate, leverage is applied when the mortgage is held for minimizing investor capital amount for buying a property. 

After building up an equity position in an investment property, you can also leverage such investment for cash in either of these ways: Refinance the loan amount or secure another loan against the appreciated equity. It frees money for purchasing another property.

Diversify your investment portfolio

The scope of diversification in real estate investments is significant. Real estate has a low – and also in some cases negative – correlation with other class assets. It means an addition of the real estate to diversified assets portfolio also lowers the volatility of portfolio with high returns per risk unit.

Get a low tax rate against real estate

When the investment property gets sold after one year, the gain gets subjected to the capital gains tax rates which would vary according to the tax bracket of the person. This would typically be around 15% or 20% which is significantly less than the tax bracket of the person.

In a notable update, out of all respondents, 24% already booked the property while 62% consider the present time as good to get into the diverse market of real estate. 

Nowadays, the residential market in India is controlled majorly by end-users. Around 74% of respondents who consider purchasing a property nowadays require it for personal use. However, only 26% of people look at it from the angle of investing. Comparatively, in the COVID19 lockdown period, the investor share raised higher to 41%.

 

Past Real Estate Asset Trends

The interest peaked in ready to move properties with up to 29% respondent count among all the prospective purchasers. However, comparatively to both lockdown and COVID period surveys, we also noticed a decline in preferences – at least 17% since lockdown period and 6% since times of pre-COVID. A major factor that influences such changes is the fact that post the COVID period, a major part of the supply was scaled by registered developers and these were considered as safe from buyers. Also, limited inventory is available in the ready to move category. 

Properties that are ready for use within a year are the second preferred selection for around 27% real estate buyers in post COVID surveys. Budget properties of up to 45 lakhs or more were preferred in post-COVID surveys, and they accounted for up to 405 shares as against the 31% in pre-COVID survey – with an increase of up to 9%. Up to 38% of affordable house demand in post-COVID survey was from Delhi-NCR residents, and just behind it were Kolkata residents at 21%.

Another reason for the spiking interest could be developers pulling out attractive offers and discounts like flexibility payment plans, etc. for projects that are about to get completed which ultimately attracted more buyers.

 

Conclusion

Real estate not only houses benefits as some drawbacks are also present for investing in properties. The main being lack of liquidity (or the difficulty in converting an asset into cash or cash into an asset). Unlike a bond or stock transaction, which is possible to finish in seconds, a transaction in real estate takes months for closing. Also with the broker’s assistance it might take up a few weeks or months to get the best value for the purchase or sale of a property.

Still, real estate in India is considered as a unique asset class which isn’t too complicated and also enhances risk and returns profile of the portfolio of an investor. On its own, real estate provides tax breaks and returns with competitive risk adjustments, equity building and hedge against inflation. Also real estate enhances portfolio through lowering volatility through diversification, whether you’ve investing in REITs or physical properties.

Without any doubt, investing in Real Estate is the safest way to accrue profits in India. Having profitable properties as assets is the most relatable way to secure a future as Indians always search for the simplest possible options through which they can multiply their wealth and savings and ultimately utilize it for their future.

 

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