How cool is Real Estate Investment?

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Ask any individual about the top three investment vehicles he/she would select to invest in; Real Estate would be the topmost option. Over the last decade, real estate has boomed and delivered returns of 200% and more for select individuals. With the rise in income, easy availability of housing loans, movement into urban areas; the price of land shot up. However, is Real Estate still the right place to invest in?

The answer is both ‘Yes’ and ‘No’ and it depends on many factors.

The first factor, “is this your only property?” If yes, it is better you don’t consider it as an asset, because, you will not consider selling it unless you intend to move to another location or face dire emergencies. In such scenarios, the value of the property will be way below what you expect.

Second, have you availed of a loan? If yes, the value of your asset = Current Market Value-Outstanding loan amount. Consider the value of the property to be 40 lacs and your outstanding loan amount is 30 lacs, and then your net asset value is 10 lacs. However, in the future, the loan amount will come down and if the value of property goes up, you are to gain. But, is this your only property?

Third, are you buying land or an apartment? The value of your asset will change dramatically depending on whether you have individual land or an apartment.

Fourth, have you factored in the tax aspect? Real Estate investment attracts short term (Sold within three years of purchase) and long term capital gains tax in India.

Fifth, have you considered the liquidity aspect? Real Estate is considered (as) the least liquid asset. Selling a property can take anywhere between 3 months to a year, from the point of finding a buyer and receiving the actual cash in hand. Hence, in case of an emergency, one cannot depend on Real Estate.

Still, Real Estate is a good investment with time span of 10 years and above. Just that it’s not the only ‘cool’ investment.

 

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