It is always appealing to invest in Real estate especially in India. It is especially due to the lack of financial knowledge among the youth. I was pondering over the same question “Is Real Estate a good investment?”.
Real Estate is definitely not the best type of investing given the present scenario of demonetisation happening in India. More info on Demonetization of Indian Currency can be found here : Demonetization in India.
Following the worldwide trend, Real estate price has saturated in India especially in cities like Bangalore and other bigger cities. The government decision of introducing the smart cities across the country has shifted the momentum towards Tier 2 cities.
Yes, the opportunity existed two decades back when the country went through LPG reforms. But as with any investment, it is a long-term outlook.
In My Opinion, financial markets ( Equity ) is the most lucrative type of investment one can make. Like any other markets, it has ups and downs. But studies have suggested, Stock markets outperform all other products and will likely create a substantial wealth.
So Is Real Estate a good Investment? :
- You may encounter a situation in your life when you need the money at most from your investments. So How do you think real estate will help you in this case ? Think practically and ask yourself, Is it easy to find a Buyer? It takes a lot of time to sell your real estate investment at the market value or you may end up by selling it at a lower valuation. So, the purpose of investing is lost altogether.
- Tax Burden is higher for long-term capital gains.
- A lot of factors comes into picture like neighbouring areas, connectivity to the place, society, schools, colleges etc which may hinder the value of real estate. You may not have any choice in determining the value proposition of the place.
- A common perception is Real Estate Investment deals with Black Money. Going by history, it was true as I have seen many deals where the price was altered to evade the tax.
- Ease of doing paper works – You have to accept that there will be a lot of Paper work involved in real estate. And to deal with government authorities especially in India is painful where corruption is seen at every corner of society. You may end up having a Broker to whom you have to pay more. THE DO IT YOURSELF concept may not work in REAL ESTATE DEALS.
- Real Estate Property is a liability in itself if its not utilised properly. I have three plots which was inherited from my Father. Like all, my father invested in these empty plots and they have a good value. But if I question myself, what is the value these empty plots are providing me? I am emotionally attached to those properties due to my father’s death and I can’t sell it. I guess I will never be able to sell it in future either. The market value of those properties are saturated as well. As of now, it is becoming a liability to me as I am incurring costs on those properties by paying property tax. I am still in the process of figuring out to turn this liability into asset.
Pros of Investing in Financial Market:
- In long-term the appreciation is greater than real estate.
- The saturation level that is seen in Real estate does not exist here as the potential for market value of any stock is not limited. In fact SKY is the limit.
- Cost of Long term capital gains is Zero as tax is waived off if wealth is created by holding the stock for more than a year.
- Dividends that you may receive are also tax-free.
- The most liquid instrument you ever see in financial market.
- Real estate is not regulated industry in India. But I have seen that authority is established in India last year itself and we have to still see how it works. Whereas SEBI is already a established and most trusted regulator in India.
- Not much of Paper-work seen in this. Ease of Use as the records are held electronically within a depository.
- NO BLACK MONEY
We have to understand that Real Estate is only a form of investment with high capital requirements. Like any other market, this has its own ups and downs. The real estate market in India had a very good run in last two decades and has reached saturation. I would recommend my users to wait till demonetization effects settle down and make a choice on the same.