The immediate thought that comes to anyone who has accumulated some wealth is that of investing in a house. Buying a home has multiple financial benefits. Besides, there is also the sense of security and emotional fulfilment of owning property.
A house for a home buyer is a dependable life time support for one gets the dream space there is also significant financial advantage. In short, a simple thoughtful action could result in multiple financial benefits. And with ever-rising urbanisation, the demand for housing is only growing. There are multiple reasons for demand growth.
Rise in nuclear families could be the key reason for the demand growth. According to the last Census, between 2001 and 2011, the percentage of nuclear families as a percentage of all families is 70.11%. With areas getting further saturated and limited availability of land, demand for housing is certainly growing.
The millennials, a set of audiences that reportedly abstained from buying a property until a few years ago are looking to buy homes closer to place of work. Several reports have indicated millennials as keen on buying property. And, they are sure studying the segment and evaluating their risks.
With land prices increasing, supply cannot be unlimited and hence prices are expected to move north-wards in the days to come.
Besides these factors, reasons such as better infrastructure, and the convenience factor also adds to cost.
According to industry experts while the property prices in the last five years have been sluggish thereby seeing a time correction of sorts, this could be a great time for making an investment in real estate. Meanwhile, the prices are already seeing some increases and from an investment perspective, real estate looks to be positive at this juncture. With the co-living spaces gaining popularity amongst millennials, the consumption of residential premises is increasing which is resulting in the growth in residential real estate prices.
Here's a look at the advantages that a home buyer can get. Buyers can be categorized into two major categories- those looking to rent and the ones buying property for self-consumption.
Buying for Investment or Renting: These have three important benefits- Capital Gains, Rentals and Tax Savings.
Capital Gains: A real estate investment has the potential to grow in value at a rate higher than risk free rate (say Fixed Deposit rates), provided the investor is willing to stay invested over a long period of time.
However, one needs to be careful about the cyclicality in property prices, which can result in subdued returns from time to time. For instance, the Indian property market saw a bull run from 2003 to 2008 followed by a year of slump and then again rising for the next three years. The last four to five years have also resulted in the market being stable. While the cyclicality is involved in appreciation of property prices, one needs to also consider the factors applicable to a particular location.
With infrastructural projects on a rise, residential locations are seeing a major transformation and presence of basics like a railway station, a metro station or a bus depot, malls etc. near your house will definitely reflect in the increase in property prices. So, one would see good appreciation whenever they exit the house and sell it off.
Factor of earning Rentals:
Real estate investment can be great income generating asset. For an investor in real estate, monthly cash inflows in the form of rent can be great source of steady income. Retirement is an inevitable page in everybody’s life when income stops. A steady rental income post retirement can act as a pension for retirees. The rental yield is generally 1.5-2% of total investment but in some regions in India, the average returns could be even better.
For instance, rental yields in Bangalore, Pune etc. are higher and property buying could hence be good option to earning money.
Tax Savings: It is very common for people to avail a loan while buying a property and in many cases, tax savings is quoted as the prime reason for taking a housing loan. The most important tax benefit associate with a housing loan is that the interest component of the EMI in a particular financial year is deductible from a person’s taxable income up to Rs 2 lakh. Secondly, the principal component of the EMI is also eligible for tax deduction under 80 (C) of the Income Tax Act.
While the investor in a house will get all the three benefits as mentioned above, a purchaser of a property for self-consumption does not get the rental income. However, he gets the benefits of capital gains and tax savings.
CLSS Benefits: To promote affordability in housing, under the Pradhan Mantri Awas Yojana (Urban)-Housing for All, the Ministry for Housing and Urban Poverty Alleviation has introduced the Credit Link Subsidy Scheme (CLSS), an interest subsidy scheme. This is targeted towards the Economic Weaker Section, Lower Income Group and Middle Income Group. The scheme is valid on a loan of above Rs 6 lakh where a maximum subsidy of Rs 2.67 lakh can be availed. As part of the you or any member of the family should not own a house in any part of the country, only one unit per family (husband and wife) is allowed and one should not have availed any other scheme under the PMYA.
Aditya Kedia is the Managing Director at Transcon Developers.
Disclaimer: Views and opinions expressed are solely that of the author and not that of this publication. Information presented is solely for the purpose of educating and should not be construed as an advice to invest in real estate markets. Readers are suggested to research sufficiently well before making any investment decisions.