What do you do when you are faced with an undependable stock market and depressed interest rates? Well, the steadiness of real estate is a good option.
"The problem is a lack of alternative 'options, and everybody is terrified of keeping excess cash. In a way, all of us are." says the CEO of a financial services company. So, as an employee of a housing finance company says, when the markets are down, you find more money flowing to the real estate sector, and vice-versa.
While history has shown hat equity is the best bet if you want a return in excess of 20 per cent, the present stock market isn't in the right mood. Forget the appreciation of your stock; n the prevailing market conditions, you are not sure whether your scrip can hold on to your purchase price.
The scene isn't any better f you look at deposits for investments. With the government hammering down the administered rate to push down lending rates, interest rates on deposits have been moving downwards in the last couple of years. In fact, the interest rate on most saving and investment products has been reduced to a single digit.
So, investing in property does look like a good alternative. But, does it behave any better?
"If you look at the rate of return from real estate, it is only around 6 per cent", says R V S Rao, executive director HDFC. "But then, investing in a home is on top of the agenda for most Indian families."
If you talk to the real estate community, the response is different. The industry says the actual rate of return in real terms is much more than what is projected. "A real estate investment gives you an annual return of only 6-8 per cent, true. But you should take into account inflation, which is around 6 per cent. This, in effect, means a return of 15-16 per cent, which is very good, " says P N C Menon, chairman, Sobha Developers. Considering that there aren't too many investment options giving better returns, picking up a piece of real estate makes good investment sense.
Besides annual return you should look at capital appreciation. Menon adds. "In the US, for instance, real estate has by far been the market out-performer. In the long run, it should happen here, too" says Neville Vaswani, managing director, Vaswani Group.
That probably explains why almost every household is looking at investing in a house. But should you really look at buying land or investing in a house or apartment now?
If you haven't already invested in a home, an immediate investment in residential property makes a lot of sense. It is easier to get a housing loan now. The interest you pay against your housing loan also qualifies, for a tax break and the limit has been hiked to Rs 1.5 lakh per annum in the recent Budget.
Besides the market conditions are also just perfect. The real estate industry says that it is the buyer who is calling the shots right now. And that means that you, the buyer, will get a better deal than in a seller's market. In a place like Bangalore, finding a property shouldn't be an issue either, considering that there are plenty of vacant flats available.
If you already have a home of yours, it is still not a bad idea to think of picking up a second house. But you might want to make sure of one thing: that you pick up your property in the vicinity of the IT industry, because that is where the appreciation is the highest. That is also where, in case you want to give your place out on rent, you will get the best deal.
The rentals get a lot more attractive where independent houses are concerned, especially in places where they can be let out as offices to small IT companies. The rent can take care of half of your outflow in terms of loan repayment, reducing the burden to that extent.
There is another option if you don't want flats or houses. Put your spare money in a plot of land. Now, you have housing finance companies willing to offer loans even for buying land. One point to remember, though: there are no tax benefits on this.
The real estate industry says the rate of appreciation for a vacant plot is much higher than for a house or a flat. The only, hitch is that But there is a small there aren't too many plots available in the city. But if you are willing to sink a few lakhs into a plot on the outskirts of the city, and wait for 5-10 years, there couldn't be too many better options. After all, the value of this asset can go only in one direction. UP.