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Tata Capital > Blog > Wealth Services > Why Should You Invest in Real Estate?

Wealth Services

Why Should You Invest in Real Estate?

Why Should You Invest in Real Estate?

Since ancient times, property ownership has been intertwined with prosperity and prestige. Like gold, real estate has stood the test of time to be regarded as one of the best ways to appreciate wealth.

Today, the global investment market sees quite a few other investment avenues. From mutual funds to cryptocurrencies, investors now have multiple options to park their hard-earned money. As forreal estate, it continues to remain more stable and secure for long-term growth.

Read on to explore the numerous benefits associated with real estate investment.      

Cash flow generation

Real estate is an excellent way for property owners to generate steady cash flow. In essence, cash flow is an asset's net profit after deducting all expenses. In the case of real estate investment, mortgage payments and operating costs are the major expenses incurred.

Rental income from these properties can generate decent passive income for investors every month. In fact, cash flows typically strengthen in the long run. As your mortgage reduces, so will your expenses, leading to greater profits.

Property value appreciation 

Real estate offers two-fold advantages for investors. When you buy a property, you not only enjoy a healthy inflow of profits from rental income but can also take advantage of asset value appreciation in the long run.

For a country like India where urbanisation and infrastructure development are experiencing exponential growth, real estate values are also expected to surge in the long term. Hence, you can expect a decent investment return when you sell the property.  

Tax benefits

The Indian Income Tax Act allows several deductions and incentives for purchasing real estate, lowering your overall tax liability. These include:

1. Home loan interest: If you have purchased a property through a home loan and are self-occupying it, you are eligible for tax deductions on the interest paid. Section 24 of the Income Tax (IT) Act allows tax deductions up to Rs. 2 lakh on the interest paid for home loans.

2. Tax deduction on rental income: Rent income is taxable. However, under section 24A of the IT Act, you can claim a tax deduction on this rent against property-related expenses. Up to 30% of the net rent income can be claimed as a standard deduction on property tax.

3. Capital gain tax: When you sell a residential property, you must pay a capital gains tax on the profits. However, if you hold the property for at least two years before selling it and use the proceeds from the sale to buy another property, you can claim an exemption under Section 54 of the Income Tax Act.

Inflation hedge

With a rise in inflation, the general prices of goods and services increase, decreasing the purchasing power of money. During such times, real estate serves as an effective inflation hedge as it tends to appreciate in value over time. Property prices soar when other investment avenues give negative returns during inflationary periods. Hence, the overall worth of your assets is maintained in the long run. 

Portfolio diversification and stability

Remember the most important investment mantra - never put all your eggs in one basket. The best way to reduce risk is by diversifying your portfolio as much as possible. Your portfolio should include high-risk investments but must be balanced with stable and decent profit-generating assets.

Real estate is one of those investment avenues that offers stability and growth to your portfolio. Over the past 20 years, real estate investment has provided a compounded annual average return of 9% (Source: Media articles). Hence, including real estate investments in your portfolio can help reduce volatility and generate stable long-term returns.

Conclusion

Beyond the bricks and mortar lies a wide world of possibilities. Real estate investment embodies tradition and modernity, offering financial growth and stability avenues. With the right research and a long-term perspective, real estate investment can be your portfolio's cornerstone of wealth creation.

With Tata Capital Wealth, real estate investment has become easier than ever. Aided by our curated property list and selection of developers, you can invest in the right property to meet your future goals. Visit our website to request a callback today!

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