Achi news desk-
Seasoned investors usually buy property units for rental income and long-term capital gain, while retail investors can invest through REIT platforms for small, continuous investments
Every investor expects that his investments should yield high returns over the years, and this belief is more challenging since any investment in real estate, for personal use or rental, requires a high initial outlay and an appetite for long-term investment.
Speaking to Money9, Pushpamitra Das, Founder and Director of Justo Realfintech and a veteran in the real estate industry said, “Real estate investments can offer growing returns in the form of rental income and capital growth over the years. Seasoned investors usually buy property units for rental income and capital gain over the long term. long, while retail investors can invest through REIT platforms for small, continuous investments.”
Is real estate a good investment vehicle, would you suggest residential or commercial real estate for a higher ROI?
High population, rapid urbanization, attractive interest rates and strong growth of the economy as well as purchasing power (macro+micro) are the main drivers of real estate growth in India. This is also supported by rapid overall growth in infrastructure not only in tier 1 but generally across India, thus increasing the development, connectivity and growth. RE sectors offer capital appreciation and rental income to investors. Both sectors, residential and commercial, can turn out to be profitable investment vehicles depending on factors such as location, market trend and risk appetite. Although commercial properties will always yield higher returns Compared to residential units, one must also consider the initial investment cost and the required disposable income which is higher for commercial properties than residential properties.
How can you invest in real estate using a REIT?
Historically, we invest in real estate by purchasing properties, waiting for market trends for capital appreciation and higher rental yields. REIT is an investment vehicle, where an investor can participate in the RE sector according to the investment appetite for proportional ownership. REIT was introduced to facilitate investment avenues for foreign investors in the real estate sector The Indian. Local developers benefited from the introduction of REITs, as it created a greater avenue of financing.
In India, investors have to open a Demat account with registered brokers to trade REITs and are issued units in proportion to their investments, which can be bought and sold on the stock exchange. Over the years, REITs have proven to be a strong and stable alternative investment platform.
The 6 main types of REIT in India are Equity REIT, Mortgage REIT, Retail REIT, Residential REIT, Healthcare REIT and Office REIT.
In addition to REITs, we also have a relatively new and growing concept in India called fractional ownership, where a pool of investors invests in a single property as an SPV.
Fractional ownership (FOPs) involves buying a share of a specific property through a dedicated vehicle, providing direct ownership benefits. Whereas REITs allow you to invest in real estate without the hassle. Think of them as building trusts, spreading your risk between hotels, apartments or warehouses.
What are the most important things to consider when investing in real estate using AIM’s?
Investment instruments should provide a decent ROI to investors, and more so, in real estate since the minimum investment in this sector is in the millions. Any property bought, for investment or personal use, should provide strong rentals and accumulate higher capital value over the years. It is desirable that first investors in real estate They will determine an investment budget and then consider the following factors:
Investment house: Track record and AUM are important aspects to consider when looking at AIM as an investor. The experience of the fund house will dictate the quality of the property, the proper financial closings, the legal aspects, investor protection and other key compliance issues.
Exit strategy and tax implications: Like any other investment, one must adhere to an exit strategy for selling the property for capital appreciation or renting the place for regular income. Please seek advice on tax implications of RE investments such as capital gains, property tax and GST. It is important to note that while investing through REITs or partial ownership, a lot of due diligence is already done by the fund house as they are managed by SEBI and other bodies thus making them accountable. However, there is an ongoing discussion and review within SEBI on the operational structure, rules, compliance and other challenges related to the framework.
What are the most important things to consider when investing in real estate?
Investment instruments should provide a decent ROI to investors, and more so, in real estate since the minimum investment in this sector is in the millions. Any property bought, for investment or personal use, should provide strong rentals and accumulate higher capital value over the years. It is desirable that first investors in real estate They will determine an investment budget and then consider the following factors:
Place: It is important to assess the demand for the location based on its proximity to commercial areas, educational and medical centers, malls, and its ease of connectivity with road, train and/or metro.
Market trend: Understand supply-demand dynamics, planned projects, planned infrastructure development, show connectivity to important retail and commercial hubs (for residential investments), and price movement in recent years prior to investment.
Key reputation and due diligence: To protect your investment, you should invest in properties developed by reputable brands with a strong market reputation and heritage. It is also recommended to get legal advice and check for clear property titles, permits and compliance to avoid future legal hassles.
Exit strategy and tax implications: Like any other investment, one must adhere to an exit strategy for selling the property for capital appreciation or renting the place for regular income. Please seek advice on tax implications of RE investments such as capital gains, property tax and GST.
Do second homes provide tax benefits?
Investing in a second home can provide various tax benefits such as deductions for rental income, mortgage interest and capital gains, depending on the use of the property and the financing. The advantages of investing in a second home are:
Rental income: If the second apartment is rented, deductions such as standard deduction (30% of the annual value), municipal taxes paid and interest on the apartment loan (up to 2 lakh rupees per year) can be taken advantage of.
Self-occupancy property: If the second house is occupied by myself, deductions can still be claimed for interest on the home loan (up to 2 lakh rupees per year) and municipal taxes paid.
Home loan interest deduction: Interest paid on the apartment loan for the second property is also eligible for tax deduction according to Section 24 of the Income Tax Law. However, the total limit for deduction on home loan interest is Rs 2 lakh per annum for self-contained properties.
Capital gains tax: If you sell your second home after owning it for more than two years, the gain is considered a long-term capital gain. You can avail tax exemptions (under section 54) if you reinvest the capital gains in another property or for investments in specified bonds (under section 54EC).
Wealth tax: Second homes are subject to wealth tax if a person’s net worth exceeds Rs 30 lakh. However, the value of one house or part of a house is exempt from wealth tax.
Joint ownership: For jointly owned second homes, each co-owner can claim tax benefits in relation to their share of the ownership.
With interest rates rising, should I buy or rent a property, your opinions?
Property investments depend on important factors such as the financial stability of the buyer, long-term goals, ability to provide monthly mortgage payments, annual property tax payment and monthly property maintenance fees over the years. Although owning a property allows total control of the property, one must be patient as capital appreciation can take several years depending on external factors such as demand and infrastructure development of the surrounding area. Renting a property, on the other hand, allows flexibility in the cost of purchase and upfront use, lower monthly payments and zero user maintenance fees. Although there is a substantial payment in the form of rent over the years, the user receives no benefit from the improvement of the property or any control over the property during the lease period. Real estate investments, whether for rental or for own use, require a long-term approach for properties to earn a substantial ROI.
What are the top 3 locations that will reap high returns for investors?
Mumbai, Pune, Hyderabad, Bangalore and Chennai are great investment destinations, both for residential and commercial investment. Mumbai and Pune hold nearly 50% of the demand, but over the next few years, Hyderabad and Chennai will deliver high ROI to investors. New locations emerging due to infrastructure development across the country, especially those related to leading metro cities and economic corridors will receive higher returns on investments. In addition to the markets listed above, we are also seeing an increase in demand and growth from second home markets such as Goa, among others, which offer very lucrative returns to investors as these are hubs for tourism. We anticipate the growth of similar markets in the long term with the revival of tourism in India post-pandemic due to better connectivity and the government ramping up tourism packages globally to attract foreign exchange.
Posted: May 9, 2024, 1:53 PM IST
Download the Money9 app for the latest updates on personal finance.
