Why Real Estate Investment Is Crucial During Market Uncertainty?

By Magnolia Realty | Apr 25, 2020

There are reports that show residential property developers have claimed to close deals worth hundreds of crores during the lockdown period. Apparently, it sounds ludicrous because you may think who is buying, and if yes, then why?

While new project launches and developments are being stumbled during this period but the sales process is not hampered. Here are some logical explanations of why this is so.

Better Financial Security

Real estate from time immemorial is a better investing tool than many other investment machineries. Many prospective buyers, when asked the question of purchasing a home during this lockdown period, answered very plainly that they wanted to buy because in the first place they had to. Secondly, they found a house gave them better financial security than the stock market or any other high return investments.

NRIs Hot Target

The current rupee depreciation close to 10 percent to a dollar is a reason when NRIs have become interested in buying properties in India. Many developers have already started their active NRI campaigns because currently Indian real estate is seen as the most sensible investment option. ANAROCK’s consumer survey indicates that 68 percent NRI participants have considered an investment in property in India is the best asset class for investment.

The current situation is no doubt worrisome but the flip side is the opportunity developers get through NRIs investment on the back of currency depreciation, record low prices and organic impending growth of the industry.

Welcoming RBI Monetary Policy Decision

Reserve Bank of India (RBI) announced in its historic MPC(Monetary Policy Committee) to slash repo rates by 0.75 basis points (bps). So, how does it affect real estate? It means India central bank has made home loans and others significantly cheaper. How much cheaper? The slash has made interest rates on home loans by both public and private sector banks to their lowest in over a decade, as low as 7.20%.

So, now what will be the math? Let’s assume you take a 25-year home loan of Rs. 1.5 crore at interest rates of 8.5% and 7.75% results in an equated monthly instalment of Rs. 1,20,784 and Rs.1,13,299 respectively. The reduced home loan interest rate will give the borrower a monthly saving of Rs. 7,492, and yearly saving of Rs.89,904 and 25 years saving of Rs. 2,247,600.

A Good Time To Invest For Rental Income

There is a segment of property investment for rental purposes whether residential or otherwise. This segment has also a benefit to milch regular rental income. How does it help? Currently, the rental yields are pinned down at 2.5%. With reduced interest rates at 6.75%, the net effect, the rental yield is pegged at 4.25%.

More Tax Benefits For Borrowers

A borrower can avail Income Tax benefits on principal and interest payments under the Income Tax Act. In addition to reduced interest rates of almost 1% lower o the home loan presently being availed, a borrower can also get the benefits of income tax benefits. Moreover, in the affordable housing segment, the interest on home loans gets more attractive at 5%.

Long-Term Asset Creation

There is a segment of investors who have burnt a hole in their pockets in the equity market for the current pandemic. These investors are not especially concerned about configuration now, rather interested in long-term asset creation. The real estate investment would fetch them a good return in this situation.

Summary

Buying a home is a costly financial commitment. Keeping the current situation in mind, and the overall acquisition cost in mind, investment in real estate is not a bad idea. In fact, mid-segment and affordable housing segments will have emerged as the most attractive things for potential buyers in the near future.

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