steady source revenue
The demand for rental housing is increasing. With offices opening, Magicbricks rental index reflects this trend in Q2 2022. Rental housing demand grew by 29.4% qoq and 84.4% yoy, while average rent grew by 8.4% qoq in the April-June quarter. This demand is expected to increase in the coming years, making rental units a steady income source.
Fixed assets are also an effective tool against capital loss if the purchasing power of a currency depreciates due to inflation or other macroeconomic trends. RBI data shows that property rates in major cities increased by an average of 15.1% between 2011 and 2021, significantly higher than the average inflation rate of 6.15% during the period. Despite global hiccups Financial Crisis In 2008, the introduction of RERA, demonetisation and the pandemic, there has been a strong boom in real estate demand, giving renewed investor confidence in the sector. The latest PropIndex report from Magicbricks confirms this trend.
Overall demand in the 13 cities tracked by the index grew by 16.9% and 27.7% year-on-year, while average residential rates in these cities increased by 2.4% qoq and 8.0%, demonstrating the strength of the sector. .
Provides adequate liquidity
Assets are also used as collateral to raise loans. Since these are Loan Against Property (LAP) secured, they are cheaper than personal loans (unsecured) and are available for a longer tenure. LAPs are popular among customers and the market is projected to grow at a CAGR of 14% by 2025-26. There is also a reverse mortgage financing arrangement for senior citizens, who can get a loan without giving up ownership of their assets.
Real estate has always been a great investment, but things have changed in recent years. Investors can now take small exposure through Real Estate Investment Trusts (REITs). REITs are companies that generate, operate and finance income generating real estate assets. They are popular as they are regulated by SEBI, offer liquidity as they are publicly traded, and require only ₹300-400 per share. Currently only for commercial property, REITs may be allowed to extend to other properties such as malls, warehouses, industrial parks and possibly housing.
power of leverage
a great advantage of Investment Real estate has that it can be financed through loans. Unlike assets such as bonds, mutual funds or stocks, one can invest more than one’s current net worth in real estate. Most lenders require only 20-30% as down payment. it creates leverage Investing in property A viable opportunity for interested investors. What’s more, this leverage comes at a very low cost as at 7-8%, home loan is probably the cheapest form of credit. It becomes even better if the house is self-occupied or let out.
In the 30% tax bracket, the tax benefit on interest reduces the effective cost of the loan by barely 5-6%. In short, real estate helps to diversify the investment portfolio and neutralize the effects of volatile investments such as stocks and equity funds. At the same time, there are challenges such as liquidity and transparency. Therefore, the importance of background checks, due diligence and comparative value evaluations cannot be underestimated. Buyers should also refer to data reports and reliable expert advice to make the right decision.
(The author is Head of Finance, Magicbricks.)