Real Estate Investment during COVID-19 stretch
There is no better way to make a sweet profit from a Real Estate investment property. Among the many types of investments that we have, the option to invest in Bank Fixed Deposits, Mutual funds, stock of publicly traded companies, real estate the investment in real estate stands out in many ways. This is specifically a safe investment in India with our growing population, increasing city population and the perennial need for more houses.
With the SBI Home Loan rate hovering around 7-8% (for below 2 crore property) and the quality of inventory available in the market, investing in real estate is a sure win in many ways.
Let’s dive in to the benefits:
Lot’s of lucrative inventory available in the Market
With the present situation, many people and on a watch and hold policy. And there are financial strains experienced by many parts of the society due to the COVID-19 pandemic. This has resulted in some slump in sales in the real estate market. But the consequence of that is that there are lot of good deals available in the market which are otherwise not available in normal times.
Investors can definitely take advantage of this and buy properties which will bring in handsome returns in terms of capital gains and rental income.
Low interest rate.
With the SBI home loan interest rate starting at 7.2%, we can imagine the benefits in the reduction in the overall payout due to the interest part of the loan component. To bring things into perspective, we have two scenarios
Scenario A (Interest Rate 10%)
Loan Amount: 1 Crore; Tenure 20 Years; Interest Rs. 1,31,60,605; Total Payment Rs. 2,32,60,605
Scenario B (Interest Rate 7.8%)
Loan Amount: 1 Crore; Tenure 20 Years; Interest Rs. 97,76,718; Total Payment Rs. 1,97,76,718
Benefit due to lower Interest rate: Rs. 33,83,887. One can buy a 1 BHK flat at that price for free and put it up for rent. And Rs. 33,83,887 increases in value in terms of capital appreciation. I hope it makes a lot of sense.
Increase in demand in rented properties
As the purchase decreases there is an increase in the requirement of rental properties. There is a chain effect which operates in society. As prospective home owners postpone their purchase, they might be requiring rental flats for themselves. Overall, the rental property demand increases and home owners benefit from the situation with increasing rental income.
Lucrative payment plans
For a first-time buyer, it becomes a strain in the financials as one has to pay the rent as well as pay EMI for the booked property. This is normally the case and the home buyer have to bear the rent as well as EMI for 2-3 years depending on the completion timeline of the newly booked property. With “No EMI till possession” offers increasingly available in the market even from the most reputed builders it becomes much easier to own a property. The equal Monthly Installments (EMI) kicks in once the purchaser get the possession of the property and starts to live there. This results in a smooth transition with no strain on the financials and no simultaneous rent to pay.
Some exciting offer available which promises to exchange stalled projects with new ones
We have seen deal where cash-starved real estate developers in the Delhi NCR region are offering property-swap schemes to homebuyers. In these schemes, the investors who are stuck in stalled projects, are provided with an option to switch to another property if they are ready to pay at least 70% of the price of the new property.
The developers want to recover the balance amount, which the buyer had paid to the developer of the stalled project, whenever that stalled project is completed. These are real boons for a buyer who has got stuck in a stalled project with no option but to pay his EMI without any fixed timeline of getting the ready to move in property.
Benefit in Income Tax in investing in real estate
There are quite a few benefits that are available to the Indian Buyer who want to invest in real estate and these results in considerable savings on the tax outgo. Some of them are: –
Deductions under section 80C: Deduction on principal repayment is available for a maximum of Rs 1.5 lakh under section 80C.
Tax benefit on interest payment: Claim a maximum deduction of Rs 2 lakh on interest payment.
Savings from Capital Gains tax: If an individual buys a house and decides to sell it within the same year or before a period of three years, he is liable to pay short term capital gains tax. However, if the sale has taken place after three years, one is liable to pay long term capital gains tax. This is not taxable if the profit amounts are invested in capital gains tax-saving bonds as detailed under Section 54 thus offering great first-time home buyer tax benefits.
In summary, when the market is a bit jittery, it is the best time to invest in real estate. There is always a bigger probability of higher capital appreciation in value of the property as things get back to normal. Additionally, it is the time to get the better deals at a bargain price which are not usually available during normal buying periods.
Do let us know about your thoughts on this article.