Investing in realty: Unlock the long-term capital gains
Doorway to Wealth
The present forward momentum seen in the real estate sector is rewriting a brighter future. With the sector maturing and expanding its footprint more intensely, various prospects are there to be explored and long-term capital gain is one of them. Real estate as an investment instrument has always been considered viable, but over the last few years, real estate has emerged as the most sought-after wealth-generating machine.
In Q2-23 the real estate sector witnessed private equity (PE) investment inflow of over Rs 150 billion. As per reports, this is a 63% growth over the last quarter. The share of foreign investments was around 84%. It is anticipated that in the coming quarters, the inflow and fundraising activities will intensify, thus fueling the ongoing growth further. These positive developments will not only boost the developer confidence to conceive bigger and better projects but will also bring structure to the overall industry. These increased inflows will create a ripple effect, which will benefit individual investors and homeowners. People investing in real estate will get better capital gains in the long run as the projects supported by PE and foreign investments are compliant, future-ready, and hence more relevant as per the market demands.
With the rise in demand for the real estate sector propelling bigger and better properties, land prices across India are witnessing a sharp rise. In just one-year land parcels for residential developments in key cities like Bengaluru, Delhi NCR, Mumbai, and Pune have gone up by 19-60%. This has prompted the developers to increase the price points of their projects. As the trend continues and price continues to rise, buyers can leverage this to their advantage. This is the right time for someone to invest in real estate as the appreciation is likely to get more traction in the coming years.
In India, there are various policies and schemes that incentivise buyers to invest in properties. For example, if someone sells a property after the property is held for two years, the capital gains are eligible for tax exemption. To avail of this exemption, one must use that capital gain to buy another property within a certain time frame. In the current market, this will not only boost the demand but will also incentivise buyers to invest more in properties. Besides, unlike stocks and other instruments, real estate is considered a secured option with greater appreciation prospects. Regulations like RERA have brought more transparency and structure to the sector, hence from an investment point of view it is more stable when it comes to consistent long-term appreciation.
Another key benefit of investing in real estate is the potential to diversify. By adding real estate to the investment portfolio, one can lower portfolio volatility and can get higher returns or gains per unit of risk. Besides, there is the advantage of real estate leverage. Under leverage, a financial instrument or borrowed capital can be used to gain higher returns. For example by paying just a 20% downpayment on a property through a home loan, one can get 100% of the house and the value associated with it. So, the buyer is paying just 20% but getting the benefit of any market appreciation like an increase in square footage rate etc.
In a nutshell, it can be rightly said that real estate is a unique investment instrument which offers a lot of benefits to investors. As the market continues to see rising demand amidst a resilient economy, the sector is poised to witness more maturity and structure, thus creating more opportunities for buyers and investors.
(The writer is Managing Director, BCD Group)
Source : Deccan Herald
