Investment in real estate has been booming as a top investment phenomenon to multiply the wealth. India Real Estate Investment has proven to be the highest yielding investment opportunity in the recent few years. The realty industry in India is at its zenith and is thereby attracting the maximum investment not just locally but overseas too. There are various factors which initiates the investors to invest in real estate:
1.Better Return: Real estate sector gives higher attractive returns as compare to the stocks and bonds. Real estate sectors has gave 10-12% returns over a years and it is expected to fetch more return in the future.
2. Tax Benefits: You can avail the huge tax benefits on investing in real estate in two ways:
- Tax benefit is available on interest on housing loan raised in India.
- Tax exemption is available on re-investment of sale proceeds of property in eligible avenues.
3. Huge demand: According to the report of the Technical Group on Estimation of Housing Shortage, there is an estimated shortage of 26.53 million houses during the Eleventh Five Year Plan (2007-12), which indicates the huge demand for the residential property in future and provides a big investment opportunity for the investors.
4. Easy Funding: Many Banks and Financial Institutions like HDFC Property Fund, Dewan Housing Finance Limited-DHFL Venture Capital Fund, Kotak Mahindra Realty Fund, Kshitij Venture Capital Fund (A group venture of Pantaloon Retail India Ltd) and India Advantage Fund (ICICI), provide the funds for real estate development to the Builders and Developers for construction of these structures and to the investors.
5. More cash flow with Inflation: Rents usually increase with inflation, while mortgage payments on the property remain stable. This increases cash flow, with more rent income without increased expense for holding the property. When inflation is up, it can also mean more renters, as the affordability of homes can be negatively impacted by inflation. More renters increases demand, so rents can escalate.
6. Value Appreciation: Rental properties normally appreciate in value with inflation. Increased value can mean sale and reinvestment in higher value properties, or provide an equity line of credit to use for other investments. This is the second, and a historically proven value component of real estate investment return.
7. Government Initiatives: The government has introduced many progressive measures, which will lead to huge demand of residential and commercial property and will provide the better return to the investors of today.
- 100 per cent FDI allowed in townships, housing, built-up infrastructure and construction development projects through the automatic route, subject to guidelines as prescribed by DIPP
- 100 per cent FDI is allowed under the automatic route in development of Special Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce
- FDI is not allowed in Real Estate Business
In the Union Budget 2010-11, the Finance Minister made the following announcements with regard to the real estate sector:
- Allocation for urban development was increased by more than 75 per cent from US$ 660.3 million to US$ 1.17 billion in 2010-11
- Allocation for housing and urban poverty alleviation was raised from US$ 183.4 million to US$ 215.8 million in 2010-11
- Scheme of 1 per cent interest subvention on housing loan up to US$ 21,576 where the cost of the house does not exceed US$ 43,153 announced in the last budget has been extended up to March 31, 2011 and US$ 151 million has been earmarked for this scheme for 2010-11.
- Meanwhile, the Reserve Bank of India (RBI) has revised the norms for urban cooperative banks for giving loans to the housing and real estate (RE) segment. Now, urban banks can use up to 15 per cent of deposits to provide housing, real estate and CRE loans. Earlier, the RBI norm permitted them to use up to 15 per cent of deposits for giving advances to housing loans and other block capital loans.
These all factors indicate that real estate sector would be the hottest sector from the investment point of view.