One of the most widely considered investment avenue both in India and abroad is Real Estate. Given the returns that people have generated in the past, this becomes a strong choice for investors. However, before you take that big decision, look at the pros and cons of investment in realty sector.
To begin with, know that your first house is not your investment. It is in fact, your liability given the element of loan involved. Even if there is no borrowing, it is still not an investment, because you’re going to stay there and therefore there is no returns or income generated on the same.
In this case, there is an option of reverse mortgage always available, where in when you retire, you can give the home to a bank for which you avail monthly returns.
Your investment in real estate begins only once you buy a second house, which gives you monthly rent and an appreciated value over a period of time. Paving a way not only for passive income but also for growth.
However, the current market conditions play a vital role here. It is no secret, that in the past 6 to 7 years, real estate has not been at it’s best. The rates have remained the same, and infact even depreciated. To put it together, the real estate cycle is now bottoming out. ie: the prices and the downgrading of the price should now stop, because we’ve hit the bottom of the downward cycle.
When it comes to returns on rentals in real estate, it is not that impressive either. For housing properties, it generally ranges from 2% to 2.5% and for commercial properties it goes up to 2.75% to 3%.
To sum it up, a wise decision would involve purchasing a property that assures good returns and good property appreciation. And given the overall market scenario, this seems a little unlikely in 2019 or for a few more years.