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People had high expectations at the start of 2021 of resuming their lives to pre-covid stages. There was a breath of fresh air in the country as the vaccination campaign began its reign in India. Although some negligence led to the country’s second wave, the introduction of vaccination for people aged 18 to 45 seems to be making a difference in the country’s situation. This optimism is likely to change the market sentiments of investors. However, with the Indian financial markets consolidating in the first quarter of 2021, investors are seen to be shifting their focus to the most interesting sector of real estate. The first quarter of 2021 saw a 21% increase in investments in the Indian real estate market, with institutional investors investing $922 million. Despite the fact that this statistic depicts the pre-second wave scenario of India’s real estate, the rising optimism of institutional investors is a sign of the real estate sector’s underlying potential.
Real estate investing in 2021 is an early bird opportunity since only a few retail investors are aware of the golden opportunities that exist. And so, with this article, we aim to give you 7 reasons to gain the right perspective on why 2021 is the best year to invest in Indian real estate! Let’s get started!
7 reasons why real estate is the best choice for 2021
Numbers depict promising confidence
The first quarter of 2021 saw significant growth in investments by institutional investors in the real estate sector. According to JLL’s report, these investors showed keen interest in commercial office spaces in their development stage. Furthermore, High Net-Worth Investors are cashing in on Real Estate Investment as property prices hit a low due to Covid Pandemic’s second wave. Retail Investors need to gauge this confidence of Institutional Investors as well as HNIs. In addition, Housing property sales account for a significant rise of 20% in the first quarter of 2021 with developers selling off old inventory at discount. Thus, the numbers tell a promising story of rising confidence in real estate investments in 2021.
Lowest interest on Home Loans
Currently, with RBI keeping the benchmark repo rates constant as of last year, the interest rates on home loans have seen a major low. This aids the investors in buying real estate properties using leverage with lower cost. Entering the real estate markets in 2021 will also serve as a hedge against the projected rise in inflation this year. Thus, the overall NPV of the investment potentially increases making the real estate investment the best option for 2021 while other avenues registering a decline or consolidation.
Tier 2 cities on the radar
Gone are the days of finding small residential spaces in metros near your workplace. As work from home becomes the new normal for many big corporations like TCS, Infosys, and others, new-age employees now have the freedom to work from anywhere in the world. This enables people to seek affordable and comforting homes at the future hubs of tier 2 cities with new prospects of economic activity emerging in such cities. Thus, the focus will likely be on residential places in affordable tier 2 cities with decent connectivity. Hence, investments in such rental properties with lower budgets will be on the radar for retail investors too which will prove to be beneficial in the long run.
Additional tax deduction on interest on home loans
In the 2021 budget session, the Finance Minister announced additional tax deductions on interest on home loans under section 80EEA for affordable homes worth 45 Lakhs or less. This deduction will be in force for properties sanctioned/purchased till 31st March 2022. With this boost, real estate is undoubtedly the best bet to take this year, whether for your own residence or as a long-term investment to protect your future.
FPI boost to REITs and InVITs
If you are amongst the trendiest investors or looking to invest in mutual funds of REITs and InVITs, this is a piece of great news for you. Foreign Portfolio Investors have been allowed and encouraged to debt financing for REITs and InVITs of India. This relaxation of control by the Central Government, will provide access to more profitable projects for trusts like these, and eventually boost the overall returns of retail and institutional investors.
Stamp duty cuts
On the Central Government’s request to slash stamp duty rates on properties, Maharashtra and Karnataka have reduced their stamp duty rates to boost demand for unsold inventories. Furthermore, Maharashtra has provided relief to developers by slashing construction premium by 50%. Those developers who will avail of this waiver, have to pay stamp duty on the behalf of the buyer. So, in a way, this provides a boost to developers as well as buyers with reduced cost of homes. Thus, making real estate investments more affordable and profitable in 2021.
Passive Income Security in Uncertain Times
Real estate has been considered one of the best sources of passive income traditionally due to the generation of regular rental cash flows. But with new avenues like REITs, Real Estate Crowdfunding and Fractional Ownership allowing for passive investments in Real estate, millennials are curious about trying their hands-on real estate investing. Such options provide a gradual stream of passive income without the hassles of maintaining a property or negotiating with the tenants. Thus, passive income in real estate becomes more affordable and investors can earn even while they sleep.
Even though Covid has currently slowed other high-return investments, real estate still finds scope in investors’ minds. Thus, it is wise to grab this opportunity within the right time. For that, one must keep in mind certain things for an effective investing strategy. Following are the 4 key things to remember in real estate investing in 2021:
4 Things to remember in Real Estate Investing this year
- Building multiple investments together –Real estate offers leveraged investment opportunities. As a result, if you already have a large amount of money, investing it in a secure passive investment scheme such as PPF, Debt Mutual Funds, and so on with returns greater than the interest on the loan will potentially help you develop wealth in real estate without breaking the bank. Remember that any cost savings equals a return gained.
- Diversify your investment portfolio – It is always advised to not lock yourself in one type of investment. Financial markets have traditionally been preferred investment vehicles. However, in times of panic, such as Covid, they struggled to produce consistent returns like real estate. As a result, real estate is a good bet for risk management.
- Take advantage of Investing in small amounts – Many of you would be worried about not having enough capital to invest. But you no longer need crores in your pocket to start investing in real estate. Start right away with mutual funds investing in REITs.
- Conduct your due diligence – Before investing in any type of real estate investment, conduct due diligence on a personal level by weighing the pros and cons and matching your expectation with the horizon of the investment. This will put you in a better position to choose the best option in leveraging the momentum of real estate.
So, for all the folks who are reading this, it’s still not late to begin investing in real estate. We have done our best to simplify all of the factors that contribute to real estate investment being the best choice in 2021. Just a quick note from our end. When you begin your journey into real estate investment, make sure to seek the advice of experts in the area. This helps in ensuring that your feet are pointed in the right direction at each step. We at Asset Monk have years of experience in curating smart options for real estate investing like Growth, Growth Plus and Yield Models. For more one-to-one guidance, contact us at www.assetmonk.com.
Happy Investing to you!!
Why 2021 Is The Best Year To Start Real Estate Investing FAQ's:
Real estate investment provides multiple benefits like capital appreciation, constant cash flows through rent, tax reliefs under depreciation and interest payments for leverage, and so on. The combined effect of all these increases the net profitability of the investment.
Best property investment depends on the preferences of the investor. Preferences could be in terms of residential properties or commercial properties, actual property or REITs/Fractional ownership, Self-managed property or company managed property, etc. With these preferences in mind, the investor and the advisor can devise the best options to select from. Currently, Hyderabad and Bangalore have major opportunities for real estate investments.
Yes, with the reasons mentioned above, real estate becomes the most popular investment option in 2021 as the economy resumes its growth trajectory and hopefully, the Covid outbreak will fade away in the coming year or two.
The advantages of investing in real estate are constant rental cash flows, price appreciation, social security, best returns for the long term, the scope for tax savings, and much more. In contrast, the drawbacks include less flexibility (though new options offer more flexibility than previously), a high initial cost (which can be managed with proper investment measures), and so on.
