Interest rates in India offered by banks have been falling. This is because the Reserve Bank of India (RBI) has been maintaining the cheap money policy and has been cutting the rates to support economic growth. Ensuing this, many banks have come up with home loan offers for those looking to buy real estate properties. This means it is an appropriate time to buy a house for yourself. But is it advisable to invest in property?
Although, over a period of time there will be growth in the property in the coming time. But there are certain reasons, that make the investment in property less lucrative. Let’s have look at these factors.
Capital intensive investment
For investing in property, you need a huge amount of money in a lump sum. Whereas this is not the case with mutual funds, PPF, stock market or gold. You can invest in these instruments with an investment amount of as low as Rs. 100. But this is not the case with property. You must have a budget of lakhs of rupees. This means you have to invest a huge amount all at once.
Real estate is a very non-liquid asset. Non-liquid means that you cannot realise the money by selling it immediately. Whereas assets like shares, bonds and FDs can fetch you money with a few clicks. Moreover, you will find it more difficult to sell the property when the realty sector is down. It is also possible that you may think of making a profit, but you may not get a buyer at the right time.
Real estate maintenance can be expensive. The tax has to be paid on real estate. Also, the maintenance of the property is very important. From an investment perspective, maintenance cost is a complete waste. If the property is flat, then you have to pay the monthly maintenance as well. If we look at other investment instruments then you don’t have to pay such high maintenance.
Returns on the property have been negligible over the years. People often see the profit on the property as a whole. But they often ignore the annual return. Annual returns in mutual funds are easily available at 12-15 per cent. Whereas in the last few years, the returns in property have been in single digits i.e. less than 10 per cent.
Viable for these people
People with high net wealth can invest in property. Whereas this option is not good for people with salary and low income. Even those who are investing money in property should also pay attention to things like low returns, maintenance cost and especially liquidity.