Equity beats real estate gains in long run
May 06, 2014
Source : The Times of India


MUMBAI: There has been a deluge of offer s through advertisements aimed at prospective home buyers, for those who will live in that property and also those who want to buy a property as an investment. For the second option-that is buying a real estate now as an investment for future gains-a widely accepted opinion is that investing in property is the best investment, even better than investing in shares. We analyze this belief by looking at the pros and cons of such an investment, and whether the cost and benefit supports it.

An article by Priya Sunder details some personal experience relating to real estate investments , and give a basic idea about the costs and taxes associated with real estate investments that people usually don't take into consideration , mostly because of their inability to add these up. A case study by Urmin Vohra shows that in general, after taking into account all the costs and taxes, returns from real estate can at best be close to returns from bank fixed deposits and recurring deposits but definitely cannot match returns from equity in the long run. Calculations by financial planners also show that in 75% of the property investments, returns from real estate in the long run are usually less than 10% per annum. In comparison, equities have given returns of about 14-15 % in the long run.

Compared to equities, one of the major drawbacks of investments in real estate is the illiquidity factor -in most circumstances a property owner cannot sell his property very quickly if the need arises. Depending upon market conditions, it could take anything over a month to close a real estate deal. At times, such deals could take over a year to close.

Other than illiquidity, taxes and other costs like high rate of stamp duty and registration also impede investment in real estate. According to Suresh Sadagopan, Founder, Ladder7 Financial Advisories , while there is no long-term capital gains tax in equity investment, such a tax liability may arise in case you had invested in a real estate property and want to sell it now. "Unless you buy another property or you invest the mon ey in capital gains bonds, the investor will be charged capital gains tax on the gains from property investments. And even if one invests in capital gains bonds, the net gains come to about 4.5% per annum" Sadago pan said. Also these bonds come with a three-year lock-in.

The rates of capital gains tax from the sale of a real estate property depend on the duration for which the property was held Compared to equities, where the long-term capital gains is waived off after just one year of holding in case of real estate the long term capital gains of 20% after indexation is applicable when the holding period is more than three years. In case of short term capital gains, the rate is according to the income tax slab rate applicable to the investor.

Despite these facts, it cannot be denied that real estate is an important asset class. And there are situations when financial planners advice clients to invest in a property. "For one, if the property is being bought for self consumption, then there is no argument to that," Sadagopan said. "Secondly, if you have higher amount of money and is well invested in equity, bonds and gold etc, then you can invest some amount in real estate," Sadagopan said.

Generally, however, not many financial planners suggest clients to invest in real estate up front. They first evaluate the merits of investments in all the asset classes, including real estate, and give their nod if invest ing in a property is found to be suitable to the to an investor's risk profile. Next week of late, inflation has been one of the most discussed topics for everyone, from policy makers, analysts and economists to common investors. Next week, we will deal with how at times of rising costs, equity funds can help you beat inflation.


Latest Realty News

Haryana urges SC to lift ‘forest’ tag from Aravali land
May 06, 2014
DELHI: At a time when there is an uproar against Haryana government’s move to allow more construction in unexplored regions including the Aravalis, the state has moved the Supreme Court aiming to free huge tracts of land declared as “forest” by the court in a mining related case in 2004.
Land scam comes to light in Bangalore suburbs
May 06, 2014
BANGALORE: Have you registered a site or building on revenue land in Bangalore’s outskirts in the past year or so? Just ensure the documents are authentic.
NAREDCO’s Real Estate Management course concludes
May 06, 2014
MUMBAI: With 34 Certificate Courses already under its belt, NAREDCO organized the 35th Course, jointly once again with its technical partner HSMI, from 25th February to 14th March 2014 at HSMI, New Delhi. The course was flagged off by Brig (Retd) R R Singh, director general, NAREDCO in the presence of A N Krishnamurthy, executive director (Trg), HSMI at the Inaugural Session on 25th February. It was coordinated by Shri S C Rastogi, Dy DG, NAREDCO and Atul Shrivastav and Jeevan Sahota, both F
Buy a flat in Mumbai: Check approvals, plans online soon
May 06, 2014
MUMBAI: Mumbaikars will soon be able to make an informed decision before purchasing a house in the city.
SC refuses to extend May 31 deadline to vacate illegal Campa flats
May 06, 2014
MUMBAI: It seems to be curtains for the legal battle launched by Campa Cola compound residents to save their illegal flats with the Supreme Court on May 5 declining to extend the May 31 deadline to vacate their aprtments for demolition.
Rice bowl turns into pricey real estate
May 04, 2014
CHENNAI: The fertile rice bowl of erstwhile Travancore, now part of Tamil Nadu’s Kanyakumari district, is gripped by a serious economic and ecological crisis.
Air India to sell residential property abroad
May 04, 2014
DELHI: Air India has asked real estate consultancy firm DTZ to find buyers for its surplus residential real estate assets abroad to mobilise funds. “We have got residential properties at Hong Kong, Mauritius and Nairobi which we plan to monetize this year.
Builders demand separate ministry for construction sector
May 04, 2014
COIMBATORE: With the demand for skilled workers set to nearly treble by 2020, the construction industry wants a separate ministry both at the Union and the state level to address the issues affecting the sector. The construction industry, which employs about 10 million skilled workers now, would require at least 30 million such workers by 2020, said S K Basu, president of Builders' Association of India (BAI). The construction industry would require 55-60 million workers by 2020, he said.
Economic slowdown has not impacted the luxury residential segment
May 03, 2014
HYDERABAD: Rise above the necessary and when you do that, you are in the lap of luxury. Amid the gamut of luxury projects in India, luxury housing has picked up the most. Modern homes today pack features that meet the growing aspirations of people who want their houses to reflect their social and financial standing. These luxury homes come as apartments, penthouses, suburban villas and bungalows, and are often close to a golf-course or a green expanse. Industry experts attribute the rise in luxu
Ahmedabad: Naroda’s journey to hot property destination
May 03, 2014
AHMEDABAD: The growth of Gujarat’s as well as Ahmedabad’s property market is very impressive and the segment is likely to prosper even in the near future. Many new areas are being developed in the city and the earlier ones are given new shape. Particularly, if you want to see how a neglected industrial area can be transformed into a property paradise, then visit Naroda, a suburban town in Bapunagar, north east of Ahmedabad. It initially flourished with the establishment of the Naroda Industrial

Latest Realty News Of State

Realty Talk's