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Benefits of property investment?

When it comes to investing, one has endless ways. One of the best investment options to consider is investing in property. Investing in a real estate property comes with numerous advantages that set it apart from other types of investments, such as stock investment. Below are the three benefits listed:

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1) Numbers Don’t Lie.

Let’s understand this with two cases.

Case 1 – Let’s assume that one rents a 3-BHK home and pays rent of 20,000 INR per month. This is way below the actual rental values in cities and other residential suburbs. And, let’s assume the average house rental value increases at 5% per annum. Again, this is way lower than norms.

Case 2 – Let’s assume that one buys a ready-to-move 3-BHK home for a cost of 40 lakhs. You take a home loan for twenty years.

Here’s a look at the figures in both cases.

Case 1 – Rental Home
Expenses Calculation
Rent per month 20,000 INR
Rent appreciation PA 5%
Total Rent Amount paid after 20 years 80 Lacs
Asset Value after 20 years 0
Case 2 – Own Home
Expenses Calculation
Loan amount 40 lakhs
Tenure of the loan 20 years
Interest rate 9%
EMI during the tenure 36000 INR
Total amount paid after 20 years 86 Lacs
Asset Value after 20 Years at 10% appreciation Per Annum 2.69 Crores

As you can see, in this example, when you take a house on rent, you end up paying almost the same cost as owning a house. However, when you buy a home, you are building an asset that increases your wealth.

2) Freedom

While staying in a rented apartment the individual or the family has to follow certain regulations set by the landlord such as drilling holes, no entertaining guests at night, no house parties post 10, no cooking of non-veg at home and the list is endless.

However, purchasing a house gives them the liberty to live the life they want without the restrictions of the landlord.

3) Hedge against Inflation

The unexpected inflation rise in the economy can affect the cost of living for families/ individuals including the rise in the investment property prices.

Due to inflation, the property investors can raise the amount they charge for rent, which becomes an additional burden for the tenants. The value of investment properties goes up to cover the rise in inflation.

On being the owner of a house, the mortgage payment does not get affected by inflation since it is pre-decided at the time of agreement with the bank, i.e. the absolute value of the property decreases with inflation. This is a blessing in disguise for the owners that they don’t have to be beer the additional cost of paying the additional rent. Therefore, purchasing a property can provide you with an additional property investment security during inflation.

4) Pradhan Mantri Awas Yojana(PMAY)

"Housing for All" Mission for urban area has been implemented with effect from 17.06.2015 to provide central assistance to implementing agencies. The Credit Linked Subsidy Scheme is being offered under this mission.

Criteria and Benefit:

For Middle Income Group (MIG) – 1

● One should not have any house under their name in India

● The annual household income should be between INR 6, 00,001 to INR12, 00,000

● The unit’s carpet area should not exceed 90 sq.mt (969 sq.ft)

● Subsidy benefit of 4 %. i.e, Rs 2,35,000/-

For Middle Income Group (MIG)– 2

● One should not have any house under their name in India

● The annual household income should be between INR12,00,001 to INR 18, 00,000

● The unit’s carpet area should not exceed 110 sq.mt (1184 sq.ft)

● Subsidy benefit of 3 %. i.e, Rs 2,30,000/-

Let’s understand the scheme with an example:

Effective EMI –(Before and After CLSS)
Credentials Before CLSS After CLSS
Unit Cost ₹2,629,816 ₹2,629,816
Down Payment Amount ₹262,982 ₹262,982
Loan required (A)(90% of Unit cost) ₹2,366,834 ₹2,366,834
(-)PMAY Benefit (B) 0 ₹235,000
New Loan Amount (A-B) ₹2,366,834 ₹2,131,834
Home Loan Interest Rate 8.50% 8.50%
Home Loan Tenure(yrs) 20 20
EMI ₹20,540 ₹18,501
(-)Rent per Month ₹11,000 ₹11,000
(-)Tax Benefit per Month ₹2,500 ₹2,500
Effective EMI ₹7,040 ₹5,001

5) Tax Benefits:

One can claim a deduction on the principal loan repaymentof upto 1,50,000 INR under section 80C of the Income Tax Act, 1961. Moreover, they can earn from their investments in real estate in the form of long-term capital gains.

If one sells the property aftertwo years, he/she can even be exempt* from income tax on long-term capital gains by investing in another property. Depends upon the price of the property.

Here are the sections or categories (of Indian Income Tax Act) for tax benefit:

Deductions Section Maximum Deduction
Principal Repayable 80C 1,50,000
Home loan Interest 24b 2,00,000

After getting familiarized with the benefits, you are all charged up to go ahead with property investment. You can look out for major real estate trends and accordingly use your money in the wisest manner.

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