Real Estate’s status as an orphan of the institutional investment arena is rapidly ending. With the exception of gold and precious metals which we will discuss, no investment seems to have as much emotional impact to the investor as real estate. Real estate has received much attention in recent years as a possible complement to traditional financial assets in individual as well as institutional portfolios. Potential real estate investments range from agricultural land to shopping centers, industrial and domestic buildings, with each requiring different financing and properly management arrangements.
In this article we will discuss
1. Reason for investing in real estate
2. Investment in real estate
(i) Agricultural land
(ii) Urban land
(iii) House property
3. Investment in Gold and Silver
Reasons for Investments in real estate
There are several reasons for investing in real estate, some of which have been identified as follows:
1. Real estate is considered to provide an excellent hedge against inflation as, during inflationary periods, the price of real estate increases.
2. Real estate assets offer attractive total returns. In addition to the current income stream from rentals, the prospects for growth in both rental income and property value are attractive when compared to ex0pected returns financial assets.
3. Direct investment in real estate entails tax benefits through deductibility of depreciation on buildings. Further, Section 10(1) of the Income tax Act exempts agricultural income (which if we put it broadly is income derived from agricultural land) from tax and also provides for its exclusion in computing the total income of the assessee.
4. Investment in real estate provides the protection of a Home which is a necessity for every family. Investment in a house is both a consumption and an investment item.
Investment in real Estate:
The different types of real estate investments are investments in
1. Agricultural land
2. Urban land
3. House property
Investment in agricultural land is an important factor to consider as income from agriculture is tax deductible. Through the income from agriculture is tax deductible, the income from agriculture is added to the total income to determine the tax bracket level of an individual. Further there is no capital gain tax in the case of sale.
Investment in urban land means purchasing of a land in an urban area. Investment in urban land is very important in the periods of rising cost of the urban land, with the flooding of multinational companies and expansion projects of Indian corporates. There are ceilings on urban land holdings. All major cities and towns have been covered under the Urban Land Ceiling Act, 1976. The Urban land Ceiling Act empowers he state government to acquire and dispose of excess vacant land and pay compensation in cash and bonds. The bonds will have specified face value and carry certain rate of interest. The amount payable by way of compensation shall in no case exceed Rs 2 lakhs.
Investment in house property involves acquiring of a house. An investor has many good reasons for investing in house property.
1. He can enjoy the emotional satisfaction of living in his own house.
2. Today, when rents are touching the sky, investment in, a house will save the investor from rent outflows.
3. With the increasing demand for houses, an investor can enjoy appreciation in capital value.
Investing in Bullion:
Bullion comprising gold and silver is a favorite avenue of investment to Indian investors as:
1. they provide a hedge against inflation
2. the sentimental and social value attached to these precious metals
3. They have ornamental value and medicinal uses.
Gold is one of the most valuable assets in any economy. It has been used in Indian primarily as a form of saving by the housewives. It used to be a money metal and public memory tells that gold is universally acceptable as a medium of exchange and it is now used for its Store of Value function. Although the price of gold is always on the rise and it fetches higher resale value, in India, it is retained for the feeling of security and status it gives rather than for sale or with the intention of making profit or income on this investment.
Liberalization of India’s Gold policy:
Before the new gold import policy was introduced, carrying of gold biscuits or bars was banned in India. Average Non-residents Indians (NRIs) took home chains or bangles. But since the ban on gold biscuits (TT bars) was withdrawn, most people prefer carrying TT bars each weighting around 116.64 gains, and they take home 42 biscuits weighting les than the 5 kg that is the maximum allowed. The liberalization of the gold policy has also increased exports to countries like Dubai and other countries in the Middle East.