Real Estate

The most important asset for individual investors is generally a residential house. In addition to this, the more affluent investors are likely to be interested in other types of real estate, like commercial property, agricultural land, semi-urban land, and time share in a holiday resort.

Residential House

A residential house represents an attractive investment proposition for the following reasons:

1) The total return (rental savings plus capital appreciation) from a residential house is satisfactory.
2) Loans are available from various quarters for buying / constructing residential property
3) For wealth tax purposes, the value of a residential property is reckoned at its historical cost and not at its present market price.
4) Interest on loans taken for buying / constructing a residential house is tax deductible within certain limits
5) Ownership of a residential property provides psychological satisfaction.

Due to these advantages, a residential property (independent house or flat) represents the most important part of the portfolio for the bulk of investors. Further, they may be interested in buying some semi-urban land and / or a share in some holiday home project because they involve relatively modest outlays.

Sources of housing Finance:

A major deterrent for investing in property is the huge investment required. Hence, you may have to explore for sources of loan finance. The major organizations that offer housing loans in India are as follows:

Employers: Many employers offer housing finance at subsidized interest rates. If your employer has such a scheme, avail of it at the earliest.

Life Insurance Corporation: Traditionally, the most important formal source of housing finance, the Life Insurance Corporation has been offering housing finance as a bait to sell insurance policies. It has three main schemes for housing finance: (1) Own Your Home (OYH) scheme, (2) Own Your Apartment scheme, and (3) Property Mortgage scheme.

Housing Finance Companies: In the last decade, a number of housing finance companies (HFCs) have come into being. There are presently about 280 HFCs big and small. Leading the pack is the Housing Development finance Corporation (HDFC). Other well known HFCs are Canfin Homes, SBI Homes, Dewan Housing, LIC Housing Finance (this is subsidiary of LICG set up to provide housing finance only).

Commercial Banks: In recent years commercial banks have become active players in the field of housing finance.

Features of housing Loans:

The housing loans fall in to three broad categories:

1) Straight loans for purchase of house or for undertaking extensions / repairs
2) Loans linked to saving made by the customer over a period of time
3) Preferential sanction of loans to depositors.

The typical features of housing loans are as follows:

1) Loans are sanctioned against the mortgage of the house property bought with the loan proceeds.
2) The interest rate generally rises with the quantum of loan
3) The repayment is typically in the form of equated monthly installments (EMIs) over the period of loan. However, most lenders are willing to structure the pattern of repayment to suit the convenience of the borrower. For example, HDFC offers a step up repayment facility under which the installments increases progressively.

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.

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