Why Real Estate Investment is Essential for the Middle Class

When  we think of installments, we usually think of home loans. Ten years ago, paying around ₹2,000/₹3,000/₹5,000 monthly could allow someone to buy a plot in five years. Those who are now nearing or over 40 likely bought their plots in this manner.

Not  just in Chennai but throughout Tamil Nadu, many middle-class people acquired homes or plots this way. It was possible to afford these prices back then. However, now, the practice of selling plots in installments is almost nonexistent.

Rising Real Estate Prices

The  reason is the significant increase in real estate prices. As a result, monthly installments are no longer attractive to the middle class. Even if monthly installments were set, the prices and the years required would be high, prompting construction companies to prefer bulk selling. This shift has made the dream of owning an independent house almost unattainable for the middle class, leading them to opt for apartments instead.

The Basic Need for Housing

Debating  whether an independent house or an apartment is better is unnecessary. The basic need is housing. Understanding this, we should proceed to the next step: how to make a good investment in real estate.

Investment Strategies

Until  now, not only individuals but also large corporations have made significant investments in real estate, yielding substantial profits. However, the perception of real estate in society varies.

Every investment has its pros and cons, whether it's the stock market, gold, or fixed deposits. The principle of not putting all your investments in one place applies here too. Even if it’s real estate, having all your investments in one sector isn't advisable.

Diversified Investments

Investments should be diversified. Suppose someone has all their investments in real estate; their property value might be high, but converting it to cash quickly could be challenging. Even if they do, it might have to be sold for less than the market value. Therefore, maintaining investments across different sectors is crucial.

Why Real Estate?

Typically, reasons like residual income from rent, tax benefits, and low home loan interest might be known to you. However, the fundamental advantage is how real estate provides financial leverage.

If you decide to buy gold, can you go to the bank and get a loan to purchase it? With gold in your possession, you can get 80% of its value as a loan. The same applies to the stock market. Banks won’t provide money to buy stocks, but you can use your stocks as collateral for a loan.

Real Estate Leverage

With real estate, a small amount of money is enough to enjoy the full property. For instance, you need only about 20% of the amount to buy a property worth ₹1 crore. Technically, even if the house is under the bank's name, you can still live in and enjoy the property.

Creating new assets with minimal upfront money is only possible in real estate. Moving into a new house saves on rent. By the time the loan is repaid, the property’s value would have significantly appreciated. This value appreciation doesn’t require any effort on your part. This leverage strategy in real estate is often overlooked.

Additional Benefits

Besides leverage, real estate provides tax benefits and low-interest rates. It’s essential to understand that home loan interest rates have dropped to unprecedented levels over the past 15 years, similar to deposit rates.

The criticism that real estate yields low returns is valid only when deposit interest rates are high. In a scenario where deposit rates are around 5%, that criticism becomes meaningless.

Rental Income and Property Value

Buying an apartment worth around ₹1 crore can yield an annual rental income of ₹3-4 lakhs, depending on the location. Although this may be slightly less than what you might get from a bank investment, real estate’s inherent property value also appreciates over time, which investors must consider.

Conclusion

Investments should be diversified, and real estate should be a part of that diversification. Don’t wait to buy real estate. Buy real estate and wait.

In other words, don’t wait to invest in real estate; invest in real estate and wait!