Property Investment – Risks and Gains

For around a decade now, investment in property has proven to change the life for a lot of people and considering the present situation for a lot of investors now it is still going to be one of the best areas of investment in the coming years. There are a set of risks and benefits with property investment but still the ROI depends on a lot of factors which would be considered.

Good Profits

Investing in property and receiving good profits should be done in accordance with the price range and also ROI on the investment. For flats in the range of 1-2 Crore do not have a higher ROI than flats in the price range of 50 Lakh. So to create high profits the amount of time also matters and also the market condition for that span of years.

Tax Benefits

Consider that you take a loan to invest in a flat in any area in Pune. The basic motive is both gains as well as a place for his family to stay. The interest and principal are tax-deductable. Since you fall in the 30 per cent tax bracket, your return is higher compared with investing in a fixed deposit and paying tax on the interest earned.

Additional Income

It is rental income that can be acting as an additional income. If your new home is located near IT hubs — opening up the option of leasing it as a corporate guest house is a very viable option. You can find that investing in property is relatively less complicated. If you are careful about details, such as location, quality of construction and trust factor with your developer, a home can make for a sound investment.

Now considering the risk part, there are a lot of different risks involved, due to a lot of factors which make it a lot more risky than investment in anything else.

Illiquid Investment

If you buy a flat in any region, but due to oversupply of homes in that area, there has been no price appreciation. Neither are you able to sell the home for a decent price, even after trying for nearly a year. A sizeable fund is lying locked up, not earning any return. If you had invested it elsewhere, you could have built your wealth in the same period of time.

Low Return

Not earning enough returns after having stayed invested for a while is what happens sometimes when you buy a house and market does not appreciate in the price. If you bought a house in the suburbs as an investment for around three years. When you tried to sell the house, you were not able to get a good buyer who was offering a fair price. After many months of struggle, when you are finally able to lease the house out to someone. But the whole point of buying that house was for investment and it is not working out that way.

Property may be an interesting investment option to consider by those with a large corpus, say over ₹40 lakh. Before you invest, be sure to put away an emergency fund. Only invest what will not need for at least three years, as the wait period to realizing returns is long. While half of the property buyers have a pure investment motive, the other half may have other motives – self-use in the future, a weekend home or gifting to children. It is best to pay off loans on your first home, rather than be in a situation of having to handle two mortgage payments.

Owning a home offers tax advantages by way of interest payment, principal repayment as well as capital gains. The tax advantage under Section 80C has been increased to 1.50 lakh for the assessment year 2014-15 and 2015-16. Irrespective of the number of houses owned, you can claim repayment of principal on housing loan. You can also claim stamp duty and registration fees as deduction.

Interest paid on housing loan is also deductable. Also, say, your second home is rented out and the rent received is less than the interest paid. Then, the income from the property will be a loss and this can be deducted. The second home is exempted from wealth tax provided rental income is offered for taxation — as actual rent or deemed rent. If the second house is purchased out of capital gains within the stipulated time, capital gain tax is also saved.