Rent vs. Investment? How to make the correct investment decisions in the real estate sector

Rent vs. Investment? How to make the correct investment decisions in the real estate sector
October 19, 2020 No Comments Business, City, Education, Family & Community, Finance, International, Jobs & Education, Law & Government, Other, Real Estate, Trends Priya Saha

The COVID-19 outbreak and the resultant nationwide lockdown have put immense pressure on the economy, consequently affecting job creation. Unemployment continues to be on an upward trajectory, as we enter the 4th month of lockdown, making it increasingly difficult to predict the magnitude of its impact on the economy. Rising insecurity in terms of an individual’s long term employment and income have made people more cautious while considering investment options. Real Estate has always proven to be a sound long term investment and continued to remain a safe place to park ones savings considering the increased need for security and shelter.

It continues to remain one of the few investment avenues that are backed by a hard asset, easily tradable and generates income both physical (rental income) and notional (price appreciation). The idea of owning a house never seemed more secure and necessary as it does now. With work from home becoming the new normal, there has been a rise in the demand for greater space. Additionally, as public transport is no longer viable as well as a safe option, employees across the board are looking for residential spaces which are closer to their workplace.

In the light of these developments, property prices continue to hold the fort and remain stable. As interest rates stand at an all-time low in 15 years coupled with an expectation to reduce further, the current times offer a lucrative opportunity to you individuals with a desire to invest in real estate.

Over the last few years, especially in metro cities, numerous people have opted to rent a property instead of buying it. A large number of factors have fuelled this trend – the lack of cash flow for a down-payment, the reluctance to ground oneself to a location or city or the financial savings that come with renting as opposed to buying amongst others. Some of these determinants remain unchanged even during the COVID-19 menace. However, for those looking to purchase a property from an absolute financial point of view, it is unlikely to find a better time. This deems truer for NRIs who are planning to move back, bearing in mind the consistent depreciation of the rupee to the dollar and other prominent currencies. Here are some factors to consider in the persistent scenario, whilst trying choosing between renting and buying.

1. Investment backed by a hard asset: One cannot ignore the fact that real estate is one of the few spheres of investment that provides the security of a hard asset along with assuring monthly cash flow. The safety of one’s own home in uncertain times can be a blessing and reduces stress as well as anxiety.

2. Availability of close to ready inventory: There are various options today in terms of close to complete buildings or ready to move in available apartments. These eliminate all forms of market risk, therefore proving to be a secure choice. Further, in modern times the pricing of such properties is marginally different from those under construction.

3. Financial opportunity: The gap between interest rates on home loans (~7% p.a.) and rental yields (~3% p.a.) is shrinking consistently and is expected to further contract soon. The upfront costs (security deposits), and consistent increase in rent irrespective of market conditions (~15-20% every 3 years) will contribute towards reducing this gap even more. In addition to this, a licensee is unable to benefit from any appreciation of the asset and rent paid by him in no way increases his equity, subsequently making the pricing gap increasingly justifiable.

4. Government policies: With every government that has come and gone, the best interests of home buyers have always been a subject of priority. The policies designed by them aim at easing the pressure faced by the purchasers. Such measures can be experienced in the form of tax breaks for EMIs and lowered taxes on long as well as short term capital gains. The formation of RERA is yet another step taken to ensure the security of the homebuyers. However, these reforms are unlikely to benefit any licensee. It must be noted that the government will always encourage investment overspending (which is different from consumption). Keeping this in mind and given that the nation is presently in a fragile economic state, one can expect the announcement of SOPs that will further help those who are keen to invest in property.

5. Fewer avenues for consumption and spending: As the world grapples with the ripple effects of the COVID-19 pandemic, there is shrinkage in the presence of areas for spending. Locked up within the confines of one’s home, most families will save on expenses that they would otherwise incur during travel, social outings to restaurants or movie theatres and other purchases. The lockdown has taught individuals to spend on things which are necessary and to curb frivolous expenditure. With this trend grabbing the centre stage, it is safe to assume that families will save more this year as compared to any other and there is no better way to invest the surplus apart from purchasing one’s abode.

With the presence of the varied benefits of purchasing a house, some of which are mentioned above coupled with the emotional aspect of owning a home, the decision between renting and investing simply gets clearer. Additional factors such as home-schooling, work from home and walk to work are also becoming significantly normal, motivating individuals to consider upgrading or buying their place.

Finally, a plethora of experts have zeroed down to the conclusion that owning a family home is a great way to ensure lifelong financial security. While markets can be uncertain in the short term, property values will increase over time. Therefore, in the case of property, fence-sitters tend to lose out.

About The Author
Priya Saha I am content writer at LoogleBiz -A Large Local Business Directory with over 5 years' experience in creating high-quality content for a range of clients. Writing clear marketing copy to awareness about products/services, Preparing well-structured drafts using Content Management Systems, Researching industry-related topics (combining online sources, interviews and studies), include conducting thorough research on industry-related topics, generating ideas for new content types and proofreading articles before publication. #Some qualities that I have - *Excellent command over English language. *Basic analytical skills. *An eye for details. *Ability to meet deadlines. *Ability to develop innovative and engaging content. *Being able to deliver under deadlines. *Excellent writing and editing skills in English *Good command over Microsoft Office tools like Word doc, Powerpoint etc.

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