Real estate is one the favourite topics of discussion throughout India. The effect that Real Estate has had over the financial lives of millions in the past decade or two is tremendous. People in our country believe that this would continue forever. There are multiple arguments for as well as against this belief. The fate of Real Estate may not be decided by these arguments. Here are five reasons why you should stay away from Real Estate irrespective of its growth.
1) Illiquid Asset
This is one of the primary reasons why you should avoid higher investments in Real Estate. It is an illiquid asset. There are times when you have to wait for months together to get buyers for your property, especially during times of recession. In such times, you may even have to settle for losses. Even in good times, it’s not easy to sell off properties due to the higher amounts involved.
2) Unorganized Market
Real Estate in India is not an organized market. It is fragmented. Brokers rule the roost in most cases. Property prices could see steep rise or fall due to various rumours. Formations of capital cities, laying new roads, etc are some of the reasons for rise or fall. Hence, there is enough uncertainty to reap returns by investing in Real Estate. Govt. could do well to make it organized and regulated.
3) No SIPs Allowed
The biggest difference between Mutual Funds and Real Estate is the availability of investing through SIPs i.e. Systematic Investment Plan. You need to investment lump sum amount in Real Estate. You have the option to avail a home loan. However, you need to pay at least 20% of the property cost from your pocket. With the rocket high property prices, this could be in lakhs.
4) Miscellaneous Expenses
Property cost is not the final cost that you would have to pay to own it. There are multiple other expenses involved that you would have to encounter in the process. These include registration costs, stamp duty, brokerage expenses, legal expenses, etc. These can be quite significant part of the property cost.
5) Not Tax Friendly
Unlike investment products like Equity Mutual Funds and PPF, Real Estate is not a tax friendly option for investors. Selling of property involves paying capital gains tax based on the tenure of holding it. If you are holding it for less than 3 years from the date of purchase, the profit will be added to the total income for the year and taxed accordingly. If it is more than 3 years, there would be a tax of 20%. Indexation benefits are offered, though. As we know, equity mutual funds are tax free after one year of purchase.