This old article may have references to outdated tax rules and laws. For up-to-date information on taxation of mutual funds, refer to https://www.valueresearchonline.com/tax/
Last week, I received a question from a Value Research Online member which was about real estate as an investment. The questioner has two apartments on which he is paying a certain EMI. These are intended as investments although at some point in the future, his offspring will inherit it. He’d like to know whether it makes sense to sell one of them and make the other debt-free with the proceeds.
Get updates from Value Research in your inbox
This kind of a query is not uncommon. While the details of a particular question may be different from another, there’s the same dilemma at the bottom: is real estate a good investment? In the go-go years of the real estate boom, no one asked this question because they assumed that real estate was a great investment. However, the boom faded long ago and then the fade became a never ending slump while people kept paying EMIs at higher and higher interest rates. Now, there’s hardly any erstwhile investor whose heart is not full of doubts. Those who bought property from unaccounted cash are quietly holding on but the honest EMI payers are in deep depression.
The answer to this question lies in evaluating real estate investments in the normal terms of any investment–liquidity, safety, transparency, returns and similar parameters. Most people get confused about this because there is a fundamental difference between your first house where you live in and property bought purely as an investment. The first house is a need and when you take into account the fact you can stop paying rent and get a tax break on the EMIs thus getting a big financial advantage. In any case, a first house may or may not turn out to be an investment–it doesn’t matter.
But after that, the case for real estate is shaky. The ticket size is huge, and liquidity is poor. The entire investment has to bought and sold at one go. You may or may not be able to sell when you want to–in a slump, entire markets disappear for long periods. Pricing may be hard to discover. Information is anecdotal and hard to verify. Looking at it sensibly, the answer is clear.