Rental property be it residential or commercial can be a good retirement savings investment.But it does require planning in advance years before retirement and a huge investment.
Rajesh Mehta 52, a business man who lives in Andheri, Mumbai says “I have bought on loan second property in Malad 8 years ago solely for the purpose of renting it so that when I retire I get good monthly income. Investing in Property is a safe investment. A regular income is needed in retirement, and in most cases, the value of the property increases over time, so does the rent. Mumbai real estate market offers the investor’s good returns in short span of time. I am happy as I am getting good amount of rent which is helping me to pay the EMI and by the time I retire I will get monthly income of rent”.
Retirement requires proper planning of one’s finances to secure ones future. Financial management is an important aspect for individuals as in India there is no robust public welfare system equivalent to social security or public health scheme. “To have a good retired life, prudent savings and investments have to be done. Real estate is one of the main investment assets that are created either for self use or as an investment to be monetized later. Apart from Gold (which may be held as physical asset or bonds), Real Estate is the only other tangible asset that one can invest in and is the only tangible asset that can provide periodic income in the form of rents. The purpose of investing in real estate can be both investment for rental income or for monetization. However, while real estate is tangible and has rental potential, the rental returns in India are not the best at this point in time. In case, a buyer wants to monetize the property, a mid to long term hold period also implies of at least 5 years”, says Girish Shah Executive Director, Residential Services Knight Frank.
Diversification of funds is important and it is preferable not to pool investments in one portfolio. Mutual funds provide high returns, they also carry high risks considering the markets fluctuations, compared to fixed deposits and post office schemes which have fixed rate and returns/dividend are fixed but it do not provide a high return. While investments on gold can be easily liquidated, it is a one-time return and does not generate regular income.
“Investment in real estate is considered an appreciating investment as over years the value of land has only increased. A rent yielding property could result in reasonable monthly returns with periodical escalation of rent. While investments in real estate is a good option, it should be noted that real estate investments might also tag along issues running with the property. One should carry out sufficient diligence on the property prior to purchasing the property to avoid any legal issues that the property may have,” states Gerald Manoharan, Partner, and J Sagar Associates.
Real estate has plenty options for investment
The realty market has a wide range of options for investors from affordable housing to high end luxury living and office spaces. “Opting for a property of any kind depends on either end use of the investment intentions For instance, commercial property is said to give higher returns but residential properties can be looked at an investment as well as for self-use. When investing, one needs to know the return they expect to get from their investment. Additionally, understand the price of appreciation expected from the kind of property they are investing be it commercial or residential,” says Farshid Cooper, MD, Spenta Corporation.
“Residential rental returns range between 2.5–4 per cent on an average, while commercial provide moderately better at 7 to 8 per cent. Historically, the real values have only come at the time of future monetization, however, in the last few quarters, the growth in capital values for residential have been limited,” adds Shah.
Most people who invest in real estate receive steady flow of cash in the form of rental income. The advantages that come with investing in real estate is apart from other asset classes. “One can claim a deduction on the principal loan repayment of up to Rs 1, 50,000 under section 80C of the Income Tax Act, 1961. In most cases, real estate investments are long term, hence once can claim capital gain on income taxes”, States Cooper.
Options can range from renting the place, or leasing or which can generate good income and benefit at the old age. “In the RERA-era, there is transparency and confidence among buyers that makes real estate investment a sustainable choice for the future. While the residential purpose of living is also a good option which can act as a retirement home or second home for the retirees. It acts as a back – up resource which can be used by various ways depending on the goals of owners”, adds Cooper.
Dos and don’ts of investing in Real estate
While investing in real estate, one should primarily be certain of the purpose of such investment and shortlist the location for such investment. “Prior to investing in real estate one must undertake a thorough legal diligence on the title of the owner to the property. In case of investments in a flat, the most common mistake people do is believing in the marketing tricks of the developer such as the project being approved by any bank (including a nationalised banks) or financial institutions. A mere bank approval for any project or property is not a conclusive evidence of it having a clear and marketable title with all legal and statutory compliances in place. Investing in a property should not be a hasty decision and one must be cautious. While reputation of the seller is important and the reputed developers do provide title reports, it is advisable to not rely on the same unless the verified by a reputed lawyer”, adds Manoharan.
Investing in real estate is hardly disadvantageous. Managing the property could be tedious and be heavy on the pocket at times, however if the property is rented/ leased, management of the property could be easily managed by such tenant. “While renting/ leasing a property, ensure that the rental agreement/ lease deed is thoroughly vetted by a lawyer. The document should be stamped and registered if required. Also constantly keep the property adequately secured and any attempts to create third party interests in the property are prevented in the initial stages. It is advisable to work a practical estate management structure for the benefit of legal heirs and beneficiaries, either by preparing a detailed Will or by setting up a trust structure,” concludes Manoharan.
