And surprisingly, real estate investment doesn’t seem to carry any of negative attributes associated other assets such as equities (risky and unfaithful) and banks and post-office deposits (poor real returns).
The scramble to secure a pie of the lucrative real estate market has turned into frenzy ever since the government announced a tax-break on housing loans opening floodgates to the private sector investment in real estate projects. It’s not uncommon to find individuals owning three or even four residential properties. But this over reliance on real estate as financial planning tool can turn out to be a liability in old age. Consider this, post retirement, an individual needs an income stream that is regular, fairly predictable, can rise with the increase in inflation and most importantly easy to administer.
For all, its advertised virtues, real estate fails on the most of the above criteria. As mentioned above, a house is most often the largest investment for any individual, but it is seldom the biggest source of income/cash flows for a retiree.
This is because post-tax yields (i.e. rents adjusted for municipal taxes, income tax on rental income and maintenance costs) are pitifully low in India.
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