An increase in the demand for low financial commitments and high returns has evolved the way of investing in various ways. In the times of our grandparents, only real estate, physical gold and silver were the options in the name of investments.
Now, times have changed drastically. We don't have much money to block in a single type of investment, and real estate requires a huge amount of financial commitment.
There can be two ways of investing in real estate;
- Investing in physical property
- Investing in REITs
Why to invest in physical property?
There are key reasons to invest in real estate property;
No volatility
You don't have to worry about market volatility. Real estate investing is less risky than equity investing because it doesn't require specialised knowledge and is less volatile.
Tax benefits
Mortgage interest, insurance, maintenance and repair expenses, and even property depreciation are all eligible for tax incentives from the government. Long-term investments in real estate typically attract lower tax rates.
Passive income
Capital appreciation and rental income increase are key benefits of investing in properties. Owning a home guarantees you a steady and predictable monthly income.
Disadvantage of investing in physical property
A major drawback of investing in a property is it requires a huge amount of capital that retrain you from diversifying your investment to explore other opportunities.
Why to invest in REITs?
Since REITs are a new asset class in the Indian markets, they should be easier for regular investors to access by listing additional REITs in India and relaxing the minimum lot size and investment value requirements, where the minimum lot size for investing in real estate through REITs in India is ₹10,000- ₹15,000.
Here are a few benefits of investing through REITs are;
Diversification of portfolio
As most of the REITs are frequently traded on the stock exchanges, you have an option to diversify your real estate portfolio.
Transparency
REITs are proved to be more transparent than physical property as they have no unregistered third-party involvements. REITs are regulated by SEBI and required to audit their annual financial report.
Liquidity
REITs provide you with the benefit of liquidity, as you can withdraw your money whenever it is required. They are easy to buy and sell on the stock exchanges.
High returns
Unlike equity market ups and downs, REITs have given 12%-20% annual returns. REITs returns are capable enough to beat the prevailing inflation in the country.
Disadvantage of investing in REITs
No taxation
One of the most significant disadvantages of investing in REITs is you cannot avail of the tax benefits. Dividends or any income earned from the REIT companies are subject to tax.
Market-linked risks
In the case of investing in physical property, you do not have to worry about stock market-related risks and exposures. But, in the case of REITs, you need to have a risk-taking capacity to get returns.
REITs are a new way of investing in real estate that attracts you the most. You need to establish a financial objective that you are expecting from your particular investment. Affordability of an investment would be the next and most important thing that you need to consider before making an investment decision.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
