The finance minister has made several infrastructure-related announcements in the Union Budget 2023-24, which reflect the government’s focus on fostering connectivity and development. Investors have found success in the real estate market in recent years and the latest budget announcement will empower and benefit homebuyers even more as it becomes widely understood that real estate is an indestructible asset class.
If you’re wanting to diversify your portfolio, you may want to consider real estate. Using real estate in one’s investment strategy might lead to a variety of advantageous consequences. Real estate ownership may provide a portfolio with a variety of benefits, including income, capital appreciation, inflation protection, and diversification. Diversifying a portfolio is a form of risk management including the allocation of investment money among a range of asset classes to reduce the impact of any one market downturn or improve the potential for future profits.
A diversified portfolio helps your assets weather storms in the same way that a sturdy base helps a building stand firm no matter the weather. The dangers that can affect one asset or market may not affect another. When it comes to diversification strategies, not all are made equal. To properly diversify your portfolio, you need to consider options beyond the stock market and traditional security investments.
For instance, the purchase of equities across industries or indices may create the impression of diversification, but it is not likely to safeguard your holdings in a bear market. The economy and the stock market have close ties. This means that when one stock falls in value, it will experience a proportional and equally devastating decline. A market meltdown frequently has a domino effect on other markets throughout the world. Yet, real estate is a physical possession, a tangible asset.
Investing in real estate helps protect your portfolio from the ups and downs of the stock market, rising interest rates, and inflation. This answers the often-asked question – why asset portfolio cannot be complete without a real estate investment? Income from long-term lease contracts can constitute a significant portion of real estate returns. Aging populations, rapid urbanisation, and infrastructure development in India augur well for the real estate industry’s long-term growth potential.
Unlike other assets, real estate and real estate diversification pay dividends when the benefits are required most. Real estate investment yields are predictable and the sector has performed well from an asset-liability standpoint. On a long-term horizon, the risk of experiencing a significant real estate loss is extremely low and hence a sensible choice of investment. Real estate investment is also one of the most dependable means of achieving financial independence and generational wealth. A majority of the world’s well-known billionaires, including Warren Buffet and Bill Gates, include real estate investments in their portfolios. Real estate investment is one of the most trustworthy investments due to its long-term and short-term rewards.
Despite a slump in the market witnessed over time, real estate investment has continued to offer several popular gains. These include steady appreciation. Mumbai, as per a report recorded an average annual growth of 7.5%. According to a forecast by real estate consultancy firm Anarock, a resurgence in property values and a rise in rental returns in the past year have made residential property investing once again lucrative. It said that in 2022 property values in the seven largest cities of India rose by 6%. In these top seven cities, however, property values increased by 11% over the course of five years, from an average of 5,551 per square foot in 2018 to about 6,150 per square foot in 2022.
Assured cash flow: Investing in real estate also offers a guarantee of steady cash flow. For instance, when you invest in a rental property, you are guaranteed monthly or annual income. A majority of the time, the demand for real estate properties exceeds the supply. If you price your homes appropriately, you will likely have tenants throughout the year, ensuring a consistent income flow.
Better leverage against assets: Among the most undervalued advantages of real estate investment is the leverage it provides the investor. Using real estate property as collateral to obtain a loan that can be used for additional real estate investments or investments in any other industry of your choice is possible.
In conclusion, real estate has remained one of the most tried-and-true investment options due to continuity in demand. People will always prioritise housing because it is one of their essential requirements, along with food and health care, even in hard economic times. Real estate also provides some tax benefits, such as operating and owner expenses, depreciation, deferral of capital gains tax, property insurance, ongoing maintenance costs, and more. Compared to investing in other sorts of non-real estate assets, this lowers the overall cost. Finally, if you purchase rental real estate, you can continue to profit from it without making any active efforts as it frees up more time for personal pursuits or, if desired, other enterprises.
Views expressed above are the author’s own.
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