Real estate: When buying another home makes sense
Should you invest in a second house? Real estate experts and personal finance consultants believe it’s a lucrative investment. “It is a good time to buy a second home because a lot of residential projects have been launched over the past two years,” says Arun Chitnis at Jones Lang LaSalle India, a real estate consultancy.
The abundance of residential housing will keep prices at affordable levels. For savvy buyers, this may just be the right opportunity. “A self-occupied house is not an investment,” says Ranjeet S Mudholkar, principal adviser, Financial Planning Standards Board India . “With a second home, one gets to diversify into a different asset class,” he says.
An investment vehicle
People usually buy a second home to earn rental income or to gain from appreciation in value, to use as retirement home or as holiday getaway but it’s mostly meant to supplement income. “Buying a house is unlike any other investment. It creates wealth unlike a car that erodes money,” says HDFC managing director Renu Sud Karnad.
HS Samaddar, a senior government employee, bought a three-bedroom apartment in Gurgaon for Rs 8 lakh in 2002. Today, its value stands at about Rs 80 lakh, an annual return of almost 35% in the past eight years. The 25% compounded returns clocked by the Nifty during the same period pale in comparison.
The best part is he earned these returns on borrowed capital and got tax benefits as well. This wouldn’t have been possible if he invested in stocks. Besides, he earns Rs 14,000 as rent every month. “Unlike stocks, the risks involved in buying property are far lower,” he says.
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