Five reasons why buying a house is a good investment

Most people spend years thinking if it is worth buying a house while property prices continue to appreciate. They believe that returning to their native place after retirement will ensure they have a roof over their head in the twilight years. But they miss the point that a house is also an investment that appreciates daily. 

Even if you decide to move back to your hometown in the twilight years, the house can be used by the next generation or sold to get very good returns. As has been evident in the last few decades, property prices across India have been on an upswing, making purchases unaffordable for many working professionals. 

Real estate also protects you against inflation through capital appreciation. As living costs increase, property values also appreciate, preserving and even growing the value of your investment over time.

So if you are among those who can buy a house but are wondering whether to go ahead or not, here are five reasons for you to take the plunge:

1. Appreciation of Property Value

Real estate in India has historically shown steady appreciation over time. Housing prices in the top ten cities including Bengaluru, Gurugram, Chennai, Navi Mumbai and Hyderabad have surged 88 percent in the last five years, with Gurugram witnessing the maximum increase of almost 160 percent, according to real estate data analytics firm PropEquity. 

In metropolitan cities and even in developing urban areas, property values increase with time, providing significant returns in the long run. Even if you sell after a decade or two, the appreciation often outpaces inflation. 

Also Read: Top 10 FDs with the highest interest rates

2. Security and Stability

Owning a home provides long-term stability. Unlike renting, where you may have to move due to landlord decisions or a limited contract period, owning a home ensures you have a permanent residence. This sense of stability is particularly valuable in India, where many people consider homeownership a sign of social and economic security.

Moreover, if you have children, changing their school if you shift home is tedious and expensive. Similarly, commuting to and from the office for working professionals can be challenging if they don’t get the next house on rent in the same vicinity.

Also Read: Five tips to save money for buying your dream home

3. Tax Benefits and Financial Incentives

Saving income taxes is a top priority for most working professionals in India, especially salaried individuals fully within the tax net. Yields on investments in tax-saving tools like insurance, bonds, and provident funds have significantly declined in recent years, and the maximum allowable tax-saving through these tools hasn’t kept up with inflation and the rising cost of living.

Home loan borrowers in India can avail themselves of several tax benefits, such as deductions on the principal repayment under Section 80C and interest payment under Section 24(b) under the old regime of the Income Tax Act. These incentives make buying a house more affordable and financially beneficial than renting.

4. Generational Wealth and Legacy

A house is often passed down through generations, offering financial security and a sense of heritage. Property is seen as a valuable asset for building generational wealth, especially when considering rising property costs in urban and suburban areas.

Most owners of plush properties in metros today are second or third generation members enjoying the fruits of investment by their parents and grandparents. You can also create this legacy.

Also Read: Five reasons why you must write a Will

5. Potential Rental Income

Buying a home in a well-located area can generate passive income if rented out. Rental yields in Indian cities can add a steady income stream, providing returns on investment and even covering EMIs for a home loan in some cases. Rental yield is the annual return on investment (ROI) that a property owner receives from rent. A good ROI for a rental property in India is between 3 percent and 4.6 percent.

In Q1 2024, Bengaluru had a rental yield of 4.45 percent, which is a 24 percent increase from 2019. This is due to strong post-pandemic demand for rentals and the return of IT companies to the office.

Similarly, In Q1 2024, Mumbai had a rental yield of 4.15 percent, a 19 percent increase from 2019. Therefore, buying a house in India is unlikely to be a loss-making proposition given the rising demand and limited supply.

(Karan Deo Sharma is a Mumbai-based finance and equity markets specialist).

Also Read: 10 equity mutual funds that gave over 60% returns in the last one year

Look up our YouTube Channel