Is Real estate investment better than an FD?

Investments can be either a boon or a bane to investors. Most times, it may seem like a gamble since anything could happen with the fluctuations in the market. However, that can change if you are aware of the different types of investments and how beneficial they can be in the long run.

One such question that is frequently asked by investors is “Which is better: Real Estate Investments or Fixed Deposits?” Fixed Deposits give a higher rate of interest than a regular savings account to investors while real estate investments are cash flow dependent and capital intensive. So which one is better? Read on to find out.

Returns

Fixed Deposits only provide for basic returns with an interest rate of up to 8% – 9% for about three to five years. Real estate investments, on the other hand, have a high-risk-high-return scenario due to the current state of the market in India. However, when you are looking for long-term profits, real estate offers a much higher profit margin. The average returns of the last five years in real estate are  between approximately 15% – 20% per annum. Real estate may be more expensive, however, you are almost certain to make up your investment through high rates of inflation.

Liquidity

Liquidity of an asset refers to how easily an asset can be converted back into cash. You can break into your Fixed Deposit account, however, you might be charged a penalty depending on the nature of your Fixed Deposit and the period for which you have been investing in it. Fixed Deposits come with a certain maturity date. If you break your Fixed Deposit account before the maturity date, you run the risk of attracting a penalty and lower rates of interest gained from your investment. With a real estate investment, however, there is no set maturity date. If you want to sell your property, you can do so at any time. As long as the real estate prices are appreciating, you will earn a profit on your sale.

Tax benefits

As far as tax rates are concerned, the tax payable on fixed deposits varies depending on the income tax slab of the applicant. Under section 80C of the Income Tax Act allows individuals to claim a deduction of up to Rs. 1.5 lakhs for investments in Fixed Deposits.  However, real estate investments have a different taxation structure. Section 80C of the Income Tax Act also allows individuals to claim up to Rs. 1.5 lakhs as deductions against the principal amount of their home loan. Section 80EE offers a special incentive to first-time home buyers by allowing them to claim an extra deduction of Rs. 50,000 above the existing Rs. 1.5 lakhs. The tax benefits of investing in real estate are even greater when a couple takes out a joint home loan. In this case, both of them can separately claim tax deductions of Rs. 1.5 lakhs against their home loan.

Usability

Real estate investments have greater usability as property can be rented out and returns between 2% – 4% can be earned. Additionally, you have the added bonus of self-occupancy by investing in real estate. The case is not the same with fixed deposits. Though the matter is based on how much risk you as an investor are willing to take, as per the the current financial scenario, property investments are a much better option than fixed deposits.

Inflation Rates

One factor that many people don’t take into consideration when calculating the best avenue for investment is inflation. Due to inflation in the economy, taking returns on your investment at face-value will give you inaccurate results. To earn actual profits, your investment should yield more money than the current rates of inflation. Fixed Deposits, when adjusted for inflation, offer returns that are barely higher than the inflation. Real estate, on the other hand, offers as much as 3 percent higher profits than the current inflation rates. This means that when adjusted for inflation, real estate is a much more profitable investment than Fixed Deposits.

Investing in real estate is a far better option than fixed deposits due to the higher security and reduced risk it offers. Since the introduction of RERA, the property market has reached a state that is perfect for both domestic and NRI investment in Indian real estate. For a fool-proof investment, be sure to buy property that has been constructed by a reputed builder. Legacy Builders are one of the best developers in Bangalore for beautifully constructed luxury apartments in Bangalore.