Grounds for not Receiving PMAY Subsidy on Housing Loan
Pradhan Mantri Awas Yojana or PMAY is a housing subsidy scheme launched by the Prime Minister of India, …Read More
Buying a home is the biggest financial decision many people make in their lifetimes. If financial goals were to be ranked on basis of importance, there’s a good chance that owning a house would be in the top three priorities of every investor. Unlike other asset classes, there’s a lot of emotions at play while buying one’s own house. Peace of mind, the pride of ownership and security are some of the important intangible benefits that play a crucial role in the decision of buying a house. There are many logical reasons why home ownership should be looked as an investment decision and as an asset class in the longer term.
Investments in property has been traditionally relied upon for generating regular income from a very long time. From business houses to individuals, investment in land or property has been a favourite option to park surplus funds. Over years these investments have increased in value and are worth hundreds of crores today.
For individuals the part which makes property investment so attractive is its capability of generating stable short term income. The short term income is generated in form of monthly rent. The rate at which the rental income grows, generally beats inflation in long term. This is especially true for Metro, Tier1, and Tier 2 Cities. As the monthly yield of property grows, this also pushes the overall property price up.
Post marriage Sahil and Jhanvi chose to stay in their parental home even after buying a residential apartment on loan. Being near to the office complexes, putting the apartment on rent was not at all a challenge. Over the years the rent kept on increasing approximately at 10% while the EMI did not fluctuate much. Hence paying for the EMI from the rental income was always convenient. So after 20 years they had an appreciated property to their name, funded by rental income and an additional earning of rupees 15 lakhs from excess rentals.
Additionally, Sahil took benefit of saving his income tax as given in the table below and today the property appreciation has been close to 80% should he plan to sell it off. If Sahil does not sell the property it has potential of generating future income during his retirement period.
|Section of the IT Act||Type of Deduction for Home Loan||Deduction Limit|
|Section 80 C||Tax deductions on the principal repayment||Rs 1.5 Lakh|
|Section 24||Tax deductions on the interest amount payable||Rs 2 lakh|
|Section 80EE||Additional home loan||Rs 50000|
Buying over renting has been a wiser choice for most of the people who invested in properties in last 2 decades. Buying makes even more sense now with the affordable home loans and rationalised property rates as compared to last decade.
Mr. Bansal’s eatery shop at Chawri Bazar was shut down during the COVID lockdown with hardly any customers and no labours to run the show. He was in a bad state of affairs with two school going children and ailing parents to support. A friend of his having a tailoring business, diversified into making masks and he needed a workshop for his tailors and keeping the stock. Mr Bansal could tide over these testing times by renting out his shop to his friend.
I think we have established the benefits of renting out in the salaried example. In this self employed example we should elaborate on Loan against property – that how he used property as collateral to get a loan much cheaper than credit card or personal loan and used it to build a website for his grocery shop that reshaped his business to meet the new normal and stepped up his revenue game.
The Reverse Mortgage Loan (RML) was introduced in India in 2007 to improve the life of house-owning senior citizens. According to industry sources, 20 percent of the Indian population is likely to be elderly by 2050. In reverse mortgage the senior citizen who owns a house or property, can mortgage his property with the financial institution and the financial institution pays the individual a regular amount. Reverse mortgage is an excellent option for the retirees who wish to have a better lifestyle but are lacking in covering their expenses from the meagre income that they are getting from other sources.
A property apart from being a friend in need and providing regular income carries other advantages too:
So a property is just not a medium to park surplus funds and create an asset, it can have multiple benefits from generating regular income to coming at rescue during difficult times like in the case of Mr Bansal and it can be used to fund personal as well as business needs.