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Real estate investments in realty for portfolio diversification

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   A hedge against inflation, the realty sector throws innumerable opportunities for investors to participate in its growth story. From directly investing in a piece of land, the options have grown manifolds. Novel products like real estate funds allow even investors with a small amount of money to diversify their portfolio with exposure to realty.


   Why invest in property?


   Property investments have known to yield considerable returns over a long run. In an inflationary economy, you not only benefit with capital appreciation but also tax benefits and periodic returns in the form of rental income. Growing population, job opportunities, migration and industrial development will make the limited real estate space dearer. Cost of owing a piece of land has skyrocketed to unimaginable proportions in some cities.


   Despite a certain degree of risk and issues of liquidity, real estate is a sector that investors with high and moderate risk appetites can explore for their long-term financial goals. You can choose from the numerous instruments based on your risk appetite, liquidity needs and disposable money.


   Here are a few instruments you can choose from:

Mutual fund    

A few fund houses and investment banks are offering real estate mutual funds. It is an excellent investment opportunity for those who already live under their own roof and have surplus income that they wish to invest in this sector. You are free from the hassles of registration and other legal formalities.

Real estate investment trust    

They pool investor money and invest or develop commercial and residential spaces, lease them and even buy or sell, pocketing gains. A new concept in the realty scenario here, the real estate mutual fund (REMF) is slowly gaining popularity. Different REMFs concentrate on different geographical areas and ventures.


   Select a fund based on its past performance and feasibility of achieving its targets.


   A benefit of investing through a fund is that the professionals who take investment decisions will be equipped with credible information and network with industry experts at the highest rung. Since the fund will invest across various regions, the investment has minimal concentration risk.


   Since REMFs are relatively new, investors must exert caution before selecting a fund. Typical minimum investment in such a fund is Rs 25 lakhs that can be paid in installments.

Commercial space    

Directly investing in commercial space and leasing it out requires a large capital. But if you get the right location, a commercial space is a steady source of income for you.

Land    

You can buy a piece of land, and avail a land purchase and construction loan. Land is a limited resource and the growing population is making it more scarce. You can either build your dream home or sell the land after considerable price appreciation.

Residential property    

Banks offer loans at affordable rates. Those with enough monthly disposable income can take a loan to buy that dream house. Home loans are an enticing proposition with considerable tax benefits. The principal component of the EMI repayments qualifies for deduction under Section 80C subject to a limit of Rs 1 lakh. The repayment of the interest portion of the EMI is also allowed as a deduction under Section 24 - under the head 'Income from House Property' - up to Rs 1.5 lakhs for a self-occupied property and the entire amount in case of a property that is let out.


   Invest in realty after due diligence. An exposure of 5-15 percent of your portfolio to realty will amply diversify it.

Happy Investing!!

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