Why Real Estate Outshines Fixed Deposits as an Investment Choice

The pandemic has severely impacted the market, creating unprecedented uncertainty around investments, employment, and financial stability. With every sector feeling the effects, one of the most pressing questions is: which sector offers the safest investment opportunity? Many are choosing to hold onto their savings, avoiding any form of investment due to the current climate. However, understanding the best way to not only protect one’s assets but also grow them is crucial.

Different investment avenues present various opportunities for long-term growth. However, given the current unpredictability, the question remains: who is willing to take the risk? Traditionally, the stock market has been a viable investment option, especially for those ready to navigate its inherent risks. However, in today’s volatile and unpredictable environment, one might see significant gains one day and catastrophic losses the next. This level of risk is a considerable concern for the average investor. So, what’s the safest, most risk-free investment option available today? Indeed, there is a more secure alternative.

 Real Estate: A Growing and Reliable Investment Sector

The real estate sector has been on an upward trajectory in recent years, bolstered by reformed regulations, the implementation of RERA (Real Estate Regulatory Authority), and various other factors. Despite fluctuations in other markets, real estate has shown resilience. Since 2016, property prices have remained relatively stable, making this an opportune time to invest in real estate, as the market’s trajectory appears to be upward from here.

But in the context of the new normal, is opting for the traditionally safe fixed deposit investment over purchasing a home the right choice?

 Advantages of Investing in Real Estate Over Fixed Deposits

 1. Lower Home Loan Interest Rates

The current scenario offers significantly reduced home loan interest rates, with loans extending up to 15 to 20 years at rates as low as 7%. This makes home loans more affordable and accessible for many potential homeowners, presenting a golden opportunity for real estate investment.

 2. Attractive Offers and Incentives on Properties

Builders and developers across major cities like Mumbai, Pune, Bangalore, and Hyderabad are offering exciting deals on properties, further sweetening the home-buying process. These offers can make purchasing a home not only a secure investment but also a highly profitable one. For instance, some real estate developers are providing rental guarantees, where buyers are assured a fixed rental income for a certain number of years, along with annual escalations. This provides a dual benefit of asset appreciation and regular income.

 Comparative Analysis: Real Estate vs. Fixed Deposit

Let’s delve into a comparative analysis to understand the financial benefits of investing in real estate versus fixed deposits, particularly in some of the key property markets in India.

 Rental Income vs. Fixed Deposit Returns

Investing in a residential property, such as a 1 BHK apartment in a developing area of Mumbai, Bangalore, or Pune, can yield an average annual rental income of around 4.50%. After considering tax deductions, the net rental income stands at approximately 3.18%. In contrast, a fixed deposit might offer an interest rate of about 5.25%, which, after tax deductions, results in a net return of around 3.05%. Additionally, rental properties have the potential for 5% rental appreciation annually, coupled with the likelihood of property value appreciation—a benefit not available with fixed deposits.

 Monthly Rental Income vs. Quarterly Fixed Deposit Returns

Another advantage of real estate investments is the nature of rental income. Rental income is typically received monthly, providing a steady and more frequent cash flow. This monthly return, particularly in cities with high rental demand like Mumbai or Bangalore, offers a compounded financial benefit compared to the quarterly returns from fixed deposits.

Moreover, rental income is usually received in advance, enhancing cash flow management. This regular, upfront income is a significant advantage over fixed deposits, where interest income is typically credited quarterly.

 Long-Term Benefits of Real Estate Investment

Investing in real estate, particularly in emerging localities within major cities, not only secures a tangible asset but also ensures long-term capital appreciation. Real estate investments have historically shown resilience and growth, especially in high-demand areas driven by infrastructure development, commercial growth, and urbanization. For instance, properties in rapidly developing suburbs of cities like Pune or Hyderabad are expected to appreciate significantly in the coming years due to ongoing and upcoming infrastructural projects.

Furthermore, the interest of the government in revitalizing the real estate sector during these challenging times, coupled with the RBI's decision to link home loan rates to repo rates, offers additional advantages. This linkage ensures that home loan interest rates decrease whenever the RBI lowers the repo rate, making home loans even more affordable. The introduction of new rental laws has also made the renting process more secure for investors, providing a safeguard for those looking to earn steady rental income.