Why Is Diversification In Real Estate Required?
Diversification is an extremely important process for investors. In order to reduce overall risk from different markets, investors spread their money into different investments. Diversification in real estate is also required as real estate investment is much steadier and tangible, which makes it difficult for your investment to disappear into the air.
There are also two types of thoughts:
Investors who diversify do so in order to reduce unsystematic risk. They ought to balance risk & reward by allocating their investments in real estate across different markets and corners of the nation. Investors who specialize, on the other hand, focus on buying similar types of properties. They try to repeat what is successful, without spreading themselves too thin.
Interesting Facts about Real Estate:
- The real estate sector is the second-largest employer in the country after the agriculture industry. The real estate market has grown at a CAGR of 30% in the past decade making it an outstanding investment.
- There are about 29,95,84,361 households in India, second only to China. This staggering number exceeds the population of more than half of the world’s countries.
- The real estate sector in India is growing at a brisk pace & is expected to reach US$ 1 trillion by 2030. According to estimates, it will contribute around 13% of the GDP by 2025
- The retail real estate and warehousing segment attracted private equity (PE) investments of US$ 220 million and US$971 million, respectively, in 2020.
- Kankarbagh Colony in Patna, Bihar is Asia's second-largest residential colony, spread over an area of 900 acres.
Recent Government Initiative in Real Estate Sector:
Several initiatives undertaken by the Central Government in collaboration with the States are expected to give a major boost to the realty sector, scarred from the pandemic blows. The Centre’s Smart City Project, aimed at building a hundred futuristic & liveable spaces is a landmark decision in this regard. Listed below are a slew of measures that are expected to give wings to the realty sector as well as its ancillary industries:
- The Real Estate Regulation & Development Act (RERA) was passed in 2016 with a view to adjuvate speedy resolution of disputes for homebuyers as well as fresh investments. This act was further amended to include the union territory of Jammu & Kashmir. This move paved the way for any Indian citizen to own land & freehold property in the valley as opposed to only local residents earlier.
- Tax deduction on interest of housing loan up to ₹1,50,000 on principal repayments (Section 80C) & tax holiday for affordable housing projects were extended till the end of 2021-22 fiscal.
- Tax relief measures for home buyers & real estate developers for primary purchase/sale of residential units up to a value of ₹2,00,000 under the Atmanirbhar Bharat 3.0 package.
- The Ministry of Housing and Urban Affairs (MoHUA) launched a housing rental portal for affordable homes.
- An Alternative Investment fund of ₹25,000 crore is being set up to revive around 1,600 stalled housing projects across the length & breadth of the country.
- Creation of an Affordable Housing Fund (AHF) with the National Housing Bank (NHB) worth ₹10,000 crores for microfinancing of HFCs (Housing Finance Corporations)
- Formal approval of 425 SEZs out of which around 265 are in operation with a view to attract domestic as well as foreign investor interest
Various government measures have resulted in an increase in the affordability ratio but have taken a hit since the pandemic, as you can see in the graph below.