Real Estate

Real estate:

Real estate is the ownership of land and any permanent structures attached to it. Unlike “paper assets” (like stocks), it is a tangible asset that you can see, touch, and control. In a financial context, it is categorized as an Alternative Asset Class because its price movements are often independent of the stock market.

2. Strategic Classification

To build a balanced portfolio, we classify real estate into four distinct sectors:

• Residential: Single-family homes, apartments, and villas. Primary focus: Capital appreciation and family legacy.
• Commercial: Office spaces, retail outlets, and shopping malls. Primary focus: High-yield rental income.
• Industrial: Warehouses, logistics parks, and distribution centers. (A high-growth sector in the current e-commerce era).
• REITs & Fractional Ownership: For clients who want real estate exposure without the hassle of property management, Real Estate Investment Trusts (REITs) allow you to own “shares” of premium commercial properties.

The “Power Duo”: Leverage & Appreciation

One of the most compelling reasons to include real estate in a portfolio is the mathematical advantage of Leverage.

• The Power of Leverage: Real estate is the only asset class where banks will willingly lend you 70% to 80% of the purchase price. This allows you to control a high-value asset with a small amount of your own capital.

Example: You buy a property worth 1 Crore with 20 Lakhs of your own money and an $80$ Lakh loan. If the property appreciates by 10% (10 Lakhs), your actual return on your invested 20 Lakhs is 50%. This “multiplier effect” is how generational wealth is accelerated.

• Natural Appreciation: Unlike cars or machinery, land is a finite resource. As population and infrastructure grow, property values naturally rise. In India’s growth corridors, well-located properties often act as an effective inflation hedge, as property prices typically rise faster than the cost of living.

Portfolio Importance & Benefits

• Reliable Inflation Hedge: Real estate is a “natural” hedge; as the cost of living increases, so do rental rates and property values, ensuring your purchasing power remains intact over decades.
• Risk Mitigation through Diversification: Because property markets often move independently of bonds and stocks, a real estate allocation reduces the overall volatility (the “ups and downs”) of your total net worth.
• Generational Wealth Creation: The long-lived nature of real estate makes it the ideal asset for estate planning, allowing for the seamless transfer of a “productive” asset that provides income for future generations.
• Psychological Comfort: Unlike “paper assets” that can fluctuate wildly on a screen, the physical presence of bricks and mortar provides a level of tangible security that few other investments can match.

Tax Benefits (India FY 2025-26)

Investing in real estate offers some of the most robust tax “shields” available in the Indian Income Tax Act:

• Deduction on Interest (Section 24b): Claim up to ₹2 Lakh per year on the interest paid for a home loan (for self-occupied property). For rented properties, the entire interest can often be set off against rental income.
• Principal Repayment (Section 80C): Claim up to ₹1.5 Lakh on the principal portion of your EMI (under the Old Tax Regime).
• Standard Deduction: You automatically get a 30% flat deduction on your rental income for “repairs and maintenance,” regardless of your actual spending.
• Capital Gains Exemptions: Under Section 54, if you sell a house and reinvest the profit into another residential property, you can potentially pay zero tax on your gains.