Is it time to invest in property?

[N.Sukumar]

Inflation is at high levels. Hence, returns on fixed income
instruments like bonds and fixed deposits have lost their glitter. So,
where does the salaried class invest the surplus it saves?

Investments in real estate are considered safe and rewarding. It is
seen as an effective hedge against inflation. With inflation
uncertainties looming large and house rents crawling upwards, it is
time you owned a roof over your head.

For the past few years, home loan rates were constantly inching
northwards. Adding to the woes were the increase in steel and cement
prices, increasing the construction costs. But indicators are rife
that things are set to change for the good. Some banks have already
cut their rates and other have introduced lower rates for new
borrowers. Coming back to the initial query, is it time to invest in
property?

Banks vie with each other to lure in maximum customers. This is
because home loan borrowers seldom default on their monthly
commitments. Flexible repayment options, and lucrative loan packages,
make the loans appear affordable. With cost of renting a house going
up in the cities, it makes more sense to invest in a property and pay
EMIs towards it. If you've a stable regular income and a good credit
history, securing a home loan might not be a difficult task.

Perhaps the one big reason for the salaried class to apply for a home
loan is the attractive tax sops. Let's understand the tax benefits
associated with home loans. The amount of EMI outflow is directly
dependent on principal amount, rate of interest and loan tenure. The
greater the loan amount, the greater the EMI towards the loan. EMI can
be broken into two components - the principal component and the
interest component. During the initial years of the loan tenure, the
equated monthly installments would have a higher share of interest
component. However, towards the end of the tenure the principal
component will be high.

The principal repayment that borrowers make on their home loan is
eligible for income deduction under Section 80C of the Income Tax Act.
The limit under Section 80C is Rs 1 lakh.

Under Section 24 of the Income Tax Act, the maximum amount of interest
that can be deducted from your taxable income is Rs 1.5 lakhs. As a
result, your taxable income decreases by that amount. This limit is
for selfoccupied property only. Homeowners who invest in a second
house can claim benefits for interest repayment of the home loan.
There is no limit on the interest repaid unlike the Rs 1.5 lakhs limit
under Section 24 for self-occupied property.

Source : Economic Times