Without a doubt family homes showed phenomenal appreciation as an investment in the last decade. Despite the 2008 global meltdown, the residential real estate market in India showed its resilience in valuations and yields. Real estate as an investment is strongly supported by our Income tax laws – income/loss from house property, capital gains exemptions on reinvestments and wealth tax exemptions are few to mention. But it’s not all hunky dory! Before you invest your life-savings to purchase a property, make your decision after considering the following:

Bull-run may not repeat itself- The housing market has evolved. Valuations are not poised for the same bull-run that they had in the last decade. Builders are troubled for capital and equity. Projects’ executions are delayed. New projects are taking way too long in clearances. Holding off your purchase until the real estate bill is passed in the parliament this year, would help if one is keen to buy a property in a new launch. It is a landmark bill and will pay off in the long run.

The new crop of builders with inadequate experience- Too many new builders have appeared and it takes a toll on you to verify their credential and past successes. Newspaper reports these days are full of investors being duped by builders. They lack experience. They are non-compliant to regulatory guidelines. They have caused erosion of trust in investors of real estate. Many developers may not have necessary approvals for their projects that they are selling. One should ensure thorough documentation, scrutinize claims of ROI being made by the builders and verify details of the project before investing in them.

High capital protection & appreciation but poor liquidity- It takes a while to liquidate your property. If you need the money, you need to set aside at least 3-6 months to liquidate the property. Sometimes it has taken up to a year to wrap up the deal, leave alone any litigation that may arise due to poorly executed transaction thus blocking your sale proceeds. You cannot unlock a property’s value partially. Either it is sold or not sold. There is no partial redemption, like in mutual funds, to take care of liquidity needs that are much smaller than the entire sale proceeds of your property.

Property is for the long term– Whenever you invest in a property, if you are availing tax advantages, you better stayed in it for at least 8 to 10 years. It has been a store house of wealth in the past decade. Besides being a functional value, it has created wealth for millions of people in our country. And they were able to do so only when they realized that it was the tenure for which the property was held that mattered.

Asset allocation is the key when you invest- The allocation to real estate stays in your portfolio for long. When you sell the residential house, to exempt your capital gains from taxes, you will need to reinvest in property again unless you are willing to pay the taxes. So, if you have intentions of reducing your exposure to real estate, you may not be able to do so immediately unless you take an exit route paying capital gains taxes. These taxes can be enormous. So, if you would like to capitalize on equity bull cycles or fixed income investments in the future, ensure that you have a decent chunk allocated to other asset classes that are not real estate.

Though there is inherent demand in the family-homes market but there are multiple issues as well that the industry is grappling with. Watch out before you invest your life-savings. Do your research. Buy it only when it meets all your requirements – financial, emotional and tangible. Good luck!

Amit Kukreja is a fee-only financial planner (FPSB) and Investment Adviser (SEBI). He is the founder of WealthBeing Advisors, a financial planning and wealth advisory firm.