Real estate and stocks bracket the investment spectrum, both offering potential for wealth creation but poles apart in nature. While the housing market in India has provided time-honoured options for investment, today, investors are also parking their funds by investing in stocks.
If you are wondering if you should invest in real estate or stocks, this article is for you. Read on to understand everything you need to know about investing in stocks and real estate and choose the investment option suitable for you.
Consistency in returns
Real estate investments
While considering any financial instrument, it is crucial to look at returns. In real estate investment the returns can be inconsistent.
Besides, the housing market, once proliferating, has been slow in the last decade. According to the Reserve Bank of India (RBI) House Price Index (HPI), the sector’s growth has been sluggish and has slipped from 22-23% in FY11 and FY12 to 3.4% in FY19, reported the Mint. The figures further declined to 2.8% in 2020.
Moreover, a report from 99Acres.com indicates that India’s rental yield is one of the lowest worldwide at 2-3%. Here, rental yield denotes the annual rental return rates which investors earn against their invested capital in the housing property.
That said, rent from real estate investments acts as a steady source of income. And housing investments are a useful hedge against inflation since property value and rents skyrocket during the same.
Equity
Stock prices are comparatively more volatile, especially during periods of high inflation but deliver a high potential for capital appreciation. In emerging economies like India, higher inflation rates are directly proportional to the volatility of stock movements.
However, mutual fund investments generate great returns and have shown consistency in the recent past. Equity funds, among various others, have consistently delivered high returns.
Additional Read: Do the fundamentals of investing remain the same after a roller-coaster 2020?
Costs incurred
Real estate
Investment in real estate typically incurs expenses, including registration, stamp duty, maintenance, society charges, tax, brokerage, utility costs, etc. Besides, if you have financed your property purchase with a loan, EMI charges also apply. After renting out the property, rental values can compensate for the charges.
Equity
Here, the most common expenses include brokerage charges, stamp duty, securities transaction tax, and more. For equity investments, you don’t essentially need a large corpus of money; you can start by investing with small amounts.
Liquidity
Real estate
While housing investors possess the tangibility of owning an asset, these investments aren’t as liquid and taking money out isn’t easy. If you wish to sell the property, finding a suitable buyer, and undergoing paperwork and registration is important to amass desired profits.
Equity investments
Here you can liquidate your funds and sell them quickly with a trading account. All you need is some minutes online during the trading hours to sell your stocks and exit your investments.
Performance and diversification
Real estate
Real estate investments offer little or no scope of diversification. You potentially invest a sizeable sum in instalments or lump sum in a vacant, occupied, or under-construction property.
Equity
Stocks allow you to diversify through various financial instruments, with small and big amounts and build a diversified portfolio. You can invest in various companies, industry verticals, or equity instruments.
Impacted by market conditions
Real state
When you invest in the housing market, you depend on market conditions to increase property value, rental yield, and rents to secure the best profits.
Equity
Equity Investment have high exposure to market volatility. It is suggested to indulge in long-term stock investments for returns to accrue.
Additional Read: Investment Guidelines 2021-2022
Conclusion
Real estate serves as a secure investment option where prices remain stable across periods. For better returns, a rental yield over 3% can be considered an adequate yardstick. Similarly, if you are looking for capital appreciation, equity investment can fetch you higher returns in 3-5 year periods. Besides, by holding a portfolio of equity mutual funds, you can build a diversified portfolio and minimise the risk of loss.
Investors should always opt for an asset class aligning with their financial goals, suiting their risk appetite, and maximising their returns.
If you are looking to invest and grow your money, whether it is Real Estate or Equity, turn to Tata Capital Wealth. Our experienced investment product specialists and relationship managers provide research-driven market insights and bespoke wealth management services. To know more, connect today!
10 May 2021
4 mins read
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