When all the factors are suitably aligned, investing in real estate could be an extremely rewarding alternative to playing the stock market. It entails lower risks, yields lucrative returns and provides greater scope of diversification.
Of course, it’s a long-term investment and one must hold on to a property till the market reaches its true potential. However, the Covid-19 pandemic has triggered a rush towards investing in real estate, since there’s a sense all around that things can only get better from here on in.
The real estate vs stocks is a perennial debate and both have its pros and cons. While buying stocks, you actually bite off a very small slice of the corporate entity, and you can profit if the company’s stock rises or through dividends. While investing in real estate, you actually physically acquire the land or property. You can earn a steady stream of rental income from your investment and you can profit when the property’s value appreciates. You can even expand your holdings.
The appeal of investing in real estate is that it’s a tangible asset and also offers the benefit of diversification. Although it doesn’t provide the same liquidity as stocks, the capital can be leveraged and one can avail sizeable tax benefits.
On the flip side, the stock market can be unpredictable and the return on investment can fall short of expectations. The stock market is also vulnerable to a plethora of risks, including market risks, inflationary or economic risks. The values of stocks can also be hugely volatile and subject to market fluctuations, geo-political events or even internal corporate matters.
These are some of the pros and cons of investing in real estate and stocks:
REAL ESTATE ADVANTAGES
# It’s a source of passive income
# Rental income can keep increasing with inflation
# Offers tax benefits. Capital gains taxes can be deferred if another property is purchased after sale
# This investment is a safeguard against inflation
# Gives you the leeway to leverage capital
REAL ESTATE DISADVANTAGES
# It entails more effort than purchasing stocks
# Investing in real estate can be expensive and the money is locked
# Transaction costs are steep
# There’s no guarantee that value will appreciate
# Your investment stays highly liquid
# It’s easy to diversify
# Transaction fees are nominal
# Can be added to retirement accounts with tax benefits
# It is much more volatile
# Risks linked to fiscal policy, tax revisions, regulations, RBI interest rates
# Selling can have sizeable tax implications
# Your chosen stocks can keep faring poorly for a long time
# You run the risk of investing on an emotional urge
With the pandemic-induced volatility, the Nifty crashed by almost 20% over the past one year and many investors have lost 50 to 70% of their capital. On the flip side, the real estate market is experiencing signs of a turnaround. Recent studies show that just about 25% of Indians are opting to invest in stocks at this juncture, while over 70% people are still keeping their faith in buying property, in metros as well as smaller cities.
Things to remember
# An investment decision is totally personal, hinging on finances, risk appetite, etc
# Stocks and real estate come with their unique pros and cons
# Real estate isn’t liquid like stocks and requires time and money. But it can provide substantial appreciation
# While stocks can be easily bought and sold, they are vulnerable to market, economic and inflationary risks
So whatever instrument you choose to invest in, do your research well so that you can make an informed decision. It’s important to remember that for investments in real estate, the key is getting the timing right, whether you are buying or selling. It’s wise to invest when prices are low with a potential to rise soon and to sell when the price curve has reached its crest, so that you can enjoy lucrative returns.
Disclaimer : Information contained and transmitted by us are for information purposes only. All views and/or recommendations are those of the concerned author personally and made purely for information purposes. Nothing contained in the articles should be construed as business, legal, tax, accounting, investment or other advice or as an advertisement or promotion of any project or developer or locality. Pioneer Property Management Ltd. does not offer any such advice. No warranties, guarantees, promises and/or representations of any kind, express or implied, are given as to (a) the nature, standard, quality, reliability, accuracy or otherwise of the information and views provided in (and other contents of) the articles or (b) the suitability, applicability or otherwise of such information, views, or other contents for any personâ€™s circumstances. We shall not be liable nor shall be held responsible in any manner for any action taken based on the published information (whether in law, contract, tort, by negligence, products liability or otherwise) for any losses, injury or damage (whether direct or indirect, special, incidental or consequential) suffered by such person as a result of anyone applying the information (or any other contents) in these articles or making any investment decision on the basis of such information (or any such contents), or otherwise. The users should exercise due caution and/or seek independent advice before they make any decision or take any action on the basis of such information or other contents.