Real estate or property investment is one of the most preferred investment options in India.
Land Ownership has been a symbol of both authority and prosperity in India. In fact, investment in land was considered one of the most secure investment instruments. However, with the advent of the Indian economy, new investment tools have made inroads, such as the stock market, Fixed Deposits (FDs), Real Estate Investment Trusts (REITs), and Government-backed Bonds and debentures, among others. They all have varying degrees of liquidity potential.
In terms of volatility, however, the stock market is the most volatile instrument, and investments are directly exposed to the ups and downs of the market. On the other hand, real estate investment is considered safer and generally appreciated in the longer run. Here is a comparative low-down on investment in stock market vs real estate.
Real estate or property investment is one of the most preferred investment tools in India. Long-term investors swear by an investment in a property more than any other option. However, no investments are without risks and advantages. The appreciation of a property is highly dependent on location, infrastructure development and connectivity.
Real estate investments can be categorized as investments in residential land, commercial land, residential apartments, villas, penthouses and farmhouses, among others. On the other hand, the stock market is a platform where tradable shares/stocks of a Securities and Exchange Board of India (SEBI) registered and listed company are traded.
Real estate or property investment is one of the most preferred investment tools in India (stock market vs real estate). Long-term investors swear by an investment in a property more than any other option. However, no investments are without risks and advantages.
In terms of value appreciation, real estate investment is considered the best option. If a person invests in a land parcel in Tier 1 or Tier 2 city, he/she can expect a 7-10 percent annual appreciation in the value of the residential land. In cases of residential apartments, although the depreciation occurs over time, the resale value is anywhere between 6-10 times or more of the purchase price after 15-20 years.
On the other hand, return on investment in stocks or shares of a company is directly proportional to the growth or decline of the share market (stock market vs real estate). The investment remains at perpetual risk of market volatility and can be wiped in seconds, unlike real estate investments. However, young investors and investors with a large risk appetite prefer the stock market for quick gains.
For the uninitiated, the liquidity capacity of an investment instrument refers to the time taken by the instrument to get sold and convert into cash. If the liquidity capacity of real estate or property investment is taken into account, it is not a very liquid instrument and takes time to get sold. Moreover, the sale of a property often requires effort, brokerage and a little advertisement on the owners’ part. You cannot expect quick cash or overnight cash in lieu of the property sale. Therefore, property lags behind most investment instruments in terms of liquidity capacity.
On the other hand, investments in stocks or mutual funds have high liquidity. In fact, if we compare the stock market vs real estate, stock market investments will win over the liquidity race. If you have invested in the stocks of a listed company, you can liquidate them with a click of a fingertip.
Although there can be a little deduction in selling the mutual funds or stocks by the mutual fund management company. If the mutual funds are sold within a year, a certain percentage (generally 1 percent) is deducted from the final amount. However, the money gets debited almost instantly.
If initial investment in the stock market vs real estate is considered, the real estate requires a significant investment to own a property. But investment in stocks can be started with a few hundred rupees.
For example, if you wish to invest in a 100 sq ft plot in Badshahpur, Gurgaon, where land prices are between 14,000-20,000 per sq ft, you would have to shell out at least 14-20 lakh to own a residential plot.
On the other hand, if you wish to invest in the stocks of a real estate company such as Kolte Patil or DLF, you can buy them at Rs 220 and Rs 325, respectively. Therefore, investment in stocks can be started with a comparatively lower amount than real estate investment.
The following table clarifies the difference between the stock market vs real estate.