In India, land ownership has long been a symbol of both power and riches. In fact, property investment was regarded as one of the most safe investment vehicles. With the emergence of the Indian economy, however, new investment vehicles such as the stock market, Fixed Deposits (FDs), Real Estate Investment Trusts (REITs), and Government-backed Bonds and debentures, among others, have made inroads. They all have different levels of liquidity potential.

However, in terms of volatility, the stock market is the most volatile asset, and investments are directly subject to market ups and downs. Real estate, on the other hand, is seen as a safer investment that normally grows in value over time. Here is a comparison of stock market versus real estate investing.

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The Stock Exchange vs. Real Estate Investing

Real estate or property investing is one of India’s most popular investment vehicles. Long-term investors choose to invest in real estate over other options. However, no investment is without dangers and benefits. The value of a property is heavily influenced by its location, infrastructural development, and connection.

Residential land, commercial land, residential flats, villas, penthouses, and farmhouses are all examples of real estate investments. The stock market, on the other hand, is a trading platform for tradable shares/stocks of a Securities and Exchange Board of India (SEBI) registered and listed firm.

Real estate or property investing is one of India’s most popular investment vehicles (stock market vs real estate). Long-term investors choose to invest in real estate over other options. However, no investment is without dangers and benefits.

Stock Market: Appreciation

Real estate investing is regarded as the finest choice in terms of value appreciation. A person who invests in a land parcel in a Tier 1 or Tier 2 city should expect a 7-10% yearly increase in the value of the residential land. Although depreciation happens over time in the case of residential units, the resale value is somewhere from 6-10 times or more of the original price after 15-20 years.

Return on investment in a company’s stocks or shares, on the other hand, is directly proportionate to the growth or decrease of the stock market (stock market vs real estate). Unlike real estate investments, the investment is subject to market volatility and can be lost in seconds. However, youthful investors and those with a high risk tolerance choose the stock market for rapid profits.

Liquidity

For the uninitiated, an investment instrument’s liquidity capacity relates to the time it takes to be sold and converted into cash. When the liquidity capability of real estate or property investment is considered, it is a non-liquid instrument that takes time to sell. Furthermore, the selling of a property sometimes necessitates effort, brokerage, and some advertising on the side of the owners. You should not expect immediate or overnight cash in place of the property sale. As a result, in terms of liquidity capacity, real estate falls behind other investment products.

Stocks and mutual funds, on the other hand, have tremendous liquidity. In reality, when we compare stock market investments to real estate investments, stock market investments will win the liquidity race. If you own equities in a publicly traded corporation, you can sell them with the touch of a fingertip.

Although the mutual fund management organisation may receive a small tax break for selling mutual funds or stocks. If the mutual funds are sold within a year, a portion (usually 1%) of the total value is withheld. However, the money is deducted practically immediately.

Stock Market: Initially Invested

When comparing initial investment in the stock market vs. real estate, real estate takes a considerable investment to buy a property. However, investing in stocks might begin with as little as a few hundred rupees.

For example, if you want to invest in a 100 sq ft property in Badshahpur, Gurgaon, where land costs range between 14,000 and 20,000 per sq ft, you’ll need at least 14-20 lakh.

If, on the other hand, you want to invest in real estate equities like Kolte Patil or DLF, you may do so for Rs 220 and Rs 325, respectively. As a result, investing in stocks requires a lesser initial commitment than investing in real estate.

The following table clarifies the difference between the stock market vs real estate.

Monitoring

Real estate, unlike stocks or shares, is a physical asset that must be monitored on a regular basis. When you buy a house, the value depreciates over time (especially in fully constructed property). Depreciation necessitates constant maintenance and monitoring. Physical monitoring is not necessary for stocks and mutual funds because they are managed digitally.

The Effect of the Stock Market vs. Real Estate

Historically, the status of the stock market has been an indicator of the country’s economic progress. Sectors cannot and do not function in isolation in a linked and interdependent economy.

The movement of the stock market has an influence on the Indian real estate sector, as it does on other sectors of the economy. The stock market influences the real estate business in three ways.

Credit Opportunity

The real estate industry is an investment-heavy one, and most real estate developers rely on loans to execute huge projects. Almost every participant in the real estate industry, whether a developer or a homebuyer, is influenced by interest rates.

The fluctuation of the stock market has an impact on interest rates. As the stock market falls, banks become more cautious and hesitant to extend loans in an uncertain climate. When developers apply for loans during uncertain times, banks review and appraise the scenario. House loan rates are typically raised during such periods, making home ownership more expensive than usual.

Similarly, during periods of good stock market expansion (stock market vs real estate), banks dispense loans more liberally and at lower interest rates.

Consumer Attitudes

The performance of the stock market has a direct impact on consumer behaviour (stock market vs real estate). Homebuyers have more trust in the economy and are more inclined to make a real estate transaction when the stock market is performing well and growing. On the contrary, when the markets fall, people are pessimistic about the economy and tend to hoard money for a rainy day.

Comparison between Stock Market ROI vs Real Estate ROI

Investors choose both real estate and the stock market because portfolio diversification is a sure-fire means of lowering risks in the long run. When it comes to long-term returns, both real estate and equities are well-known (stock market vs real estate).

Let us examine the performance of some of the most notable real estate stocks and land investments in major cities.

When we analyse the stock prices of four top developers, DLF, Godrej Properties, Sobha Developers, and Oberoi Realty, we see that real estate stocks have returned 800%, 2500%, 13000%, and 700%, respectively.

The magnitude of the returns demonstrates that if money is put in a solid real estate firm for a lengthy period of time (10 years), the returns may be spectacular. However, prior returns are not predictive of future returns, and the ROI will be entirely dependent on the economy’s and the company’s growth.

Let us compare this to investing in houses in India’s top four cities and examine the possible profits.

When residential prices in India’s top four cities, Gurgaon, Navi Mumbai, Bangalore, and Chennai, are analysed, we see a percentage shift of 15%, 85%, 80%, and 40%, respectively.

Although the percentage change in return on investment in properties was much lower than in real estate stocks, a sensible investor does not invest big sums in stocks and prefers to invest in an asset-creating instrument such as real estate.

Furthermore, unlike stocks, a property investment provides the owner with monthly rental income if it is rented or leased.

Final Thoughts on Real Estate vs. the Stock Market

To summarise, both real estate and stocks (stock market vs real estate) are components of a sensible investor. Despite the potential for significant returns, the danger of stock volatility puts investors’ hard-earned money at risk. Even if the returns are smaller than those of stocks, a property investment provides wealth building and may be sold at a premium after years of holding. When investing, it is generally advised not to put all of your eggs in one basket and to diversify appropriately so that risks are minimised (stock market vs real estate).

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