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.
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 vs. Stocks
Investing in real estate or stocks is a personal choice that depends on your financial situation, risk tolerance, goals, and investment style. It's safe to assume that more people invest in the stock market, perhaps because it doesn't take as much time or money to buy stocks. If you're buying real estate, you're going to have to save and put down a substantial amount of money.
When you buy stocks, you buy a tiny piece of that company. In general, you can make money two ways with stocks: value appreciation as the company's stock increases and dividends.
When you buy real estate, you acquire physical land or property. Most real estate investors make money by collecting rents (which can provide a steady income stream) and through appreciation, as the property's value goes up. Also, since real estate can be leveraged, it's possible to expand your holdings even if you can't afford to pay cash outright.
Appreciation
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.
Liquidity
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.
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.
Initial Investment
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.
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