Stock Market Vs Real Estate Sector: A Relative Investigation
One of the most popular investing strategies in India is real estate or property investment. A property investment is the most popular choice among long-term investors. However, every investment has benefits and hazards. Location, infrastructural development, and connectivity are major factors in a property's appreciation.
Investments in residential land, commercial land, residential flats, villas, penthouses, and farmhouses are just a few examples of real estate. On the other hand, the stock market is a venue where tradable shares and stocks of companies that are listed and registered with the Securities and Exchange Board of India (SEBI) are traded.
One of India's most popular investment vehicles is real estate or property investment (stock market vs real estate). A property investment is the most popular choice among long-term investors. However, every investment has benefits and hazards.
Appreciation
The best option in terms of value appreciation is real estate investing. A person can anticipate a 7–10% annual increase in the value of the residential land if they invest in a parcel of land in a Tier 1 or Tier 2 city. Residential flats experience depreciation over time, however after 15-20 years, the resale value can be anywhere between 6 and 10 times or more the original purchase price.
On the other hand, the growth or collapse of the stock market closely correlates with the return on investment in stocks or shares of a corporation (stock market vs real estate). Unlike investments in real estate, the investment is always subject to the danger of market volatility and can be lost in a matter of seconds. However, for quick gains, youthful investors and those with a high risk tolerance favour the stock market.
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| Comparison between Stock Market vs Real Estate |
Liquidity
For those who are unaware, an investment instrument's liquidity capability relates to how quickly it may be sold and converted into cash. Real estate is not a highly liquid instrument and takes time to sell if the liquidity capability of a property investment is taken into consideration. In addition, it frequently takes work, brokerage, and some advertising on the part of the owners to sell a piece of property. In place of the sale of the property, you cannot expect instant money or money the next day. Therefore, in terms of liquidity capacity, real estate trails the majority of investment products.
Investments in equities or mutual funds, on the other hand, have significant liquidity. The liquidity race will really be won by stock market investments if we contrast them with real estate. If you own shares of a publicly traded corporation, you can sell them with a simple click.
Although the mutual fund management organisation may make a little deduction when selling equities or mutual funds. A percentage (usually 1%) is subtracted from the total if the mutual funds are sold within a year. However, the money is nearly immediately debited.
Initial Investment
When comparing initial investment in real estate vs. the stock market, real estate demands a larger sum of money to purchase a home. However, you can begin investing in equities with as little as a few hundred rupees.
For instance, you would need to spend at least 14 to 20 lakh to purchase a residential property in Badshahpur, Gurgaon, where land costs between 14,000 and 20,000 per square foot.
On the other hand, you can purchase shares of real estate firms like Kolte Patil or DLF for Rs 220 or Rs 325, depending on your preference. As a result, investing in stocks can be begun with a smaller sum than investing in real estate.
The following table clarifies the difference between the stock market vs real estate.
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| Comparison between Stock Market vs Real Estate |
Monitoring
Unlike stocks or shares, which are digital assets, real estate is a physical asset that needs to be monitored on a regular basis. If you purchase a property, its value will continue to decline (especially in fully constructed property). Depreciation necessitates routine maintenance and observation. Physical monitoring is not necessary for equities and mutual funds, though, as this is done digitally.
Impact of Stock Market vs Real Estate
The status of the stock market has historically been a good predictor of the nation's rate of economic expansion. Sectors cannot and do not operate in silos because of how linked and dependent the economy is.
As with other economic sectors, the movement of the stock market has an effect on India's real estate market directly or indirectly. The real estate industry is impacted by the stock market in three ways.
Credit Facility
The real estate industry requires a lot of money, and most real estate developers rely on credit to finish major projects. Interest rates affect almost all real estate market participants, including developers and homebuyers.
The behaviour of the stock market has some bearing on interest rates. As the stock market declines, banks become cautious and reluctant to extend credit in an uncertain climate. Banks assess the scenario when developers request financing during a period of uncertainty. Such times typically see a spike in house loan rates, making the cost of purchasing a property more than usual.
Banks also give out more loans when the stock market is doing well (compared to real estate).
Consumer Behavior
The stock market's performance has a direct impact on consumer behaviour (stock market vs real estate). Homebuyers are more likely to buy real estate when the stock market is performing well and growing because they are more confident in the economy. On the other hand, when the markets are falling, people are pessimistic about the future of the economy and are more likely to put money away for a rainy day.
Comparison between ROI of Stock Market vs Real Estate
Investors choose both the stock market and real estate because diversifying one's portfolio is a surefire strategy to lower risks over the long term. When made as long-term investments, real estate and stocks are both recognised to yield respectable returns (stock market vs real estate).
Let's contrast the performance of a few of the most well-known real estate equities and purchases of land in important cities.
We can see that real estate stocks have generated returns of between 800%, 2500%, 13000%, and 700% if we compare the stock prices of four prominent developers: DLF, Godrej Properties, Sobha Developers, and Oberoi Realty.
The size of the returns demonstrates that if money is invested,
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| Real Estate Stock Prices over 10 years |
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| Change in Residential Real Estate Prices in Four Cities in 10 Years (Source: Magicbricks Price Trends) |
If residential prices in India's top four cities—Gurugaon, Navi Mumbai, Bangalore, and Chennai—are taken into account, we see percentage changes of 15%, 85%, 80%, and 40%, respectively.
A wise investor does not put a sizable amount into stocks and instead prefers investing in an asset-creating instrument like real estate, despite the fact that the return on investment in properties was significantly lower in percentage change than in real estate stocks.
In addition, unlike stocks, a property investment offers a sense of stability and, if rented out or leased, a consistent rental income to the owner.
