Monday 7 September 2015

Equity or Real estate investment – Which one is better?

There is often a debate as to which mode of investment is more lucrative. Is it the equity or the real estate? Real estate can also serve as investment as done by many apart from being serving the need of housing. It is indeed true that investment in real estate will generate rental income which is pretty much regular if the property location is in demand. Not only the regular income but it also offers one the capital appreciation over a considerable period of time too. But even then there are few pros and cons if the two investments, real estate and equity are being compared.






Return on Investment:

Real estate does not give you an exact return which can be measured as in equity market, but it is a bit more difficult. It is a well-known fact that the rate of return varies from area to area and not only that even in one area the ROI can vary just within few months. The reasons may be many like infrastructure development, increased job generation, better connectivity and so on. According to a study by a global analytics firm on the rate of returns on the various asset classes of India during the period from 1991 to 2013 both real estate and equity market has given more returns to investors. By analyzing the growth from different forms of investment it was concluded that during the last 23 to 25 year period from 1989 these two investment fields have yielded a return of 20 percent while the equity market generated a return of 15.5 percent annually on a nominal basis in this same period.

Costs: If one compares the costs of equity investment and that of the real estate, equity investment has much lesser costs. An equity investment which is direct may have a brokerage costs which can be around 0.5 percent of the total transaction value. Apart from that if it is an equity mutual fund the fund management fees can go to a maximum of 2.50 percent.

Unlike the equity markets the real estate markets can have much extra added costs like registration, stamp duty, brokerage, maintenance charges, etc. It is of course a fact that unlike equity investments these charges vary from state to state.

Liquidity: From the liquidity stand point if you consider, then exiting the equity investments is as easy and can be done immediately online too. After exiting the equity investment one can get access of one’s funds within a couple of days. But in contrary, exiting a real estate investment would at least take 6 months. Besides that if you invest Rs. 1 lakh in equity one can liquidate Rs. 30, 000 at a time. This is not the case in real estate investments.

Tax implications:

When it comes to equity investments in India it is entirely tax free with no restrictions whatsoever on reinvesting the money. The equity investments that are held for a year’s time is entirely tax free. But when it comes to real estate it attracts even short term capital gains if you are selling the property within three years of purchase and long-term capital gains are levied if it is held for longer than three years.

There may be short term advantages for the equity investments and tax benefits too. But this is also true that real estate investments give you monthly returns and also unexpected capital gain returns too. The experts say that real estate should consist and be a considerable part of one’s investment portfolio and equity should also be considered. But if one takes the benefits of real estate investment one can’t deny the benefits from the ROI and security point of view.

1 comment:

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