Whenever it comes to investing for high returns, one of the most debatable topics is which one to choose between Real Estate vs Stock Market Investment. While most Indians are more inclined towards investing in Real Estate because of obvious reasons like emotional stability, status, safety, etc, investing in the stock market has its own advantages.
In this article, we’ll look into the difference between Real Estate vs Stock Market Investment and will try to answer which investment option is better. Let’s get started.
Real Estate vs Stock Market Investment: What You Need to Know
First of all, even before we get started, if you have just Rs 5,000 in your account, don’t even bother to look into investment options in properties or land. You need to have substantial capital to get started with real estate investments.
Now, let us look into some of the thumb points to know while investing in Real estate.
1. Real Estate Investment provides emotional and sentimental satisfaction to the Investors as having your own land or house does provide stability.
2. In India, owning your own real estate is also a point of “Status” in society.
3. Your investment in real estate is tangible in nature which means that it can be easily measured and can be passed on to your future generations.
4. Even if you don’t have the entire amount to purchase real estate, paying EMI instead of Rent can help for get started in real estate investments.
5. Real estate investment creates wealth over long periods of time through capital appreciation.
6. Having an extra property can also help you generate passive income through rental income.
7. Real estate investment creates long-term commitment.
8. Investors can also enjoy tax benefits. Under Section 80C of the ITA, investors can deduct up to Rs. 1.5 lakhs from your total taxable income if they have made investments.
Moreover, real estate investment has also grown a lot in the last few decades with easy home loan facilities, RERA regulations, government planning for smart cities, etc.
Next, let us look into some of the thumb points to know while investing in the stock market.
1. Stock market investing is risky and includes market volatility.
2. Stock market investors can start investing with smaller amounts and getting started with stocks is also very fast. Investors can open their Demat and trading accounts within a day to start trading in stocks in India.
3. Although the returns from stock market investing can be higher, however, investors need to have good enough knowledge of picking the right stocks to make profitable trades.
4. Stock market investors enjoy capital appreciation when the stocks go higher, along with other benefits like dividends, bonuses, rights, etc.
5. Stock market investing and trading is highly liquid as investors can buy and sell stocks within minutes online on the stock exchange.
Quick Read: Identifying the Right Stocks and Sectors to Invest In?
Key Differences by Real Estate vs Stock Market Investment
Here are a few of the key differences between real estate vs stock market investment based on different factors:
1. Cost Involved: Stock market investment can be started even with Rs 100. Whereas real estate investment requires a significant amount. If you’re planning to buy land or property, the investors should have substantial capital or source for the funds.
2. Requirements: Stock market investors require a Demat and trading account to start investing or trading. Real estate investment requires legal paperwork to register or transfer the property in the name of the investors.
3. Knowledge required: Stock market investors need to have good knowledge of stock investing and trading to make consistent returns from the market. On the other hand, investors without substantial academic knowledge can make the right decisions in real estate investments.
4. Returns: Stock market investment can give high returns to the investors when invested intelligently. Real Estate investment can give moderate returns to the investors.
5. Transparency: Stock market investing is highly transparent as the trade records and profits are maintained in the trading account. On the other hand, transparency varies in real estate depending on the seller and the city. The big builders in tier–1 city can provide all the information and documents transparently. On the other hand, the same may not be true in the case of real estate investing in towns, smaller cities, or villages.
6. Ease of Investing: Stock market investing is easy to start and requires minimal documentation. On the other hand, investing in real estate is cumbersome as the investors have to go through a lot of due diligence and paperwork.
7. Diversification: Stock market investors can easily diversify their portfolios by purchasing multiple stocks to reduce the risk. On the other hand, Real estate investing is not easily diversifiable as common investors may generally purchase only one or two properties in their lifetime.
8. Long-term investing: While investing in the stock market, the long-term commitment may vary as investors can remain invested even for a smaller period like 3-5 years. Looking into real estate, the commitment here is generally long-term. Most Real Estate investors who go for housing loans, do have a loan tenure of 20 to 30 years.
9. Emotional stability: Stock market investing can be stressful as it involves market volatility and risk. On the contrary, Real estate investment can provide emotional happiness to people.
10. Liquidity: Stocks can be easily liquidated and the market is open every day from Monday to Friday where the traders and investors can easily sell off their stocks. On the other hand, liquidity is difficult in real estate investment as the investors have to find the right buyers and the right time.
Investing in direct properties, land, or flat is not the only option available to investors who want to get started in real estate investments these days. Now, the investors have also the option to invest in REITs.
‘REIT’ (Real Estate Investment Trust)’ is a fund managed by a company that invests in revenue-generating real estate properties. Investors may buy units of the fund for a specified price that is subject to fluctuation on the exchange, like any other fund’s unit price.
Any cash inflow from the fund’s real estate, in the form of rent, lease, etc will be distributed to all the investors as dividends or interest.
REITs work similarly to Mutual funds. A REIT makes real estate investments in the same way that a mutual fund makes stock acquisitions by pooling the funds of numerous investors. Our new age investing allows us to purchase real estate for as low as ₹400 (*price subject to change) through REITs.
Also Read: ROE vs ROCE – How To Use Them For Analyzing Stocks?
Summing up this article on Real Estate vs Stock Market Investment, the Real estate investment includes emotional stability, long-term commitment, inflation-beating returns, and is profitable over the long term. However, it is also time-consuming, requires legal paperwork, and the investors have to wait for the right conditions to buy and sell the property.
On the other hand, stock market investing is more profitable, easy to start, less initial capital required, does not require very long-term commitment, offers proper diversification, and is highly liquid. Nonetheless, it is prone to market volatility and requires good market knowledge to make consistent returns.
If you’re looking for higher returns in a shorter period of time and do not have a lot of capital, stock market investing should be your go-to place. On the other hand, if you want emotional stability and are ready to commit for a longer time, Real Estate investment can be the right choice for you.
Furthermore, also know that if you’re investing in real estate for the purpose of living yourself, it cannot generate wealth. However, investors can always save their rent expenses while owning their own house or flat. Moreover, making a down payment of 20-30% and paying small EMIs for the next 20-30 years can take you to your own house.
In closing, if you’re capable of investing in both, the combination of Real Estate and Stock market investment can be most beneficial and fruitful. That’s all for this post. Do let me know what you think about Real Estate vs Stock Market Investment. Which option is better for you?