By Gunjan Goel
Stocks and real estate are the two most popular asset classes for long-term investments since they both assist to create long-term returns to become financially prosperous. Although there are significant differences between these two asset classes, it’s important to keep in mind that real estate can be a good alternative to stocks due to its lower risk, higher returns, and fair level of diversification. However, stocks have been shown to outperform more traditional investments like bank fixed deposits while also providing enough liquidity to buy and sell shares at any time, something that real estate investments do not.
An overview in real estate vs equity
Your financial status, risk tolerance, and investment goals all play a role in your decision to make investments in various asset types. Let’s instead have a quick discussion of the two asset types.
Meaning: Investing in real estate is buying, renting, and/or selling land or constructed housing units with the goal of generating wealth through consistent price appreciation when the property’s value rises and through rent collection, which can offer a regular stream of income. Additionally, investing in stocks entails buying and selling shares of companies, which entails earning returns as well as additional perks like dividends, bonus shares, stock splits, buybacks, and capital gains.
Risk: Investments in stocks and real estate are both influenced by market and economic conditions. However, there are concerns associated with real estate investments, including a lack of liquidity, the market’s unpredictability, location and unforeseen health of the property. However, stock market investments also have risks such as price fluctuation, global cues, economic and market situations, interest rate risk, and inflation. In the stock market, short-term trading entails higher volatility than long-term investments.
Liquidity: Stock market investments have better liquidity than other types of investments since it’s simple to buy or sell shares at any moment, regardless of the market situation. Technical analysis of the stock’s chart pattern or fundamental analysis of the company’s earnings can both be used to buy or sell stocks. Technical chart patterns may be used to trade in the short term or on an intraday basis, but fundamental analysis provides the company’s long-term perspective. Contrarily, real estate assets are less liquid; as a result, it is more difficult to convert them into cash when selling a home or piece of land since a suitable buyer must be found and registration and market value must be verified, among other things.
Cost: One must consider all expenses spent during the possession of a property, including brokerage, stamp duty and registration fees, interest paid on money borrowed, maintenance and repair expenses, and municipal taxes, when determining return on investment or actual return. In contrast, there are no fees associated with investing in the stock market, thus all that is necessary is a demat account and a low initial deposit, which may be as little as Rs 10.
Taxation: You will be required to pay capital gain tax on the profit made after taking inflation and the indexed cost of acquisition into account when you decide to sell your property. These gains can be categorised as either short-term or long-term gains. It is considered a short-term capital gain if you sell your land, house, or other property within 36 months (3 years) of buying it, and the amount of tax payable will depend on your income tax bracket. However, if you sell it after three years, it will be regarded as a long-term capital gain and will be taxed at a rate of 20%, plus a 3% cess and the with the added benefit of indexation. If listed equity shares are held for less than 12 months at the time of selling, the gains are short-term capital gains (STCG) and are taxed at 15%, while capital gains from equity shares held for more than 12 months are subject to long-term capital gains (LTCG), which are taxed at 10% after an exemption of up to Rs. 1 lakh on all long-term capital gains in a fiscal year.
Conclusion
Here is where we will discuss the returns of the two asset types mentioned above. When invested over the long term, stocks and real estate are both known to yield acceptable returns. The returns over the past ten years have ranged from 370%, 100%, 140%, 320%, and 180% if we compare the stock prices of top real estate developers. However, according to the data of Magicbricks, the Residential Real Estate Prices in Gurgaon have risen from Rs 8000 to Rs 9150 per sq ft, the price in Mumbai has risen from Rs 3800 to Rs 7000 per sq ft, the price in Bangalore has risen from Rs 2630 to Rs 4750 per sq ft, and price in Chennai risen from Rs 7850 to Rs 10,950, the residential demand in Pune climbed by 9.5%. 91% of Pune homebuyers looked for multistory residences. 2BHK flats had the most demand (46%), followed by 3BHK and above units (40%)., representing a surge of 14 percent, 84 percent, 80 percent and 39 percent, respectively. These variations show how investments in real estate and the stock market performed in terms of returns over the past ten years, so one cannot anticipate exact returns from these two asset classes over the long term. However, historically, it has been shown that real estate and stock market investments have outperformed conventional investments like bank fixed deposits in terms of returns.
Authored by
(Gunjan Goel, Director, Goel Ganga Developments)
