Whether one should have real estate in the portfolio of investments or not is an age-old debate. World over, it is as much a topic of discussion within the built environment of real estate as with personal finance. Arguments on both sides of the divide have their own merit, but the fact remains that there is no one size fits all answer. The personal finance pros believe that stock market & mutual funds reward are far greater in the range of 14-18% per annum. The real estate proponents, on the other hand, assert that real estate rewards are no less over a longer period of time, and it also saves the investors from the cyclic high market volatility. A Track2Realty report.
ROI (Return on Investment) is no doubt the primary criterion in the investment basket of an average Indian, it is never the only parameter to evaluate the asset class worthiness. Let’s take a few case studies that would clarify how different asset classes are meant for different sets of investors and different mindset.
Case Study I: Rishi’s father bought a piece of land and built up a house in INR 25 lakh around 25 years back. Today, the cost of the house is INR 3 crore; a mouth-watering return in absolute terms. However, in terms of actual returns (with or without inflation adjusted) the returns are not what other asset classes like gold, stock or mutual funds would have given. The CAGR (Compounded Annual Growth Rate) of the said property is just 10.45%. In the given period gold returns are 12.05% CAGR. Mutual funds that have completed 25 years in India have given a return in the range of 14-23% CAGR.
Case Study II: Rashmi already has a house of her own. Since 2020 post Covid, she has also built a rewarding stock portfolio of INR 50 lakh with a CAGR return of 22%. Now that she has to invest more, the natural urge is to go for high returns with the stock market only. However, she has opted for a commercial property that promises to offer around 12% returns. Her reasons are simple: risk diversification and to be in a position where she can liquidate any of her investment as and when needed.
The two case studies in contrast might give an impression that stock market and mutual funds are the best bet for an average Indian. What it doesn’t tell you is that every investor’s risk appetite is different; reasons for investment different; and one doesn’t want to put all eggs in one basket.
Historically, the risk-averse Indians have an affinity for property. The new-age investors are more risk takers and go for high-risk & high-return asset classes. But then they too are prone to risk mitigation through mix and match of investment, as is evident with Case Study II of Rashmi.
Matter of perspective
“I love risk taking and high returns but then I don’t want to put all eggs in one basket and hence after having made a stock portfolio I have now opted for a commercial property. In any given cycle of economy, not all the asset classes are equally performing and/or non-performing. Hence, I feel safe with this risk mitigation strategy,” says Rashmi.
Abhishek Kapoor, Group CEO, Puravankara Limited asserts that smarket returns can sometimes outpace real estate, but only for the short term. Real estate remains a robust and reliable long-term investment for several reasons. Firstly, it provides tangible assets that generate steady rental income, offering a hedge against inflation. Second, properties can appreciate significantly over time, especially in high-demand areas. Third, real estate investments allow for leverage, where using borrowed capital can amplify returns on equity investments. Also, the tax breaks available for purchasing property/interest/ principal payment while investing in a tangible asset bring additional value for the purchaser.
“In times of economic turbulence, real estate can act as a safe haven, preserving capital and providing reliable returns when other investments may falter. Therefore, while diversification and risk mitigation are significant benefits, real estate’s inherent strengths make it a valuable component of any investment strategy. The appeal of real estate extends beyond just a reaction to market volatility. Investors are drawn to real estate for its long-term appreciation, rental income, and tangible nature. While the VIX might drive some short-term interest towards real estate, the sector’s fundamental strengths—such as its ability to generate passive income, provide tax advantages, and offer potential for appreciation—are the primary factors that attract investors,” says Kapoor.
Shiv Parekh, Founder & CEO, hBits says India is one of the countries where people tend to save money in bank accounts rather than investing them in a return generating field. Financial knowledge on ‘where to invest’ would be beneficial if we plan to invest our money somewhere. Gold versus real estate is a common confusion among the people who think of investing. Each of them has varying degrees of volatility and risk-return potential. Hence, before zeroing in on an asset class to invest in, it is vital to understand the pros and cons of equity versus gold versus real estate.
“Investment is not a risk-free process, and hence, it is better to have a good understanding about risks and asset classes. Every investor should choose the right asset class to invest depending on their own appetite for risk. Asset classes can be broadly classified into three; real estate, gold and equities. Equity can be stocks and mutual funds; gold can be physical or jewellery, and real estate can be equated as property,” says Parekh.
Advantage Real Estate
Tangible asset
Can never lose its intrinsic value
Hedge against inflation
Risk mitigation product
Tax advantage
Less volatile
Disadvantage real estate
Bigger ticket size
Lower returns than equity market
Illiquid asset class
Holding & maintenance issues
High transaction cost
Diversification is a critical strategy for risk management. Even the high risk takers agree that real estate investments balance a portfolio heavily weighted in equities, and provide stability during stock market volatility. Moreover, real estate has intrinsic value and utility, a fundamental need for housing and business operations, which often maintains its demand even during economic downturns. While diversification is essential, property investments offer several standalone advantages. It also offers tax benefits, such as deductions for mortgage interest and depreciation.
In a nutshell, the argument of real estate versus gold or equity is meaningless, since they don’t necessarily compete with each other. There is no one size fits all answer and each asset class attracts a different set of investors; each having their own distinct exposure, mindset, risk appetite, time horizon and amount of capital to invest. What could nevertheless be vouchsafed is the fact that for those investors with an overall exposure of various asset classes, real estate stands out as an asset class of risk mitigation.
Ravi Sinha
X : RaviTrack2Media
Ravi Sinha is a journalist with over two decades of cross-discipline media exposure. He is the CEO of real estate thinktank group Track2Realty. He has been writing extensively on the real estate sector for more than a decade now. Evaluation of real estate brand performance is his core domain expertise and he has immense insight into consumers’ psychograph. He has conceptualised Track2Realty BrandXReport as India’s 1st & only objective & non-paid brand rating journal that is industry-accepted benchmark of brand equity & ranking of the Indian real estate companies.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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