Where should NRI invest – Real Estate or Stocks?

Investment, in the Indian context, has till date seen as a safety net for the future. People were wary of taking risks in fear of losing the money or facing losses. Thus, they chose the safest investment option like savings account and gold, at times real-estate, but hardly stocks. Real Estate was seen as a necessity and stocks were considered to be just for the rich business class. But the time is changing, and so is the risk appetite of the people. It is an obvious fact that the investors are always on the lookout for investment plans that can offer high returns on low risk. But the truth is such investment plans do not exist, as high returns are directly proportional to high risk. Higher the risk, higher will be the returns. Thus, selecting an investment portfolio should entirely be based on a person’s risk profile, both in monetary terms and his mental appetite.

Real-Estate vs Stocks

There are two modes of investment that falls in somewhat the same range of risk factors and returns, but still very different on other factors – Real-Estate and Stocks. We will compare the different aspects of investing in both these mediums, in this article.

Understanding the type of Investment

  1. In case of Real-Estate, you are investing in a piece of land or a tangible asset, whereas stocks are intangible assets in form shares of a company.
  2. While in Real-Estate, you need to shelve out money on monthly basis, either for repayment of the loan or as maintenance charges, in case of Real-Estate the investment is generally one time, after which the investor reaps the benefits in form of the dividend.

Control over the Assets

In the case of Real-Estate, the control of the asset rests with the investor or buyer. You have all the right to take decisions over the various aspects of the property, like floor plan, interiors, painting, renting and such. You are the owner in the true sense of the meaning. Whereas in the case of stocks, you are a mere spectator. Your stock value depends on the decisions taken by the management board of the company in whose shares you have invested. If as an investor, you want to have a control over the various decisions regarding your investment, it is advisable to not invest in stocks.

Compounding Growth

If you have taken a loan to buy a real estate property, your ownership in the property is proportional to the amount you have paid in favour of ownership of the property. As you keep on repaying the loan amount to the bank, your share in the ownership increases. It is called as compounding Growth in the ownership. In the case of stocks, no such thing as aggregate growth exists.

Risk Factor and Expected Returns

  1. Both Real-Estate and stocks have their share of risks but the stock market is more volatile as compared to the Real-Estate market.
  2. While it is possible to analyse the risk factor involved and the expected returns on both type of investments by studying the market trends and reviewing past data, it is more difficult to assess risk factor in Real-Estate as compared to Stocks.

Inflation

  1. Real- Estate is better equipped to handle the ill-effects of the inflation as compared to the stocks.
  2. Increase in property prices, rent value etc offers a cushion to the investor against changes an economy goes through.