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Apply NowMost of us would have been part of animated social discussions debating the benefits of buying a house vs investing in the stock market. Both are unique asset classes with their own advantages and drawbacks.
Investment in real estate has been the conventional choice for generations of Indians but planning for various life goals such as upgrading one's lifestyle, saving for a child's college fund, or ensuring a comfortable retirement can become much easier if you invest in the stock market. But is there a right answer?
Choosing between the two is not a straightforward process. Your goals and aspirations, financial standing, risk tolerance, investment style, and market trends all play a crucial role in your decision. Here are some parameters to evaluate that can help you make an informed choice.
Considering real estate depends on whether you are looking at it from a pure investment perspective or to build a long-term asset for your family. If owning a home is an immediate or near-term priority, it would make sense to commit soon with the help of a home loan.
Given that home loan interest rates are at an attractive level now, you can lock into an affordable EMI plan. There is no saying where real estate prices and home loan interest rates would be five or ten years from now. If you envisage a long and stable career, a structured EMI and tenure make it possible to chart out a repayment plan over the long term.
Your monthly savings and investment potential have a strong bearing on what asset classes you can choose. If the monthly outlays are high, you are better off investing in stocks as the investment threshold is low. There are thousands of equity options across price points and market capitalisation, and you have the flexibility to decide how much to invest each month depending on your savings.
On the other hand, if you can save a considerable portion of your monthly income, you will be able to service a home loan EMI without affecting your lifestyle. Any significant windfall gains, such as an inheritance, bonus, etc., lets you make a down payment for a property or prepay an existing home loan.
Both stocks and real estate are recommended as long-term investment options. Experts suggest holding on to value-based equity investments for at least 3-5 years, while gestation on real estate maybe even longer, going up to 10 years or more. However, both are market-driven investments subject to trends, vagaries of demand-supply, and changes in political or regulatory factors. These changes may impact your investment timelines and expected returns.
A bumper performance of your stock investments or a surge in demand for properties in your locality could help you reach expected valuations a lot quicker and give you the opportunity for profit booking. Conversely, recessionary patterns, higher interest rates, more tax/capital gains on investments etc., could increase your holding period. So, analyse historical trends to see how stocks of a particular sector or properties in a given locality have been performing.
The additional cost of owning a property is relatively high. You would have to pay property taxes, incur maintenance costs, and pay for utilities, even if the property is unoccupied. This outlay keeps increasing over time and inflates your cost of holding. They will also impact your cash flow situation.
On the other hand, equity and related investments have lower cost compared to Real Estate. Standard Demat and brokerage charges don't amount too much. However, if you are investing through a PMS or proprietary fund, additional management charges may be deducted from the fund itself.
Nothing comes close to real estate if you want to generate a passive income stream. There are some notable dividend-paying stocks, but the percentage payout per share is minuscule. You need to increase your risk exposure to generate a substantial dividend, which can throw your asset allocation askew.
On the contrary, investment properties have been the older generations' go-to assets. They help establish a predictable cash flow in the form of rent while gaining a notional appreciation of property value. Investment properties can also be the ideal vehicle for a retirement plan that allows you to fund your post-retirement expenses and leave a legacy for your loved ones.
Conclusion
Both real estate and stocks have traditionally been evergreen investment choices in India and continue to hold great promise for the future. If you are unsure which route to take, talk to an investment expert at IDFC FIRST Bank. They can help you assess investment milestones, evaluate risk-return expectations, and design an appropriate strategy.
If stocks are your investment of choice, IDFC FIRST Bank offers a unique 3-in-1 banking, Demat, and trading account that brings saving and investing under one umbrella. If you are more inclined toward buying a house, IDFC FIRST Bank can get you a tailored home loan. You stand to benefit from higher loan eligibility, flexible repayment tenures, and top-up options – at attractive interest rates!
Disclaimer
The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.
The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirstbank.com for latest updates.