Money-Wise | Real estate vs stocks: Which investment has more promising returns for you?

In the burgeoning Indian market, stocks, mutual funds and real estate have emerged as the most popular investment options for investors.

In an effort to save money, either for children or one's own future, young India has been on the lookout for the best mutual funds or stocks to invest in or has been hunting for real estate properties that can promise them good returns in the future.

This time in Money-Wise, we try to understand from experts what could be the best investment for you.

Real estate: A stable investment destination

The popularity of real estate investments has been growing because of their stability, appreciation of return, and value appreciation of rental income and property over time.

The investment in real estate is long-term but it helps in asset accumulation and wealth-building. Experts explain what makes real estate a steal deal investment option for investors.

Aman Gupta, Director of RPS Group

• The housing price index in India has moved northward. It shows average annual growth of around 7-8% year on and in the same period, the stock market has witnessed multiple corrections above 20%.
• Rental yield on residential properties in India, though at a modest 2-3%, is still an assured income stream.
• The government's impetus for low-cost housing, particularly the fact of its scheme giving birth to Pradhan Mantri Awas Yojana, has further strengthened the real estate sector.

Manoj Goyal, Director, Forteasia Realty Pvt Ltd

• According to Knight Frank India, average 10-year returns from residential properties in top cities in India have hovered around 9-10% per annum, accounting for rental values and capital appreciation. Meanwhile, because of the volatility in Sensex, it has witnessed bouts of negative return together with years of high growth.
• Property investments in India come with huge tax benefits. Availabilities of up to Rs 2 lakh on home loan interest under Section 24, apart from the benefits on principal repayment under Section 80C, can tend to huge tax savings.

Mutual funds and stocks: Liquid investments with promising returns

Mutual funds and stocks are also preferred by many investors who like the liquidity of the money it offers as well as the promising returns that come with it. Here's what our experts feel about investing in the stock market.

Lt. Col. (Retd.) Rochak Bakshi, Founder and CEO of True North Financial Services

• Mutual funds and stocks are liquid assets, which can be liquidated with a single click. In contrast, real estate assets take longer to liquidate, and there are no options for partial withdrawals.
• The rental yield for residential real estate is around 2.5%, while commercial real estate can offer yields in the range of 6% to 8%. Diversified mutual funds typically provide returns of about 12% on average, whereas real estate can appreciate by 6% to 7% annually in prime locations.

Vaibhav Kaushik, Research Analyst at GCL Broking

• There is an increasing trend to invest in other avenues like stock shares, mutual funds and even cryptocurrency, which in most cases is more liquid. Compared to investments in real estate, these investments make it possible for individual investors to change the kinds of risk they incur by smoothing access to their investments.
• Purchasing properties may turn out to be extremely costly to manage. One has to pay property taxes and if engaged in any possible lawsuits, the expenses can wear out profits.

How should investors plan their real estate investments?

In India, investors should have a clear understanding of both market trends and strategic approaches to investment when creating real estate wealth. One needs to adopt a smart investing approach and consider location, property type, and time while purchasing real estate. Our experts share tips on how you can make real estate investments.

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Gunjan Goel, Director at Goel Ganga Developments

• First, the investors should always target high-growth areas. Bengaluru, Hyderabad, and Pune, for instance, have always appreciated at above-average rates.
• Understand the power dynamics of rental income. Considering Indian metros, the average rental yield is in the range of 2-4% in the case of residential properties, while it is 6-8% in the case of commercial spaces.
• Consider the leverage factor. Given that home loan interest rates averaged around 8.5% in 2023, and considering the provision of up to ₹2 lakh tax deduction on interest under Section 24, real estate investments can be highly tax-efficient.

LC Mittal, Director, Motia Group

• One strategy can be value addition through the improvement of property. Renovation of old properties in good locations can give unexpectedly high returns.
• Another lucrative option is considering fractional ownership platforms. These days, some companies allow investors to invest in high-value commercial property and the minimum tickets could go as low as Rs 25 lakh, diluting the barriers to entry to high-value real estate.