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Real Estate Investment is much Better than Stock Market?

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Real Estate Investment is much Better than Stock Market?

  • 13 Jun 2023

Real estate or property investment is one of the most preferred investment tools in India. Long-term investors swear by an investment in a property more than any other option. However, no investments are without risks and advantages. The appreciation of a property is highly dependent on location, infrastructure development and connectivity.

Investments in residential land, commercial land, residential flats, villas, penthouses, and farmhouses are just a few examples of real estate. On the other hand, the stock market is a venue where tradable shares and stocks of companies that are listed and registered with the Securities and Exchange Board of India (SEBI) are traded.

In India, real estate investment is one of the most popular financial instruments (stock market versus real estate). A property investment is the most popular choice among long-term investors. However, every investment has benefits and hazards.

Appreciation

The best option in terms of value appreciation is real estate investing. A person can anticipate a 7–10% annual increase in the value of the residential land if they invest in a parcel of land in a Tier 1 or Tier 2 city. Residential flats experience depreciation over time, however after 15-20 years, the resale value can be anywhere between 6 and 10 times or more the original purchase price.

On the other hand, return on investment in stocks or shares of a company is directly proportional to the growth or decline of the share market (stock market vs real estate). The investment remains at perpetual risk of market volatility and can be wiped in seconds, unlike real estate investments. However, young investors and investors with a large risk appetite prefer the stock market for quick gains.

Impact of Stock Market vs Real Estate

Traditionally, the state of the stock market is an indication of the state of economic growth of the country. As it is an interconnected and interdependent economy, sectors cannot and do not work in silos. 

The movement of the stock market directly or indirectly impacts the real estate sector of India, as it does other sectors of the economy. There are three factors in which the stock market affects the real estate sector.

Credit Facility

The real estate sector is an investment-intensive sector, and mostly, the real estate developers depend upon credit to complete large projects. Almost every player in the real estate sector, be it a developer or a homebuyer, is dependent upon interest rates.

The interest rates are partly affected by the movement of the stock market. With the downward movement of the stock market, the banks become alert and reluctant to disburse credit amid an uncertain environment. When developers seek credit during uncertain times, the banks evaluate the situation and assess the situation. Home loan rates are generally increased in such times, rendering home buying dearer than normal times.

Similarly, during the healthy growth of the stock market (stock market vs real estate), banks disburse credit more liberally and at lower rates of interest.

Consumer Behavior

The performance of the stock market directly affects consumer behaviour (stock market vs real estate). When the stock market is doing well and rising, the homebuyers have confidence in the economy, and they are more likely to make a real estate purchase. On the contrary, when the markets are going down, they are negative about the economic outlook and tend to save money for a rainy day.

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