Real Estate vs. Stock Market: Why I Prefer Stocks Over Real Estate

You probably know that Real Estate and Gold are considered as two of the most safest investment options in India. It’s true to some extent. But I personally prefer stocks over real estate when it comes to investment. That said, it’s nice to own a beachside villa or resort or whatever just like we buy car, gadgets, etc. But definitely not as an investment.

Now let me tell you Why I Prefer Stocks Over Real Estate:

1. You need a huge amount of money to invest in real estate. But when it comes to stock market, you can start with whatever money you have.

2. Prime real estate properties are affordable only for the elite class. But you can buy the stocks of any companies with whatever money you have. Very handful of stocks trade above Rs. 10,000 per share. E.g. Bosch @ 18k, Page @ 28k, Eicher @ 28k, MRF @ 75k.

3. Real estate lacks liquidity. You can’t (or you don’t) usually buy a property today and sell it tomorrow that easily. On the flip-side, you can buy and sell stocks any time. Of course the risk factor is different for both. Don’t you hear this often: “Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.” That’s it.

4. Also, you can’t partially sell your property that easily. But you can sell a part of your stocks or all of it when need arises.

5. Real estate involves taxes, government offices, documentation, commissions, etc. and that makes buying and selling a hassle. But it’s super easy to buy and sell stocks as there are no paperwork or legal hassles involved.

6. Transaction costs are huge for real estate (in fact, that’s why white money gets converted to black money) but it’s very low for stocks. It’s only 1% including buying and selling side.

7. Even after buying a property, there’s maintenance costs involved. Unless you rent out your property there’s no income. But when it comes to stocks, you actually make money annually as dividends.

8. It’s not possible (or at least not easy) to assess the real value of a property. But you can value a stock based on its earnings and earning potential.

On the flip side, real estate is not a bad option either as it’s got some unique advantages:

1. You can invest in bulk. Of course, you can invest bulk in stocks as well. But the risk-reward may not be favorable. Of course that risk is also there in real estate as well (What if you buy at peak, like housing bubble in U.S.) but not as much as in equity I guess.

2. There is no ticker to show the current market value of a property in real-time. So there are no mark to mark losses and sleepless nights. Actually, you will have some peace of mind that you own this or that property.

3. Unless there’s fraud or something like that there’s no risk of halving of price in a day. Meanwhile, stocks are so volatile that its price can go down to any levels. Best example is Satyam. I think it went down 90% in one day because of a fraud.

These are the reasons why I prefer stocks over real estate. Tell me which one YOU prefer and why.

Video / Malayalam

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Happy Investing/Trading! 🙂