With many options of investment available in the market, real estate buyers and investors would like to know which is better - real estate or stocks or mutual funds or investing in the yellow metal. Which would you prefer for your financial portfolio? What should you keep in mind before investing?
Each type of investment has its pros and cons. There are several aspects of each that make them unique investments in their own way. To advise and guide you on the same, a live chat session was organised with Kalyan Chakrabarti, managing director, Red Fort Capital. The topic of the session was ‘Real estate V/s other investment options, in today’s market’.
How should one make a real estate portfolio? Chakrabarti said, “Ideally, at the basic level you should start with the home market i.e. a self owned house. As you increase your savings and are keen to build a portfolio, the key factors to keep in mind are whether you are chasing regular yield from your investment or are you keeping the real estate as a store of value.”
In case you are expecting regular yield, investing in a commercial/office/retail asset would be useful. If you wish to use it as a store of value, then it boils down to your opinion. If you have a long term plan, buying a piece of land is worth considering; for a shorter term you can go for a relatively smaller apartment unit,” added Chakrabarti.
How much should one invest in real estate? As per Chakrabarti, “This depends on what is your age, your stage of life and the nature and predictability of your cash flows. In any event, I would suggest a limit of 25-35 per cent should be self imposed. This is excluding your primary house.”
Real Estate V/s Gold:
Whether real estate will deliver good returns or gold depends on your risk appetite and the investment horizon. “For long term holding a well chosen property would be ideal. However, for short term holding or to have the advantage of liquidating your asset at short notice, gold is better,” advised Chakrabarti.
Adding to this, he cautioned that unlike gold, where quality and valuation standards are known and reasonably transparent, real estate requires you to spend time and energy understanding the market and trying to ascertain a value which looks reasonable. “As the investment you have in mind gets lower it makes sense to shift towards gold,” further added Chakrabarti.
Real estate V/s stocks and mutual funds:
Stocks and mutual funds are considered more volatile over real estate. While explaining the realty index on the stock exchange against real estate returns, Chakrabarti explained, “Realty Index is representative of how the overall listed developer community is doing in terms of share holder value creation. A large majority of developers are unlisted, while the listed developers in comparison are a miniscule minority”.
Chakrabarti said, “In my opinion, physical real estate/asset gives better returns over stocks”. Mutual funds have an advantage as they have the ability to liquidate which real estate does not have. But for those who have not yet invested or don’t have a first home yet, it is always good to go ahead and invest in one.
With this it was evident that every investment comes with an element of risk. You reduce the risk by being diligent while choosing your investment and keeping a diversified portfolio.