Why Real Estate Investment Beats The Stock Market
The stock
market has always played the role of a barometer to the economic mood of a
nation. Real estate is one of the prime elements in the latter context.
In fact,
an interesting and important relationship exists between real estate investments
and the stock index. While both offer a profitable investment opportunity, both
also carry risks that complement each other.
A common
belief has been that the profit margins associated with stock investment has
been higher when compared to alternative asset investments. Stocks are liquid
and flexible, whereas real estate is not. Also, stocks offer growth rates that
real estate investment can rarely match.
Lastly, stocks are also easier to
acquire and operate than buying a property as investment. Investment property
also includes several added elements like insurance, maintenance, taxes, legal
fees, broker commissions, etc.
It has also
been observed that dramatic movements in the global stock market will throw up
salient differences between real estate and equity investment. The strength and
weakness of the global economy appears to influence both real estate and stock
prices.
According to the CXO Financial Advisory Group based in U.S., real estate
and stocks are negatively correlated. After the great recession, the stock
market lost about 60% of its value. With loans getting cheaper, people now
invested more in real estate, since it promises guaranteed returns in the
future.
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| Kishor Pate, CMD - Amit Enterprises Housing Ltd. |
A crucial
point to note here is that while stock prices can rise and fall, real estate
investment almost always brings in more profits.
In fact, the allocation towards
real estate in most investors’ portfolios has steadily risen since the Global
Financial Crisis. This is because investors seek to take advantage of the low
correlation between the asset class and equity market.
We already
know that volatility is always caused by the monetary and fiscal policies of
governments, and this has effectively increased the focus on real estate
investments. Rising inflation has the same kind of effect on both investments.
Increased inflation lowers the currency value, and in turn drives up the price
of assets – real estate very prominent among the asset classes.
The outcome
of stock market volatility is more evident if one follows the changes in real
estate markets. Real estate investment provides more stability and can also
deliver a continuous income stream, and this is why it attracts more investors.
The slow but steady correlation between the stock markets and real estate
markets provides the important advantage of diversification in an investor’s
portfolio.
Also,
investors can be more confident of constant returns, since the real estate
market is relatively immune from both short and long-term price swings.
Stocks,
on the other hand, are subject to constantly changing prices, and investors can
be placed in really tough situations when choosing whether to hold or sell their
stocks.
To conclude,
both assets offer long-term appreciation of value.
However, if one is looking to
create a strong portfolio and has the right kind of funds to invest, real estate
will always be a safer and less stressful platform.
After all, the demand for
homes will never cease as long as we continue populating the planet – what can
be a better source of assurance for an investor?
About
The Author
Kishor Pate, Chairman & Managing Director of Amit Enterprises Housing Ltd. is the driving force behind
one of the most successful real estate development firms in Pune and beyond.
Apart from its signature luxury homes towers and premium gated townships, AEHL
has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri
and the Mediterranean-style to
For Media Contact
Jay
Kalghatgi
Client
Interface - CopyConnect
Mobile: 9320142248
Mobile: 9320142248
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