Truth About Stock Market Volatility Over Real Estate Stability

Now-a-days people are more confused about the better place to invest money in. They are often confused with which one to choose: stock market or real estate? Going with the present situations, today people are more likely to pick real estate instead of stock market due to the perception that investing in stock market is risky because stock prices fall down quickly due to high volatility. People think that, real estate prices are more stable and they believe that real estate prices will rise in long term. But this is too much of a generalization regarding the perceived idea of stability of real estate.

Liquidity: Liquidity is an important element of a good investment. It is the ability to turn your investment into cash, when you need it the most. By owning stocks, you can opt to sell and have the money in your account in 3-4 days . But in case of real estate you require weeks or even months to turn your investment into cash. Because real-estates are high ticket items and may not be liquidated that easily. You can liquidate only a portion of investment which may not be the case with real estate. Due to vasthu, size, good shape of plots the real estate investment cannot be made into smaller portions of equal value. Hence stocks are typically more liquid and thus you can en-cash them easily.

Safety of capital: Stock markets are considered as the safest avenues for investing capital as they are regulated by the regulators and government. Once you choose a safe stock to invest that can protect your investment and grow it, your capital is safe. But this type of safety is not seen in real estate as there are many issues with regard to open land and the building properties. Quarrelsome issues like occupying or land grabbing, double sales, land acquisition and many more are the common issues seen in real estate.

Cost of acquiring an asset: The costs associated with buying, holding and selling stocks are less as they require small nominal charges on buying it and it can be as little as Rs.500. Stock requires no charges on holding it. But, the cost of acquiring the property involves high broker commissions, legal fees, registration charges, stamp duty and yearly taxes on the property you are going to own.

Inspection/Protection cost: As stocks are exchange traded, it is easier to track the stock prices in stock market. An investor can conveniently and comfortably monitor the value of their investment 24/7 x 365 days from an online account, and it can be done in a matter of minutes at no cost.

The inspection/protection cost and time is high in real estate. The real estate asset needs to be continuously monitored for encroachment and other issues. It may require travel, time as well as cost of transportation. Boundary walls, barbed wire fences and boards need to be erected to protect the property. However, real estate prices tend to be stickier on the way down than on the way up, because home owners or realtors are more reluctant to sell in downturns.

Ticket Size: The ticket size in real estate market is large (in lakhs or crores), you cannot buy real estate unless you have accumulated large amounts. Secondly, as you have seen earlier, it is not easy to sell in parts and there is no clear regulation on disclosures on charges or returns. This is because real estate prices depend on chance events where as stock prices depend on the profits of a company, industry and economy. Over the past years, it is observed that investors achieved superior returns by investing capital in equity markets for their high liquidity than had they invested in real estate markets.

As you can see from above, there are many advantages to investing in financial market rather than in real estate.

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