The age-old dilemma for Indian families has always been this- Which comes first? Gold or real estate? Let us attempt to look at the issue from a fresh angle.
We Indians are known for our sentiments and attachments in case of certain things. One of them is certainly family or the concept of family, which has kept us going. The other is gold and/or real estate. Buying a home in India is not just a transaction driven out of necessity. It is a sentimental and emotional decision, with these feelings only growing over time. But that is just a primary home. Talk about a second home or property investment and even that is not devoid of emotion here in India. Simultaneously, we Indians are really attached to gold. We simply have to invest in gold for a plethora of reasons, chief amongst them being the idea of a legacy to be handed down to the future generations.
Now, the big question emerges- Which comes first as an investment option? Gold or real estate? Both are clearly the best investment options for a large chunk of individuals. Real estate has always been associated with a sense of security and future comfort along with a perception of asset-building. Gold has also been considered as security or comfort by several investors over the years. Without further ado, let us dive into the issue.
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Gold vs. Real Estate – Initial Opinions
Gold has historically been a cushion against future inflation if you ask several serious investors in India. It is still a crucial component of almost every financial portfolio in the country. It is also being used for combating financial risks arising due to economic and geopolitical crises along with social and inflationary aspects. Many experts state that in comparison to many other types of assets, gold offers something unique- it usually goes higher when stocks start going down.
On the other hand, real estate has been associated more with long-term returns, capital appreciation and more security as an asset while also helping build avenues for earning income via rental yields. Experts advocating for real estate are firm about its potential to doubly benefit investors not just through appreciation in prices but also through rental income and tax benefits. At the same time, it is a long-lasting asset which may be handed down to the future generations, giving them more security in life.
Here are some pointers worth noting in this regard:
- One of the biggest USPs of gold is that you can always invest as much as you want. There is flexibility at all times, with regard to your investment. You need not always invest a lump sum if you are not comfortable at that moment. You can buy gold with a few crores of rupees or simply invest a few thousand rupees- it is all up to you.
- Gold has higher liquidity benefits as well. You will not find it difficult to sell off your gold.
- Real estate does not have as much liquidity; selling off a property in a big-ticket transaction takes a lot of time in most cases.
- At the same time, real estate investments require lump sum investments in most cases while many have to take loans for purchasing properties. Investment flexibility is not present in the case of this investment.
- However, with real estate, there is a long-term play at work; it will generate capital appreciation and owners may earn handsome returns by selling the property if they wish. Or else, they can also earn rental income for recouping their investment and repaying the loan simultaneously.
- Gold has comparatively lower volatility and is regarded as highly auspicious in most Indian families. Yet, it does not have the multifarious advantages offered by real estate which is something quite clear to investors.
Purpose-Wise Comparison
Earning Side Income
You can always earn side income with your real estate investment. You can get tax benefits and earn rental income, be it from a commercial or residential property. Real estate can keep giving you steady monthly rentals with annual appreciation, something that is not possible through your gold investments.
Return Rates
This one is a dicey aspect. Real estate markets often fluctuate; however, real estate may give you returns even up to 15% annually owing to growing rentals in some markets. Yet, in some markets, it may be only 2-3% annually in the residential segment as well. Gold, however, is also volatile although it is used as a cushion against steadily rising inflation levels.
Risk or Market Volatility Levels
Real estate is more stable than gold according to many experts. There could be temporary slumps or price drops. Prices may also remain stagnant for a while. However, it will ultimately secure the future of any individual. Gold is a commodity and not such a tangible and big asset. It is traded everyday in the markets and thus there is more volatility. Risk levels for gold are also higher on account of theft, damage, etc.
Added Costs
Once you purchase gold, there are no added expenses to bear. This is one big advantage of investing in the treasured yellow metal. However, real estate does have its fair share of additional expenditure. Firstly, you have to pay stamp duty and registration charges at the time of ownership transfer.
This is accompanied by fees for parking slots (which can be a sizable amount in major cities), society amenities, maintenance charges and property taxes on a regular basis. Secondly, you have to periodically renovate and maintain your property which will cost you quite some money. However, maintaining and renovating the property will enhance its value while giving you taxation benefits simultaneously.
Future Value-Building
It is obvious that real estate values go up over the long haul. The longer you hold onto real estate possessions, the higher they return value to you in the future. This is based on the simple premise that land is always scarce and cannot be freshly created. Hence, the value of real estate will always go up with the increase in the population and demand alike.
Yet, gold can be bought not only physically but also digitally these days. This may lower risks of loss but it still remains an intangible asset. Gold cannot create the kind of long-term value that real estate can. Consider the amount you save in tax benefits on the property over the years along with the rates of appreciation. Developing areas have seen property values often going up by more than 300% at times. For instance, a property priced at Rs. 10 lakh in an emerging locality around a decade earlier may be priced at Rs. 30 lakh today. This is the kind of return that gold cannot provide.
Economic Boost
Real estate may require a higher entry sum for investments but it is one of the biggest economic growth drivers in the country. The cement, steel, finance, building materials and many other sectors depend upon this industry which creates various indirect employment opportunities as well. Gold is a pivotal industry but it does not have the reach and impact of real estate in terms of aiding economic growth.
Tax Deductions and Other Benefits
Real estate investments come with numerous tax benefits. You can get deductions up to Rs. 1.5 lakh and Rs. 2 lakh on principal and interest repayments on home loans as per Sections 80C and 24 respectively. There are additional deductions for first-time homebuyers along with various affordable housing benefits including PMAY interest subsidies, lower GST rates and so on. Gold purchases do not come with any such tax benefits so that is another aspect that you should account for.
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What You Should Do
Real estate is always a better option for securing not only your future but also that of your future generations. You can build a future income-generating asset for the next generation, ensuring your family’s financial stability for years to come. You can also expect massive returns on your investment via capital value appreciation over a period of 10-15 years. Regular maintenance and renovation will help you maintain the value of your asset over time as well. Simultaneously, you will get tax benefits on your real estate purchase while being able to earn rental income from it. This will help you repay the EMI in many cases, while helping you recoup your investment eventually. Rental rates also appreciate every year, thereby giving you increased returns on your investment. Buying some gold is always recommended, especially if you consider it auspicious.
However, it can never be an alternative to real estate. Yet, one thing worth noting is that you should do your homework and due diligence before investing in real estate. There should be a clear value proposition and you should be prepared to take the financial load for the long haul. It will pay off handsomely in the future. You do not always need so much of research in terms of investing in gold. For the yellow metal, the simple premise is always buy low and sell high!
