Most of us would like to invest in Real estate. We generally think Real estate gives the best returns. I too used to think on the same lines before learning about Businesses / Shares / Stocks / Mutual Funds etc.,
In this post, i shall compare Real estate with Stock Market.
Let me start with a question….How many of the world’s Top 100 richest people constitute Real estate investors? Can you name a few please? I don’t see any Real estate investors in the Top 100 list.
These are some of the world’s Top 100 richest people. All of them are Stock Market investors.
- Bill Gates (Microsoft)
- Carlos Slim (Telecom)
- Warren Buffet (Berkshire Hathaway)
- Amancio Ortega (Zara)
- Larry Ellison (Oracle)
- Christy Walton (Walmart)
- Liliane Bettencourt (L’Oreal)
- Michael Bloomberg (Bloomberg)
- Jeff Bezos (Amazon)
- Mark Zuckerberg (you know)
- Larry Page (Google)
You may ask a question here….all these people own a company or group of companies, so how did they become Stock market investors?
They own Shares of their own companies and the companies grew and the share prices grew making them the world’s richest people.
To put it in simple terms, if you can’t start and run a great company, buy shares of these companies from Stock market and own them for long time so that your wealth grows.
- HDFC Bank share grew 150 times in last 16 yrs. Annual growth rate of 38%.
- Tata Motors share grew 133 times in last 15 yrs. Annual growth rate of 40%.
- L&T share grew 487 times in last 15 yrs. Annual growth rate of 51%.
- Titan share grew 764 times in last 11 yrs. Annual growth rate of 83%.
Above companies and many others have been tremendous wealth creators for investors (share owners/share holders).
My father bought a piece of land for 30K in 1983 in Hyderabad and the current value is 30 Lakh. Annual growth rate of 15%. If you sell real estate assets, you have to pay a Capital Gains Tax of 20% on the Long Term Capital Gains (profit). After paying Tax, returns will further come down. If the real estate you own is a flat, apart from Capital Gains Tax, you have to pay property Tax every year and incur expenses towards maintenance also. Moreover, most of real estate transactions involves Black money, which can never be accounted.
Returns in Real estate are paltry when compared to returns in Stock market. You can observe the same in below image too, which shows US S&P 500 index (Stock market index – blue line) Vs real estate index (red line).
The picture is no different in India. This trend will continue in future too….Real estate returns can no where come closer to Stock market returns.
If you are not an expert in selecting the right Stocks/shares, invest in Stocks through Mutual Funds. Many mutual funds have given returns of around 20-24% in the long term.
Don’t buy real estate for investment purpose.
Buy a flat / construct a house only for self-occupancy.
Invest in good Shares / mutual funds to create wealth in long-term.