Real Estate V/s Gold Investment, What’s The Smart Choice?
Investments can lead to maximum returns when you choose the right opportunity and plan it out carefully.
While no single option is best in all situations, the decision largely depends on your financial goals including your preferred timeline - whether you wish to invest for the long term or short term; and how much risk you are willing to bear.
So, we compared India's two most popular options which people use for generating passive income as well as regular income - real estate vs gold.
Read this blog till the end & you shall get a better picture of gold and real estate to decide which is a smart choice for you.
When looking at the trend of returns from real estate for some Indian metropolitan cities, it can be seen that over the last five years, returns on rent via rental properties have ranged from 3-4% annually; i.e., house prices haven't kept up with consumer inflation.
A school of thought believes that because rental returns of residential properties in India have been weak in the past, real estate has the potential to produce higher returns in the future.
However, one cannot sustain this argument when comparing Indian house prices to those in other markets.
Affordability is the main problem that emerges because of Indian real estate, which is typically priced around 6-10 times the prices prevalent in some comparable Asian economies when measured as a proportion of GDP.
Secondly, returns/yields from Indian residential rental properties are around 2-3 percent in most Indian cities, which compared to the cost of a home loan for prime residential properties is more than 7 per cent.
There is a clear disparity between these numbers which suggests that Indian residential real estate still has room to correct from its highs before it becomes an attractive option.
Lastly, when comparing India's real estate returns v/s Global real estate returns suggest that it is significantly overvalued. Some markets like Indonesia and Hong Kong share similar returns but their cost of financing is also low.
As a result, investing in Mumbai real estate makes little economic sense.
Reasons why real estate is not renowned as an investment store.
- The cost of transactions such as brokerage, and stamp duty is very high.
- The investment size is huge. To invest in real estate, you need a lump sum as a down payment and use debt financing.
- Because it takes time to find the right deal, the real estate property purchased is not liquid. It cannot be sold right away.
- There is a lack of transparency while determining prices through builders or agents.
- Real estate markets are highly inefficient as most aggressive investors buy real estate without knowledge of the market. So they don't know if they got a good deal until they pay for the property and inspect it.
- Landlords face changing demographics and volatile economies, which can either increase or decrease their regular monthly income on rent.
It may seem a better investment at first glance but might be immaturely referred to as such by some individuals.
Gold has been used as a store of value for centuries, and its popularity only seems to be increasing.
There are many reasons why gold is such a desirable investment, including its rarity, its beauty, and its versatility.
Gold is also a very stable investment compared to other commodities, meaning its value is not likely to fluctuate wildly like other commodities.
For all these reasons, gold is an excellent choice for you if you want to get the value of your investment.
An RBI report found that next to gold, real estate is the second-largest chunk of household wealth at 11 percent. An 11 percent allocation to any asset is a reasonably large piece by any standard.
Over the last ten, twenty, and thirty years, Gold has delivered a return of 9.2 percent, 12.7 percent, and 9.3 percent per annum, respectively to its investors in rupee terms as opposed to properties which have yielded much lower returns during the same period despite having a higher allocation than gold over all these three periods respectively.
Reasons why people still consider gold as a safe haven investment
- Gold has retained its value over time. People regard gold as a means of passing on and preserving wealth from generation to generation.
- Several serious investors in India believe that gold has historically served as a hedge against inflation as it is used to counter financial risks associated with economic and geopolitical crises.
- Historically, gold has had a negative correlation with stocks and mutual funds i.e. the price of gold increases when stocks are low and vice-versa As a result, it serves as a diversification tool in your portfolio.
- It is still an essential part of nearly every financial portfolio in the country as gold appreciates in value continuously.
- Those who have investments in gold even in the smallest quantities of biscuits/coins in India for the last two decades have seen a substantial return from Rs.4000 to Rs.50,000 which is almost 13 Bagger returns.
Unlike real estate, you can purchase gold without the risk of losing money or the effort of timing, as opposed to real estate, which comes with a high-risk appetite, high maintenance, and extensive research to find the best purchase.
Now, the gold investment may seem nearly perfect because of the above-mentioned points. But gold has its shortcomings as well.
Because gold can easily be stolen or lost, not to mention it can be damaged & lose its value.
Gold is vulnerable to theft, loss, and damage, which can devalue it.
So what's the better investment option?
There is another alternative available for investing in gold and real estate that doesn't involve physical assets.
You can invest in dematerialized real estate and gold. Keep reading to learn more about this dematerialized form of investment.
These assets are very cost-effective because they can be purchased with a smaller investment than their physical counterparts.
They provide investors with the potential for high returns, particularly in the case of gold.
Investing in Real Estate Investment Trust (REIT)
In real estate, you can invest indirectly through a Real Estate Investment Trust (REIT) in India, which allows you to invest in real estate assets by becoming a small unit holder of a property managed by the trust in exchange for maintenance fees.
REITs are trusts that own or finance income-producing real estate.
They are traded on major exchanges and offer investors access to a portfolio of property assets.
REITs have to distribute at least 90% of their taxable income to shareholders to avoid paying corporate tax.
You are entitled to the rent in the form of a dividend after the deduction of the property management charges. But as they say, all that glitter isn’t gold, REITs have their limitations too like:
- High ticket size
- High property management fees
- Other additional charges
- Risk of tenants defaulting
- Slow/no growth in the ticket size
- Requires deep research before investing
- Capital amount is not guaranteed
- Risk of trust being fraudulent
- No return if a property is vacant
Digital gold, Gold ETFs, Sovereign Gold bonds (SGBs)
When it comes to gold, there are three main methods for purchasing the digital form of gold.
Investing in Digital Gold
When you buy digital gold, you don't get gold in your hands, but you do get physical gold that is stored in secure vaults and belongs to you. You can buy or sell it at any time by using a mobile app. You can also opt for the delivery of your gold whenever you want it.
Investing in Gold ETFs (Exchange Traded Funds)
You can buy gold in electronic form by using gold ETFs. You can buy and sell gold ETFs in the same way that you buy and sell stocks on the stock exchange. Gold ETFs are traded using a dematerialized account (Demat) and a broker, making it an extremely convenient way to invest in gold electronically.
Investing in Sovereign Gold bonds (SGBs)
Sovereign gold bonds, or SGBs, are government securities denominated in gold. They are issued by the Reserve Bank of India (RBI) on behalf of the Government of India and each unit represents one gramme of gold of 999 purity.
Why Choose Digital Gold As An Investment/Savings?
Since Gold ETF and SGB are traded on an exchange, investment hours are limited from 9 a.m. to 3:30 p.m.
whereas Digital Gold can be bought and sold 24 hours a day, seven days a week.
SGB has a 5-year lock-in period and a significant transaction cost if sold before maturity. There is no such lock-in for Digital Gold, which can be sold the very next day.
So what's the right way to invest in gold?
Well, the answer is DigiGold which is a seamless & most trusted platform when you want to invest in gold & silver online in India. It could be a very good way to diversify your portfolio and earn a good income.
There is no minimum ticket size, you can start your savings from as low as Re.1 & can start a systematic investment plan in the same. The gold is delivered to your doorstep whenever you need it.
Do you know the best part about it? DigiGold offers the 24k pure yet best rates of gold cutting all the middlemen in between.
By using the DigiGold app, you can buy and sell gold from anywhere with just a click of a button.
You can track your digital gold returns on investment easily via a mobile app & can sell to encash which makes it an asset with high liquidity.
It may seem like a random set of numbers if you're not familiar with the language, but we have presented you with facts & figures which can easily be researched.
We are not against real estate or REITs - it's just an effort from our side to show you where your hard-earned money would be best placed so that growth is automatic and with a proven track record.