Real Estate vs. Equity Investments: A Case Study on Wealth Creation

The debate between investing in equities versus real estate has been ongoing, with individuals often choosing based on their personal preferences and requirements. In the Indian context, many people aspire to own a home early in life due to its emotional importance. However, from a wealth creation perspective, which is the superior option—real estate or equities? Let's explore this through a real-life example:

In 2011, a young working couple (H-27, W-24) considered purchasing a house in a fairly good location within a tier 1 city. The property was priced at ₹85 lakh, and with their savings, they planned to take a ₹70 lakh loan, resulting in an approximate EMI of ₹70,000.

The husband's father, a long-term investor, advised the couple to consider investing in the equities instead, especially since they already owned other ancestral properties and only intended to rent out the new property. Despite the couple's desire to own their property, the father proposed an alternative: he would provide ₹55 lakh from the recent sale of an ancestral property, allowing the couple to take a smaller loan of ₹30 lakh (resulting in an approximate EMI of ₹28,000). He suggested the remaining ₹42,000 per month be invested in equities, with a 10% annual step-up, for their long-term financial goals through mutual funds. The couple agreed to this plan.

Now post 13 years in 2024, the property's value had increased from ₹85 lakh to ₹1.5 crore. Considering a rental yield of 1.5-2%, the property's approximate value is ₹1.8-1.9 crore, excluding the interest paid on the loan.

Following their father's advice, the couple consulted a financial advisor and initiated a ₹42,000 SIP in diversified mutual funds with a 10% step-up annually. By 2024, they had invested ₹~1.35 crore, and their current corpus stood at around ₹~4.85 crore.

This highlights the impact of compounding, discipline, and early investment. Had they invested the entire ₹70K SIP in equities, their corpus could potentially have been much higher.

As the famous dialogue from the movie "Jab We Met" goes, "Baba ji ab ye journey boring bana do," this sentiment is equally applicable to your investment journey—it needs to be consistent, disciplined and boring.

The intention here is not to discourage individuals from investing in real estate. However, if the primary goal is wealth creation, real estate may not be the optimal choice.

This article is intended for educational purposes, based on data collected from various online sources. Please consult with your financial advisor before making any investment decisions.

 

                                        By Ritesh Chaturvedi