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Gold or real estate, where should you invest now?

The Financial Express logo The Financial Express 25-09-2017

By Dharmesh Jain

As Indians we have always been inclined to the power of gold, may it be in regard to economic status, security or asset acquisition. However, the past decade has seen real estate rise as the dominant go-to-option in our financial portfolios. Bearing testimony to the same, the latest RBI report on Housing Finances has put this school of thought into further perspective.

The report disclosed that 76.9% of household wealth in India sees investment in real estate, while 59% of the poorest 20% in the country own land or at the least a dwelling unit while the largest expected growth (in absolute terms) is in real estate. Come to think of it, durability and rarity might be the only two mutually shared characteristics between the two entities.

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Mapping the distinction

Real estate comes with structured tax benefits along with the prospect of gradual yet definite capital appreciation. Ample financing options and home loan accessibility increase the investor attractiveness of this sector. Ownership becomes much more tangible in the case of a home; by providing a sense of satisfaction and step closer in a buyer?s pursuit of happiness.

Turning our attention to gold, how truly profitable of an investment is it? Its lucrativeness seems to diminish owing to a fair portion of setbacks. Firstly, gold does not generate cash flow, whereas the real estate earns you installments of rent. The assessment depends on the value of other cash-flow generating assets. And rightly so, realty is defined as one of the best-performing assets in times of uncertainties and equated to a safety net.

Additionally, the arbitrary nature of gold prices is fickle at best and also connected to international rates, making it unpredictable.

Regarding the longevity factor, investing in gold may be a favorable option in the shorter run - three or four years, which could most likely be maxed out to seven years. On the other hand, if an investor or layman for that matter wishes to raise money for a longer term, i.e. 14 years or more, then property purchasing is a more secure option.

Furthermore, the stability quotient that property provides makes it more desirable in the long run, as the real estate market is less volatile and market prices are bound to increase, whereas future gold prices largely depend on multiple macro-economic factors.

Ultimately it comes down to ROI (return on investment), which is directly eliminated with gold - the return on investment varies depending on the property location. Developing areas provide a higher return on investment over their developed counterparts. Thus, a viable idea for investors is buying property in satellite cities and townships in order to maximize ROI. If they opt for a comfortable plan by making deferred payments, then, the net ROI will be higher, vis-à- vis the sum invested and the apartments can be sold at a premium rate, close to its possession time.

(The author is chairman and managing director of Nirmal Lifestyle, one of the leading real estate companies in Mumbai)

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