Gold vs Real Estate which is better for investment ?
As investment options, real estate and gold have their own advantages and downsides. Comparing between these choices aided by an informed knowledge will let you know which one to choose for your specific situation and needs.
The bottom line
When approached correctly, real estate investment can be a highly profitable and reliable option for investors for generating substantial returns. It can also create a regular flow of income while carrying some attractive benefits like tax advantage, lesser risk investment mode and diversification possibilities. On the other hand, investing in gold is a highly preferred option for Indians for a number of reasons. For many generations, gold is passed on as assets.
Flexibility is the topmost benefit that people enjoy while investing in gold. It is possible to purchase any small quantity of gold depending on the amount you look forward to invest. Gold investment can range from a few thousands of rupees to several lakhs and corers depending on how much you can afford to invest.
Real estate and gold investment comparison
Investment size
In case of real estate, the investment size is huge. The prices of land are growing and you will need a lump sum amount to make the down payment as most real estate purchase deals are effected through debt financing. The size of investing in gold depends on your choice. You can buy as less as 1 gram of gold to any bigger quantity. It is advisable to buy gold coins or gold bullion instead of gold jewelry for avoiding the making charges.
Tenure of investment
Real estate is an ideal option for long term investment. Gold investment can be thought fo both for short term as well as long term. However, if you invest in gold over long term, you will be assured of higher returns.
Earning potential
If you need monthly income on a regular basis, real estate investment is the right option that can leave you with liquid cash. If the property is rented out, the monthly rental amount generated can help cover the mortgage. Gold investment is prone to be impacted by market fluctuations. When the price of gold drops, the investment value also comes down.
Liquidity
Real estate investment is characterized by lesser liquidity as against gold. It might take months or even years to sell your property. Real estate selling also involves a huge amount of paper work and other official formalities which will make the process long and cumbersome. The stamp duty expenses will make property selling a matter of big concern.
Tax benefits
Real estate is characterized by structured tax benefits. The aspects like depreciation, maintenance costs, legal service expenses and others are considered for calculating tax. Gold investment will attract capital gains tax. In case of gold deposit certificates, the profits made is completely tax exempt.
Price transparency
Real estate prices are not as transparent as the gold prices. Gold is actively traded in the market and hence everyone can get to know the gold prices immediately. It might be difficult to get the past date while selling a property.
If you held 500 grams of gold back in 1997, when the price of the commodity was Rs 472.25 per gram, you would have safely been holding about Rs 2.36 lakh at that moment. In the same year, a Central government officer of the highest rank earned Rs 30,000 per month, revised and increased from Rs 9,000 per month in 1994. Therefore, holding gold was quite profitable.
In 2017, the value of gold is Rs 2,840 per gram. This means if you are holding 500 grams of gold today, it is Rs 14.20 lakh. However, considering the fluctuation in its value, most gold holders would know that in the past six months, the net change in value is minus 7.06 per cent.
Also read: 5 Signs Your Investment Needs Your Help To Get Back Into Action
Compare this to land value.
If you had bought land in 1997 and built upon it, you would have secured the future of two of your children with the investment.
Sample this.
M Akram was lucky that he was allotted a 3BHK unit in 1982 in one of East Delhi’s prominent residential pockets under the Delhi Development Authority’s (DDA) initiative. Including the interest, he paid a total of Rs 80,000 for the property. Today, the property is worth over Rs 1.75 crore.
This is why we feel that real estate opens up as a wiser investment option.
Low volatility
Real estate is a stable investment. Unlike gold, it is something you really need. Among those who have owned a home and those who have lived on rent, tenants mostly crib about the amount of money they pour out as rents which they could have used as EMIs (equated monthly installment). Although living on rent gives one the flexibility to be mobile without any strings attached, owning a house means you are ensuring a secure future. The price of gold often fluctuates. Hence, it is not as bankable as you may expect it to be.
Add value
Through renovation and repairs, the value of property can be increased. Unlike gold, property dimensions can be altered to suit your needs. Most owners over time renovate and build on their land for a higher value.
Lease it out
Even if you aren’t using your property, you will always find a willing taker if the location is good. Rental returns are a good way to earn. You can’t lease gold. It is also easier to mortgage your property as collateral.
Secure it
Banks are not answerable for loss or destruction of your gold due to earthquake or theft, etc, while it is locked up in the bank locker. The same is not true of property.
Moreover, in the case of gold:
There are no tax benefits on holding gold.
The returns are cyclical. You may or may not be able to sell it at a cost you expect.
The liquidity is low.
The transparency is low.
Ease of selling varies from time to time.
There is no income potential.
It is also prone to manipulation. Those with a motive to suppress the value will often find a way to do so and thus, finding good buyers may be difficult.
When gold appreciates in value, it is mostly because of devaluation of paper currency. Hence, any gain is nominal.
Also, gold deposits over 500 grams, without a legit source of income, attract income tax under the gold monetization scheme. The move has been strengthened after demonetization. For a disciplined investor, equities have always been the top mode of investment. However, if high risk holds you back, real estate at the moment is very welcoming with choices and attractive payment plans.