House Vs God(s)

No-brainer, eh? Who would choose Equities over a solid real estate investment such as a house where you can live in and your net worth is not measured everyday in a portfolio in www.moneycontrol.com or the like. (Useful little feature, check it out!)

A House is always a great first big investment and should be a part of everyone’s financial planning. And it is an emotional part of our life. No one can give a financial argument against emotions, right?

This write up assumes that we or our parents have made that big investment and how a second or third real estate investment stacks up against traditional investments such as stocks. Well not too great..

What are the arguments against equities vis a vis House?

Not safe, eh? Well do we really spend the time and energy buying equities the way we do when we buy a house? We check the builder for his reputation, the area for potential appreciation, the rates, the layout of the complex, freebies such as gym, play area etc. (No freebies those, the builder pads in onto your cost!). Not to speak of having the having the legal rigmarole vetted by an attorney! And do we buy equities with even remotely comparable diligence! The next tip from a broker, 8 best buys for 2008, web sites offering phree gyan! (Oops!)

Appreciation? Well if you had bought a crore of NSE Index funds in 2002, you’d be sitting on around 5 crores worth of the same today! And remember, no need for research, brokers, godsofgreed etc. And no property taxes and of course no capital gains tax as well! Real estate probably appreciated at the same rate through the period. People who point to the equities boom must remember, the same liquidity that drives the sensex crazy drives real estate prices too! And over longer periods of say 15-20 years, studies have shown that equities have matched or exceeded real estate returns.

Equities held for a year or more have no capital gains tax at all, thanks to PC’s budget a couple of years back. Whereas real estate carries a tax of 20% capital gains when you sell irrespective how long you hold!

And there is this concept called Fungibility. One stock of Reliance Petro is just the same and carries the same value as another one. Whereas a house in Bandra is not the same in value as an exactly similar looking adjacent apartment of the same floor area. So you get the perfect market determined price when you should decide to sell your shares. And apartment prices can be determined by the direction of the door and numerology of the door number!

Lastly the best bit about stocks is that you can set aside small bits of money at different points of time without getting caught in a EMI trap and lose out on several small indulgences. And conversely you have your heart set on a Skoda Fabia. (sigh, me too!) You can sell a bit of your portfolio to make a down payment instead of the whole house!

So, it would do well to remember what I mentioned in the earlier part of my write up, If you have your hearts set on that condo, go ahead and indulge, nothing like a cozy nest! Once that done, more houses only pull us into debt and make land sharks rich! Happy Investing!