Gold-vs-Real-Estate

Gold v/s Real-Estate – A difficult investment decision for the Indian retail investor

The traditional Indian’s investment routes are characteristically bi-directional, with preferences swaying towards either gold or real estate. The very mention of stocks brings up a feeling of hostility and mistrust, unarguably; because of the various stock market fluctuations and unit-linked investment scams. Usually thought of as risky and perhaps a tad inconsistent, this topic is best left for another time, another day.

Let us delve into the investment avenues of Gold and Real Estate, generally considered as safe and reliable options with a fair debate on the pros and cons of both.

Gold
To get an insight as to how much gold has influenced purchasing behavior among Indians let us take a sneak peek at the figures mentioned herein. The total value of gold in the Indian market is estimated to be roughly more than 30 lakh crores; an amount close to twice the foreign exchange held by the RBI.

Gold is purchased in various forms with the most common one being jewelry. Some investors also prefer to own this precious commodity in the form of gold coins. The rest of the camp prefer to hold an investment in ‘non-physical’ form such as Gold Exchange Traded Funds (these are units like a mutual fund which represent physical gold in paper or dematerialized form and are traded on the exchange like a single stock of a company).

Real-Estate
Investors have options of investing in Land, Apartments or Commercial premises such as offices, ware-houses etc. Land is a strategic portfolio and usually involves various legal and tax implications. The most common preference has been an apartment for personal consumption or as an additional home. The key decisions that need to be made are knowing to buy a house / land at the right time and the right price.

Having understood on how to go about making these investments, we shall now explore the market and risk factors on each of them to help make the right decision.

Income Generation
Property has the potential to generate income by renting and leasing it out to prospective buyers. This can be accounted as a monthly cash-flow on a year-to-year basis (the minimum lease period in India is close to 13 months) which could prove as a valuable hedge against property borrowings or any personal hedging needs of the investor. Gold ETF investors, on the other hand, stand to benefit marginally in terms of dividends announced on the ETF’s. Other forms of gold investment generate no income when retained.

Liquidity
Gold can be bought in quantities as per the investor’s budget with ease and can also be liquefied quickly, as per investors day, time and situational convenience. On the other hand, a ‘real-estate’ investment is often required (and advised) to be held for a minimum ‘gestation’ period to enable them to appreciate favorably. Liquidity options are tedious to exercise in this case. Thus, Gold wins over in terms of liquidity which is a key factor for investors who are looking to exercise this option over a short period of time.

Portability
Real-estate being a ‘fixed’ sort of investment is usually considered highly ’un-portable’ compared to gold, which can be easily traded in local or other regional markets within India.

Collateral Benefits
Real estate scored higher in this area offering investor benefits in the form of mortgages and leases. Having said this, retail investors could elect to opt out of this as they may not want to risk their property taken up by the bank if they are unable to pay their dues. Gold investors can also obtain gold loans from the banks (and even their neighborhood pawn shops) for roughly around 50-70% of the value pledged.

Time Benefits
Gold is considered as an excellent short-term gainer. Historically, gold has appreciated the most between 1999 and 2011 which led the common investor to believe there will be even more appreciation yoy (year on year). However, as witnessed in the past few years, gold prices do correct themselves once in a while. The golden truth, hence, is to maintain gold as an investment option for a limited period of time and retain a real-estate investment of periods exceeding (at-least) 3 years.

Tax benefits
A sizable amount of tax can be saved annually on different types of real-estates owned. For e.g. for a self-occupied property, the investor can claim the interest paid on the borrowed capital under section 24, subject to some conditions. Gold provides very little tax benefit or no benefit at all.

Nonetheless, Gold has proved itself to be the perfect hedge for inflation over a short-term. But to look at it as a hedge avenue, Indians are yet to consider this market actively as the purchases continue to be dominated by jeweler. Gold only beats inflation. It fares poorly when compared to real estate when compared on the basis of real inflation adjusted returns. Investing in gold over a longer period of time would mean a loss on the opportunity cost. Thus, any serious investor is advised to have a certain percentage of investments in gold to hedge inflation and allot a larger percent to real estate or property on account of durability and value-for-money.

banner2

West Tambaram offers huge investment-potential

A promising location with a massive investment potential !

Tambaram is often referred to as being one of the oldest localities in Chennai; however that’s not the only thing it is well-known for– Tambaram has emerged as one of the most preferred localities in Chennai for home buyers. Recent studies note that there was an increment in appreciation, nearly as high as 18 per cent in the last one year and 22 per cent in the last two years. Those who invested early enjoyed a handsome capital appreciation on their real estate investments in West Tambaram.

The demand and supply situation for housing is fairly well balanced and the infrastructure is well organised to take on an increasing demand. Keeping these considerations in mind, home buyers seem to be making a beeline to Tambaram and there is a plethora of incredible projects that have already been constructed or are in the pipeline. Tambaram has justly been hailed as one of the most important epicentres for commercial and residential activities in Chennai.

Reasons for the uptrend

Tambaram is located on the GST Road (Grand Southern Trunk) and serves as a midway to the IT and SEZ corridors. It is because of this strategic location that the area is teeming with a flurry of commercial and residential developments. Tambaram has well established industrial enterprises nearby and affords quick road connectivity to the neighbouring areas and to the rest of Chennai.

The area is in close proximity to the Chennai airport; it is a mere 10-11 kms away from West Tambaram through the GST Road. The railway station is
3.5 kms away from West Tambaram, besides it boasts of being one of the busiest railway terminals of the Chennai Suburban Railway Network. Being situated advantageously along the Chennai-Trichy Highway, Tambaram is approximately 27 kms away from the city centre and one can reach important landmarks quickly.

All these features have brought Tambaram in the limelight and it has gained favourable popularity among IT professionals, NRI’s and High Net worth Individuals (HNIs) for residential properties. Tambaram is dotted with many renowned colleges and schools such as Valluvar Gurukulam, Jain Vidhyalaya Matriculation and Higher Secondary School. Recreation is also in easy access with the Kishkintha Theme Park being located at the intersection of Darga Road and the Outer Ring Road.

Well Organised Infrastructure

The meteoric rise in demand for apartments in Tambaram has resulted in over 60% of total residential occupancy and it is easy to find properties that suit a wide range of needs, ranging from luxury apartments to mid-level housing.

Tambaram is separated into Tambaram East and Tambaram West with the main road through West Tambaram connecting the districts of Lakshmi Nagar, Krishna Nagar, Bharathi Nagar, Old Perungalathur, Madhana Puram and Mudichur, ending at the Vandaloor-Oragadam road. One will find that while both areas are doing well, West Tambaram has presented a more lucrative option because of the development of the Vandaloor-Nemilichery Outer Ring Road.

West Tambaram has shown to present an affordable option compared to its eastern counterparts and one can find that this area is more suited for those who prefer a relatively more peaceful and green environment. There is a police station as well as a fire station in West Tambaram and contribute to making this locality peaceful, safe and tranquil. The Tambaram Municipal Corporation has introduced several new local initiatives that have garnered support from the residents and have set an example for other municipalities to emulate.
Collectively, all these features make West Tambaram a modern day utopia in the making.