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.

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).

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.

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.

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.


What women home buyers should look for?

Your home will be your domain. Take a wise decision while buying your first one!

Its tough enough being a woman and dealing with all the feminine issues that are pelted by the world constantly. Add to that home buying hassles and you have quite a handful to deal with, isn’t it?

Our guide below will serve to steer you through the points that you must keep in mind before you can start off on the tedious yet exciting journey of owning your own home.

Taking a home loan? No worries, take it head on

All you independent, career oriented women who’ve zeroed in on a home and are planning for a home loan, here’s one big reason in big bold letters- You are eligible for ‘additional’ interest benefits. These benefits are specially extended to those belonging to the fairer gender.
Leading financial institutions and lenders have come up with schemes where women get the benefit of reduced interest rates as compared to the ongoing applicable interest rates of a home loan. It would be a good idea to enquire with different banks and compare their rates at the end of the day. Do remember that this is being done to promote ownership of property by women.

Budget your expenses and factor in the upfront payments

Women by nature are a thoughtful and more organised breed. So it would be hardly surprising that most women may have pre-planned their expenses and outgoings months in advance of taking a loan. However, do remember that down payments are usually a considerable amount of money and it may exceed your budgeted amount. Along with the down payment, there will be additional expenses such as government duties, electricity and water connection charges, stamp duty, registration or transfer fees, home insurance charges, service tax and other taxes too. Do bear in mind that these expenses may be nearly 6-7% of an additional cost on the total cost of the home.

Check the security features in advance

There’s nothing like being forewarned, especially if you are a single woman and are most likely to reside alone in the house. In today’s scenario it is imperative that you must consider your safety and security as prime aspects before finalising any project.

Smartphone enabled homes with built-in security features, CCTV cameras and round the clock security are just some of the things to watch out for. Remember to check the neighbourhood for any unsavoury activities and do keep a tab on the builders’ charges for all these safety features.

Don’t let the EMI’s catch you unawares

Grocery bills, daily expenses, utility bills, personal incidentals and a host of other things- these are all the components of regular monthly outgoings. Now you will be adding to this the additional load of a monthly instalment. If it still sounds good then perhaps it’s a good idea to go full steam ahead.

Chart out your instalments and the how’s and where’s associated with it. Think hard if you can really afford it. It is also vital that you must consider unforeseen, out of pocket expenses that may just crop up anytime.

Determine your loan eligibility by utilising the online loan eligibility calculator and understand the exact amount that you end up paying as instalment. Usually, your lender will share the details in advance, so you can plan for resources accordingly.

The thumb rule, though it differs from person to person, is that you must set aside about 60% of our income towards personal expenses and the rest should be allotted to payment of the instalment.

It’s a great idea to own your own home; in a way, it’s like marking your own territory. However, your home is not going to be your only financial anchor in life ahead, you will and should have other investments that will secure your future and support you in your sunset years.

While looking around for your first home, ensure that you don’t necessarily go in for the largest or the most posh project, rather opt for something which will appreciate nicely over the years and give you a handsome return should you ever sell.