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Investing in property Vs investing in equity: Which gives higher returns?

It was 1999. My boss was retiring and wanted to sell his equity shares before moving abroad. Our man mostly held bonds, deposits and post office savings. He had bought the shares on the recommendation of a friend. I tried to convince him to hold on if he did not need the money immediately. If he is reading this story, he would wish he did. I bought 200 shares of HDFC Ltd from him at the then market price of Rs 100 each.

Around the same time we bought a house in Navi Mumbai. After living there for over eight years, we found a house in an upcoming suburb, about 6 km from my then office, and in the lane next to the kids’ school. The price was beyond our budget and we needed a loan. We bought the property for Rs 20 lakh. We soon moved on, but we still own the place.

This is a story I do not tire telling anyone who cares to listen. So which was a better investment? The property or the equity share? The property was in an area that saw dramatic development over the years. New roads and infrastructure came about. Palm Beach Road became the signature stretch of Navi Mumbai, and with a new airport coming up, property prices appreciated in response. The property is worth Rs 2 crore as we write—a neighbour sold a similar house for that price.

My father-in-law would have been pleased. He persuaded us to buy it and told us one never loses money in property. He would, however, not let us sell it even at this price. But the house is now really old. The construction business has changed over time. People now use marble and granite; windows have glass not grills; bathroom fittings are fancy; new developments have gardens and play areas; and households need at least two parking slots. Our house will not tick any of these boxes, but there will be buyers if we tried hard and persisted.

Our investment in the shares of HDFC Ltd paid us dividends every year. The shares split further and bonus shares were offered. Without an additional rupee of investment, we now own 2,500 equity shares. At the current market price of Rs 2,300, this investment is worth Rs 57.5 lakh. That is a compounded return of 32 % per annum over 20 years.

Why do we love the property market? There is a constant demand as owning a house is aspirational. People buy a house earlier in their lives now than before, because they earn well and can pay EMIs. As incomes increase, people buy more than one house. There is an emotional bond with the house.

What does a company like HDFC, which looks at the same things I just listed, do? It recognises that the market for home loans is large. It knows that higher incomes mean bigger loans and better rep ..

Information Courtesy: economictimes

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