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  1. Thinking of investing in stock markets? Buy house instead, build assets and earn rich returns

Thinking of investing in stock markets? Buy house instead, build assets and earn rich returns

In case you consider equities as the best long-run investment option over the course of modern history, you are highly mistaken. The return on the residential real estate has been higher than equity, as per a research paper.

By: | Published: January 12, 2018 10:39 AM
fe queries, precautions before buying property, queries in financial express The return on the residential real estate has been higher than equity, as per a research paper. (Image: PTI)

In case you consider equities as the best long-run investment option over the course of modern history, you are highly mistaken. The return on the residential real estate has been higher than equity, as per a research paper titled, ‘The Rate of Return on Everything, 1870-2015.’ The paper jointly penned by economists Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick and Alan Taylor compared stocks, bonds and housing across 16 advanced economies over the past century and a half to arrive at this conclusion. Analysing this report further, The Indian Express said, “Between the two top asset classes, even as residential real estate comes through as the best long-run investment over the course of modern history, housing trumps stocks largely on account of the fact that the returns were less than half as volatile. On aggregate, returns on the two asset classes are in the same ballpark (7.9 percent for housing and 7 percent for equities), but the standard deviation of housing returns — denoting the volatility — is substantially smaller than that of equities (10 percent for housing versus 22 percent for equities).”

Data are pooled and equally-weighted — they are raw rather than portfolio returns. The study includes wars so that results are not impacted by omitted disasters, even though it excludes phases of hyperinflations in order to focus on the underlying trends in returns, rather than inflation. The research paper also said there are countries that have bucked the broader trend. The UK is one of the few countries featured in the survey where stocks have significantly outperformed housing over the long run. In most countries, the returns are comparable, and in some places such as France and Japan, housing has done much better.

Research firms are also bullish on the prospects of the housing sector in India in 2018. “We are actually quite optimistic on the housing side of the equation and we can talk about that later but, on the broader theme for NBFCs, multiples are high and we are quite concerned about the bond yields,” Mahesh Nandurkar of CLSA told ET Now. Research firm Edelweiss is also bullish on companies into home-building materials, as it expects government thrust on affordable housing combined with low-interest rates to bode well for the sector.

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