NRI Investment Options – Choosing Between Stocks And Real Estate

If you work in the U.S. and want to deploy your savings back home in India, finding the right NRI investment opportunity isn’t easy. Until about six years ago, real estate provided NRIs with high returns.

Stories about how the property markets in Bangalore and Gurgaon and other Indian cities have made investors rich abound. However, does the real estate market still present an attractive investment opportunity? Or does it make more sense to invest in other asset classes such as the Stock market?

The NHB RESIDEX, a composite housing price index for 50 Indian cities rose from a level of 83 in June 2013 to 103 in September 2018, which is an annualized return of only 4.41%. That is slightly more than the savings account interest rate and is nowhere close to the stratospheric returns one could see during the boom period between 2003-2010. You should also remember that valuations in different cities could be very different from the average. For example, in the same 2013 – 2018 period, the RESIDEX fell from 103 to 93 in the National Capital Territory.

During the same period, the broader Index Nifty 50 generated an annualized return of 13.9%. (All returns in INR terms)

This outperformance of the stock market as an asset class could continue as

  • India’s GDP is expanding at a healthy 5-7% per year. This makes it among the fastest-growing major economy in the world.
  • The country has a population of 1.3 billion, with millions entering the middle-class every year. Consumer-driven growth could continue to boost the economy.

Equities or real estate?

There is a general perception, especially among NRI households that investing in real estate is a safe bet, and the stock market is risky and is even tantamount to gambling. The reason investing in real estate seems safer is because no investor buys a house today and sells it tomorrow, and there is no daily quote for the price of the house.

Most players indeed operate in the stock market just as they would do in a casino. However, it is in our hands to turn the odds in your favor by investing and merely holding on to our stocks. Liquidity in the stock markets is a double-edged, especially to retail investors who react to every small news. The media plays a massive role in this as well, with their attention-grabbing headlines for every fall in the market. If one can stomach this temporary fall in the market, and stay put, history suggests that such a move would be highly rewarded.

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