Real Estate Vs Stock Market: Risks, Rewards, Pros & Cons - Expert Decodes

Real estate vs stocks: Planning to explore debt-backed investments? Stocks might seem appealing, but their ups and downs can add to stress. Real estate, on the other hand, provides steady growth, reliable income, and tax benefits, making it a practical choice. 

In a quick interaction with Republic Money, Chirag Mehta, Founder of Arbour Investments, breaks down why real estate is the smarter option for debt management.
 

"Real estate's consistent appreciation, leveraging advantages, rental income, tax benefits, and government incentives make it a strategic asset class for balancing debt and wealth creation. While stocks offer higher potential returns, their volatility, limited leverage, and lack of direct incentives render them less reliable for debt-backed strategies," Mehta told Republic Money.

Why choose real estate?

Steady growth trajectory

In 2024, India's residential property prices recorded consistent annual appreciation of 7-10%, driven by robust urbanisation, infrastructure upgrades, and favorable demographics. Key cities like Mumbai, Bengaluru, and Hyderabad led the charge with 9-11% growth due to increased housing demand, IT sector growth, and infrastructure projects like metro expansions.

Emerging city opportunities

Tier-2 cities such as Indore, Kochi, and Surat posted 6-8% growth, boosted by government initiatives like the PMAY housing scheme and Smart Cities Mission, which are catalysing real estate development beyond metros.

Why doubt stock market?

Volatile markets

While the Nifty 50 index posted an 11% gain in 2024, it came with pronounced volatility, with price swings exceeding 20% due to global economic uncertainties, interest rate adjustments, and geopolitical tensions.

High-risk sectors

Mid-cap and small-cap indices provided higher returns but exhibited sharp corrections, rendering them unsuitable for debt-backed strategies that require steady returns.

"Real estate’s consistent growth offers a predictable and secure avenue for debt management, providing stability that stocks cannot match in a volatile economic environment," Mehta asserted.

Real estate’s strategic edge

High leverage potential

Indian banks extend Loan-to-Value (LTV) ratios of up to 80%, enabling investors to control large-value properties with minimal equity.

Tax incentives

Real estate financing offers unparalleled tax benefits:

• Deduction of up to Rs 2 lakh on home loan interest under Section 24(b).
• Deduction of Rs 1.5 lakh on principal repayment under Section 80C.
• Additional interest subsidies of up to Rs 2.67 lakh under PMAY for first-time buyers.
   

What about stocks

Limited leverage with high risk

Stock investments can be leveraged through margin loans, but these typically allow only 50-60% borrowing against portfolio value. Margin calls during market downturns can lead to forced liquidation at significant losses.

No tax relief

Unlike real estate, stock investments offer no tax benefits for borrowed funds, reducing their attractiveness for debt management.
 

Inflation-proof cash flow

Real estate

Reliable rental yields: Indian metro cities such as Bengaluru, Mumbai, and Pune deliver average rental yields of 2.5-3.5%. Rental demand surged in 2024, with Bengaluru witnessing a 15% YoY rise in rental prices due to hybrid work models and the city’s influx of professionals.

Steady monthly income: Rental income is inflation-proof and provides a predictable cash flow to offset debt obligations, making it a reliable income source.

Stocks

Low and uncertain dividends: Dividend yields from Indian stocks range from 1-2%, with payouts depending on company profitability. Even the most consistent dividend-paying stocks like HDFC Bank or TCS cannot reliably cover substantial debt obligations.

Inflation hedge and wealth preservation

Real estate

Natural hedge against inflation: Real estate prices and rents rise in tandem with inflation. For instance, properties in Navi Mumbai appreciated by 12% in 2024, spurred by the development of the Navi Mumbai International Airport and metro connectivity.

Tangible and finite: As a finite resource, real estate not only hedges against inflation but also acts as a generational wealth-preserving asset, safeguarding long-term financial security.

Stocks

Long-term hedge, short-term volatility: While stocks can protect against inflation in the long term, their short-term volatility poses risks, especially when repayment schedules for debt are rigid.

Government backs real estate

The government’s strong support for real estate makes it a policy priority, offering significant advantages for debt-backed investments. 

Schemes like the Pradhan Mantri Awas Yojana (PMAY) provide first-time buyers with substantial interest subsidies, easing the financial burden of home loans and promoting affordable housing. 

Additionally, infrastructure-driven initiatives such as the Delhi-Mumbai Industrial Corridor (DMIC) and smart city projects are boosting property values in key growth corridors, making real estate an attractive asset for appreciation. 

In contrast, stocks receive minimal direct policy support, benefiting only indirectly from broader economic growth initiatives, without specific incentives to enhance returns or offset debt obligations.