3 min read
22 Sept 2025, 03:43 pm IST
Property requires active management: finding tenants, paying brokerage, fixing seepage, repainting. Equities, by contrast, offer liquidity, no upkeep costs, and higher long-term returns.
For decades, investment in real estate was considered a surefire way to wealth. But does that still hold true today? With rising costs, low yields, and better alternatives, the case for a second property as an investment needs a hard look.
For decades, investment in real estate was considered a surefire way to wealth. But does that still hold true today? With rising costs, low yields, and better alternatives, the case for a second property as an investment needs a hard look.
First, the math! While many believe that real estate gives easy double-digit returns, the reality shown by the all-India house price index is that residential price increases have varied from 2-8% per annum (depending upon the city) in the last decade. Rental yields in most cities average 2-4%.
First, the math! While many believe that real estate gives easy double-digit returns, the reality shown by the all-India house price index is that residential price increases have varied from 2-8% per annum (depending upon the city) in the last decade. Rental yields in most cities average 2-4%.
To evaluate returns, one must remember to add various costs like registration, interior design, maintenance, and repairs and renovation. Taking all this into account, property typically returns 7-8% p.a. Most property investments are funded through loans, which lowers the effective return.
For example, Mr X buys a house worth ₹1 crore with a ₹20 lakh down payment and an ₹80 lakh loan at 8% interest. His EMI works out to about ₹66,000. Over 20 years, he ends up paying roughly ₹1.58 crore in EMIs, of which about half is interest, so the total cost of ownership becomes around ₹1.78 crore.
Assuming the property appreciates 6% annually, its value at the end of 20 years would be about ₹3.2 crore. Along the way, he also earns rent starting at ₹3.5 lakh per year (3.5% yield on ₹1 crore), which grows as the property value rises. Over 20 years, this adds up to about ₹1.2 crore of rental income. So in total, the property plus rent delivers around ₹4.4 crore before costs. But, after accounting for the interest, the value of the property is about ₹3 crore.
By contrast, if Mr X had invested the same ₹20 lakh down payment and the ₹66,000 monthly EMI into equities at a 10% annual return, the corpus would have grown to about ₹6.4 crore after 20 years. In this case, the EMI is not lost as an expense and rather compounds, making equities a better investment over buying a house.
Equities vs realty
Equities look enticing: more than double returns, and not to mention, not having the headache of having to manage the property and having liquidity at all times. But equity investing requires patience and the commitment to remain invested for the long term, especially during volatile times. Everything adds up on paper, but the real test lies in the execution.
There is a natural predisposition towards property as a result of long-standing conditioning. However, people do not take into account the interim costs of holding a property. First to find a tenant, one pays brokerage and then the cost of keeping the house in shape can be huge. Even with the best builders, structural issues like seepage, cracks etc can result in big expenses.
Tenants have various demands, and one would be lucky to get a tenant who really maintains the place well. Typically, when the tenant vacates, apart from painting, there would be repairs required. These repairs are expensive and not all can be claimed from the tenant. One may end up spending almost 50-60% of one year rent for all the restoration.
Selling a property is often harder than buying it. Liquidity and pricing remain big challenges. With so many new launches, selling an over 10-year-old property is time-consuming, and often, one may end up compromising on the price by the time one gets a buyer.
Factors like returns and liquidity point to equities being a better investment. However, deciding whether to invest in a second real estate or in equities should be based upon one’s ability to manage the investment over predisposition.
For those comfortable managing property, a second home may still work as an asset. Do take into account the costs to estimate returns correctly. Strangely, individuals don’t seem to mind the expenses incurred in property — brokerage, repairs, etc. — which could range from 1-2%, but balk at a similar cost in equities. For those who do not have the time and resources to manage property, it is advisable to invest in financial markets as per the time frame and risk profile.
As one gets older, the key consideration should be keeping financial life uncomplicated. Many individuals have investments spread across financial and physical assets that the next generation finds difficult or does not want to handle. Financial choices at every stage need to be more about priorities.
Mrin Agarwal is a financial educator, founder of Finsafe India, and co-founder at Womantra.