Stock investing vs real estate (bet)

As noted in my Introductory post, I started investing in stocks from 2008. Since then I am able to achieve 15% + annual return on investment in stocks and I am happy with it. If somebody has made investment in real estate around 2009 end in NCR, he is now sitting on 3-4 times returns on investment (assuming he / she made 100% down payment). If he / she took loan, returns will be much more. This situation could be similar else where in India.

Which way would you prefer?

I do not know about others, but I would still prefer to invest in stocks. This doesn't mean that I do not own or never buy real state. I did purchase an apartment but that's for my own use.

For me investing in real estate is risky and if situation like US happens in India (though unlikely in near future), you will be in big trouble.

Why real estate investment is risky

I do not know how to value real estate properties. If you value the property on the basis of rent yield ( net of maintenance expenses) you would find the price very expensive, as effective rent yield would not be more than 2% (that too after developer deliver the property with in schedule). So I should spaculate an appreciation in property price of around 10-12% to justify the investment (assuming i am happy with 12-14% return). I personally instead of spaculation, would rather prefer to deposite the money in bank and earn risk free (almost) interest, multiple time rent yield. In India, real estate value does not depend on the demand and supply situation, infrastructure, etc but on developers, whom practically dictate the price. A nice article on how things are moving now. Still I do not have any tool or source to know this in advance, hence I am incompetent to do proper valuation of real estate.

What is the difference?

Main difference between real estate and stock investing is associated assets. Though real estate has some use, but they are not productive like stocks (read Company). In case of economic problems, Stocks / Companies can survive by their productive activities, but very likely real estate price will drop (or you will not find any buyer) significantly, as their productive return is very low (2% of rental yield). I am not mentioning GOLD here, which has no productive value and even worst than real estate in this perspective.

Another difference is liquidity: In case of urgent need, stocks can be sold with in current market value in very quick time, while selling a property can easily take few months unless you are willing to sell it to a significant discount to market price (and that too may take considerable time).

Having siad that, I think no body will loose money in real estate in India as 100% of politicians money is into real estate (I have never heard any politician investing in share market) and they will ensure that real estate price remains buoyant forever :-).