Avoiding the Real Estate Trap: How to Safeguard Your Wealth
Chartered Accountant Nitin Kaushik explains why relying solely on property for wealth creation can be a costly mistake. Discover the key factors to consider and how equities can offer better returns.
Real EstateWealth CreationInvestmentEquitiesLiquidityReal Estate NewsSep 29, 2025
With an example, Kaushik explained that consider purchasing a flat for ₹1 crore. Assuming an annual appreciation rate of 6%, the property’s value after 20 years would be around ₹3.2 crore. At first glance, this seems like a strong return. However, when additional factors are accounted for—such as low rental yields of 3.5–5% annually, maintenance costs, and stamp duty—the picture changes.
He stated that property also lacks liquidity and selling a flat can take weeks or months, making it difficult to access your money quickly if needed. This limitation can prevent investors from responding to other financial opportunities or emergencies.
Equity vs Property: The Growth Advantage
Kaushik says that by comparison, investing the same ₹1 crore in equities with an assumed 12% annual growth rate over 20 years could grow the investment to approximately ₹11 crore—more than three times the property’s value. Beyond higher growth, equities offer regular dividends, providing a source of cash without needing to liquidate the principal investment.
The Overlooked Trap: Compounding and Liquidity
Kaushik emphasizes that the critical factors investors often forget are compounding and liquidity. Property grows steadily but slowly, and access to funds is restricted. Equities, on the other hand, benefit from compounding interest and offer flexibility, allowing investors to leverage gains or reinvest as needed.
The comparison shows an important lesson for investors: wealth is not only about asset appreciation but also about accessibility and the power of compounding returns. While property may offer emotional satisfaction or a sense of security, ignoring the growth potential of equities could slow long-term wealth accumulation.
In conclusion, while real estate can be a valuable part of a diversified investment portfolio, it is crucial to understand its limitations and consider other investment options that offer better liquidity and growth potential. Consulting with a financial advisor can help you make informed decisions that align with your long-term financial goals.
Frequently Asked Questions
What is the main risk of relying solely on real estate for wealth creation?
The main risk is that real estate may not provide the expected growth, and it lacks liquidity, making it difficult to access funds quickly when needed.
How does the annual appreciation rate of real estate compare to equities?
Real estate typically has an annual appreciation rate of around 6%, while equities can have an assumed growth rate of 12% or more.
What are the additional costs associated with holding real estate?
Additional costs include low rental yields (3.5–5% annually), maintenance costs, and stamp duty.
Why is liquidity important in investments?
Liquidity is important because it allows investors to access their funds quickly, which is crucial for responding to financial opportunities or emergencies.
What is the benefit of compounding returns in equities?
Compounding returns in equities allow for exponential growth over time, as the interest earned is reinvested to generate additional returns.
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