Best Asset Classes in India – Real Estate and Equities

Investments made in the real estate and equities have given the highest returns of up to 20 per cent to investors in the last two decades, says a study.

According to a recent study by Cians Analytics on the returns from various asset classes in India during 1991–2013, real estate and equity market have given maximum returns to investors.

The study covers five types of asset classes -- equities (BSE Sensex), commodities (gold), bank fixed deposits (1–3 year maturities), government securities (10-year maturity), and real estate.

 It was aimed at finding out which asset class would have provided the highest return since the liberalization process commenced in 1991.

Looking at the overall returns, the study noted that "real estate appears to have outperformed all other asset classes during the 23-year period with an annualized rate of 20 per cent."

After real estate, equities have also performed strongly in India as the stock market gave a healthy annualized return of 15.5 per cent on a nominal basis during the past 23 years. However, adjusting for inflation, the real return is only 7.1 per cent per annum.

The study also explored gold, government securities and fixed deposits at banks, which were found to have posted comparatively lower returns of 10.9 per cent, 9.7 per cent and 8.8 per cent respectively for the 23-year period.

"Real estate was repeatedly the best performer during the 5-year sub-periods since 1991, with the highest return being 670 per cent during 2008–12 and the lowest 46 per cent during 1993–97," the study noted.

It said that the realty sector performance has been measured based on the average of the land rates (1991–2006) and circle rates (2007 onwards) set by the land and urban development authorities for residential property in Delhi.

These have been used as a proxy for real estate prices since reliable data is not available for the period since 1991. Furthermore, the rental yields have been sourced from various new reports for the respective periods, the study said.

Source: The Financial Express