i live in a centrally located area of bangalore a canal bifurcates the main road into the rich and poor areas on the affluent side of the canal hotels restaurants and highrises dot the street the real estate rates hover between rs 12000 and rs 15000 a square feet on the other side home to a garbage dump the rates are about rs 3000 a square feet i clearly know which side of the street offers a better quality of living but how does one decide which side of the street is a better investment for the future pay a bomb and buy an apartment in one of the highrises and expect high rental income or invest low and hope that the eventual development of the locality and capital appreciation on the property will work in ones favour unlike a stock market index which captures the market conditions based on a basket of stocks it is difficult to benchmark the performance of real estate where the variations in real estate prices are alarming even within the same neighbourhood many people are of the view that land can only appreciate in value this is far from true just like demand and supply dictate market economics so is the case with real estate there are factors that can go beyond ones control in determining the true value of a property even if a property has appreciated significantly in value we tend to ignore frictional costs such as maintenance charges registration costs stamp duty property tax capital gains tax lawyer fees broker fees and other associated costs with real estate sales and purchases another common misconception is that rental incomes can fund expenses after retirement apart from the hassles of finding a good tenant and maintaining the apartment on a regular basis rental yields in india are on average between 3 and 5 pre tax with inflation hovering between 68 rental incomes will seldom beat inflation unlike financial instruments real estate is also a very illiquid asset in an emergency it is difficult to sell a property in a pinch if the property is sold in a hurry the buyer takes advantage of the distress sale and bargains for a lower price and the fair value of a property is not realized equities over the long run tend to deliver average returns of about 1617 annually while some of the best real estate appreciations in cities have been in the range of 1015 excluding taxes and other costs whats more gains on equity are tax free after a year they do not have the high frictional costs of real estate associated with them stocks or mutual funds can be bought and sold within a day at their actual prices on that day redemption proceeds can be in your bank within a week in an emergency financial assets like equities are much easier to access than real estate with a high level of transparency in assets that they