Investing in real estate? Know how much property is too much, and when you should diversify

For many Indian households, owning a house is an important financial milestone. Some go a step further, buying a second or even a third property, often viewing real estate as a safe investment that will appreciate over time. But does owning more property necessarily translate into greater wealth?

At a panel discussion titled “Are you invested enough in real estate?” at the ET Wealth Expo 2026, Vishal Dhawan, Founder & CEO of Plan Ahead Wealth Advisors; Ajay Sharma, MD of Valuation & Advisory Services at Colliers India; and Vivek Rathi, National Director – Research at Knight Frank India, discussed how investors should allocate their wealth between physical property and financial assets such as equities, bonds and mutual funds.

A key takeaway was that investors often underestimate the actual cost of owning property while overestimating its returns. Excessive exposure can also restrict liquidity, limit wealth creation and expose households to concentration risk.


Real estate versus equities: The return gap can make a big difference

Vishal Dhawan pointed out that investors should compare the total cost of owning property with its actual appreciation rather than simply looking at the difference between the purchase price and current market value.

Stamp duty, registration, legal charges and brokerage can make the actual acquisition cost around 7-10% higher. Investors taking a home loan must also account for interest payments, maintenance, property tax, repairs and refurbishment. Meanwhile, residential rental yields in cities such as Mumbai are around 3%, he said.

To compare long-term returns, Dhawan cited the Reserve Bank of India's (RBI) House Price Index, which has around 15 years of data. Depending on the city, residential property prices have delivered annualised returns of approximately 7.5-10% over this period.

Against this, the Nifty 50 Total Return Index (TRI), which includes dividends, has delivered approximately 12-13% annualised returns over 15 years and 13-15% over 20 years, he said.

This suggests a potential annual return differential of 2.5-4 percentage points in favour of equities. While the difference may appear small, compounding over 15-20 years can make it substantial.

Investors who can withstand market volatility and stay invested through downturns may find equities more attractive for long-term wealth creation, particularly when the objective is to beat inflation meaningfully, Dhawan said.

How much of your net worth should be in real estate?

There is no universal allocation that works for every investor. However, Vivek Rathi argued that investors should keep their allocation to physical real estate as low as possible while ensuring it fulfils a specific financial or personal goal.

He highlighted the distinction between consumption real estate and investment real estate. A house that you live in or an office from which you operate your business fulfils a consumption requirement. Buying another property with surplus funds purely to earn returns is an investment decision. The two should not be evaluated in the same way.

While buying a house for personal use depends on lifestyle, affordability and long-term requirements, an investment property must be assessed objectively on its risk-return profile. Investors should also consider liquidity, ticket size, counterparty risk, flexibility and whether the investment requires active management.

According to Rathi, real estate should primarily serve as an asset for wealth preservation and diversification rather than being treated as the main source of wealth creation.

He cited government data indicating that real estate accounts for around 50% of Indian household wealth, down from approximately 55% a decade ago. In comparison, high-net-worth individuals with wealth of around $20-30 million hold approximately 20-22% of their wealth in real estate.

₹2 crore net worth: Who is better off with more financial assets?

To explain the consequences of excessive property exposure, consider two hypothetical investors, each with a net worth of ₹2 crore:

• Investor A: ₹1.5 crore in property and ₹50 lakh in financial assets.
• Investor B: ₹75 lakh in property and ₹1.25 crore in financial assets.

Dhawan argued that Investor B is likely to be in a stronger financial position over a 15-20-year period.

If Investor A's property is the house in which they live, converting it into cash to meet an emergency or financial goal may not be practical. For instance, someone facing a job disruption or needing money for a child's education cannot simply sell a portion of their house to generate funds. The property will also continue to incur maintenance and property tax expenses.

The second concern is the opportunity cost of capital. Locking a larger portion of wealth into an asset that delivers lower returns than financial investments can mean losing out on substantial long-term compounding.

Dhawan also highlighted the gap between borrowing costs and rental yields. According to him, the difference between rental yields and home loan interest rates is around 6 percentage points in India, compared with approximately 3 percentage points in the US. This means Indian property investors using leverage need significantly higher appreciation just to compensate for borrowing costs.

Why property investors often underestimate their risks

Unlike listed shares and mutual funds, physical property does not have a publicly visible price that changes every trading day. This can provide investors with psychological comfort and encourage them to hold property for decades without regularly evaluating its performance.

However, the absence of visible price fluctuations does not mean the asset is risk-free, Rathi cautioned.

Physical real estate can be difficult to sell, and price discovery can be a major challenge. While premium properties in Mumbai or Gurugram may find buyers relatively quickly, selling property in smaller towns or less liquid markets can take considerably longer.

Investors should therefore assess not just the ability to enter an investment but also how easily they can exit it. Rathi suggested considering alternative investment funds (AIFs), small and medium REITs (SM REITs) and REITs to gain exposure to real estate without taking on all the challenges of physical property ownership.

Should you buy a second or third property?

The decision to buy another property should depend on whether it fulfils a consumption requirement or is expected to generate investment returns.

Rathi cited average gross residential rental yields of around 3-4% per annum. Once maintenance costs, estimated at around 0.5% of the property's market value annually, and property taxes are factored in, the net rental yield becomes even lower.

Therefore, investors buying additional residential properties largely depend on capital appreciation to generate returns. Unless they have a well-defined reason to believe that a particular property's value will appreciate meaningfully, buying it purely as an investment may not be a strong financial decision.

Sharma, however, offered a somewhat different perspective. He argued that a second house can also serve a social and family-related purpose. While the first house fulfils the consumption requirement, the second can act as an additional inflation hedge and potentially be liquidated during a major financial emergency.

However, buying a third or fourth property should depend on whether its rental yield is higher than the borrowing cost or the opportunity cost of investing elsewhere.

Sharma also pointed out that commercial and retail properties can be more attractive investment options than residential properties because certain income-generating assets offer yields of around 8-9%.

How much EMI can you afford when buying a house?

Dhawan cautioned that homebuyers should not assess affordability by looking at the home loan EMI alone. They must consider all existing EMIs, including payments towards consumer purchases and other loans.

For a single-income household, he suggested keeping total EMIs within 35-40% of post-tax monthly income. For a dual-income household where both incomes are stable and unlikely to be disrupted, the combined EMI burden could be 45-50%.

He also highlighted the opportunity cost of the down payment. Money invested in a house cannot simultaneously be invested in financial assets that may generate higher long-term returns.

How much should you invest in real estate at different ages?

In the concluding round, the panellists offered their views on how investors should approach real estate exposure at different stages of life.

Rathi suggested that investors should first meet their financial goals through equities, equity mutual funds, fixed-income investments and gold before considering real estate as a diversifier. From a pure investment perspective, he suggested an allocation of around 20-30% to real estate, cautioning that going beyond this could become a drag on long-term capital growth.

Dhawan suggested that real estate allocation could change with age:

• Age 20-35: Keep real estate exposure between 0% and 20%, focusing more on financial assets and long-term growth.
• Age 35-55: Investors could consider increasing real estate exposure to 40-50%, depending on their financial position and requirements.
• Above 50-55: Gradually reduce exposure again as retirement approaches and the need for liquidity and flexibility increases.

Sharma broadly agreed with the need to change investment strategies with age. He suggested that investors in their 30s should focus more on equities and financial instruments, while those in their 40s and 50s could consider income-generating real estate assets if the numbers make financial sense.

As investors approach retirement, capital preservation and regular income should take priority. Their primary real estate holding should ideally be the house they live in. Any additional exposure could be through income-generating instruments such as highly rated REITs and InvITs.

The overarching message from the discussion was that owning property and being overexposed to property are two different things. Real estate can play an important role in financial security, but investors should not allow the emotional comfort of owning a tangible asset to come at the cost of liquidity, diversification and long-term wealth creation.