Nepal’s inflation rate has been on a rise for many years now. Fixed deposits and real estate are both popular investment options for Nepalese people but real estate just might be the better choice for investment. In this blog, we’ll compare the two.
Fixed Deposits: Pros and Cons
Fixed deposits are a safe and traditional type of investment that involves placing a lump sum on a bank for a fixed period of time at a fixed interest rate.
Pros:
- Lower risk: Guaranteed returns mean there is low risk in FDs.
- Fixed interest rates: Fixed interest rates on FDs means there can be clear financial planning.
- Liquidity: FDs have high liquidity and if needed, they can be liquidated quickly.
Cons:
- Lower Returns: Since the market is inflated, FDs can’t keep up with the rate of inflation.
- Low purchasing power: Since the fixed interest rates do not keep pace with inflation, the purchasing power of the investor decreases.
Real Estate: Pros and Cons
Real estate has a history of great returns in Nepal and has been favored by investors for a long period of time.
Pros:
- Capital Appreciation: Property values mostly rise and often beat inflation rates.
- Rental Income: Real estate can provide rental income.
- Increase with inflation: Increasing inflations tends to increase property values as well.
Cons:
- High Initial Investment: Investing in real estate requires a huge capital.
- Liquidity: Selling properties can take more time.
Which is the better choice in Nepal: Real Estate or Fixed Deposit?
In comparison, real estate is the better choice when it comes to an inflated market like Nepal’s. The higher returns in real estate means an investor can keep up with inflation. In contrast, FDs can’t keep up with the rising inflation and the purchasing power of an investor might even decrease too.
In the context of Nepal, annual fixed deposits interest rate and annual inflation rate are both around 6-7%. This makes no changes in the purchasing power of an individual but actually has chances of even decreasing it.
Through capital appreciation and rental income, real estate could be the better option. In Nepal, property values have appreciated at an annual rate of 10-12%. Adding rental income in this, the total effective return on real estate is significantly higher than that of fixed deposits.
To demonstrate this better, let’s say you invest NPR 10,000,000 in real estate and it appreciates at 10% per year, the value would increase to about NPR 16,105,100 in five years.
Rental incomes will further increase this value. However, at 7% fixed deposit interest, the same amount of money would amount to NPR 14,025,520 in the same time period.
Thus, in the context of Nepal, real estate seems like the better choice for investment over Fixed Deposits.
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