Multiplication sounds glamorous. Annualised returns? Not so much. D. Muthukrishnan, a certified financial planner, shared a striking example to illustrate how real estate returns are often misunderstood.
A bungalow in Mumbai’s upscale Nepean Sea Road, bought for around ₹1 lakh in 1917, is now set to be sold for ₹400 crore. The property’s value has skyrocketed by 40,000 times over a century — a staggering figure at first glance.
But when expressed in XIRR (extended internal rate of return), the actual annualised return is just 11.3%.
Muthukrishnan argues that real estate is typically discussed in multiples rather than annualised returns, which creates a distorted perception of its profitability.
“Rarely anyone in that industry calculates XIRR or annualised returns,” he noted.
The same illusion holds for more recent investments. “Many tell me something like that the property they bought 25 years ago has multiplied by 10 times. Sounds fantastic. But the annualised return works out to 9.6%,” he wrote.
He extended the argument to mutual funds, where the industry traditionally expresses performance in annualised returns. “When I say a mutual fund scheme has provided around 15% returns in the last 20 years, it doesn’t sound sexy. But if I rephrase that the fund has multiplied wealth by 16 times in 20 years, it suddenly looks very attractive,” he explained.
To make informed comparisons across asset classes, Muthukrishnan recommends using XIRR or a financial calculator. He suggests setting return expectations realistically:
“The 2004-07 bull market in stocks and the 2004-09 real estate boom were exceptions, not the rule,” he cautioned.