In today’s economic climate having a good
investment strategy is vital for a household’s financial stability. A Business Today report found that the average Indian household prefers to place 84% of their wealth into real
estate investments, with physical goods like gold placed at a much lower 11%.
Yet the current global economic situation coupled with India’s volatile real
estate market could change this. Gold could potentially be positioned to
replace real estate as India’s favoured safe haven asset. If this does happen
it will be because of these three reasons.
The Price of Gold
Gold is performing strongly this year. The fact that it is doing so well is not
a surprise, as it has traditionally done well in periods of uncertainty — hence
its standing as a safe haven asset. The
value of gold as shown on FXCM’s price chart has been strong in 2019 compared to the end of
2018. In fact, it reached historic heights this year with a six-year peak of ₹35,960
per 10 grams at the end of June. This is in line with global economic events, like
the U.S. China trade war, which have caused investors to move away from liquid
assets and put their wealth in physical assets such as gold. With the
aforementioned trade war, US-Iran tensions, and Brexit, among others, fuelling
uncertainty worldwide, expect gold to remain strong for the foreseeable future.
The fact that the value of gold will never drop to zero “unlike an equity
investment” is also why it continues to be a popular safe haven investment.
This is especially true in India, where gold is highly valued and stored by
households for long-term and emergency needs.
Short-term Benefits
The Economic Times India reports that buying gold is “much easier compared to purchasing other
tangible assets such as real estate.” There are multiple ways to invest in gold
without having to form a long-term buying and selling strategy. It is therefore
easier and faster to liquidate gold as compared to other tangible assets. This
adds to the appeal of gold since it is much more convenient and quicker to get
a return on investment, especially in times of global economic downtowns.
Indian Real Estate Market Volatile
The Indian real estate market has been in a slump for long time now. Forbes India points out that demand for residential
properties has been slow for years, with buyers, sellers, and investors all eagerly
awaiting “a revival both in sentiment and demand.” Six months into 2019, the
residential market — which makes up 80% of the real estate market — remains
lukewarm. Demand for offices and warehouse, though, have recently increased;
but they are capital intensive, making them beyond the financial means of most
household investors. Despite the 2019 interim budget passed by the Indian
government being pro-real estate, buyers are moving away from housing
investments due to the liquidity slowdown. As the market’s downturn continues,
this lack of revitalisation is an indication that the real estate industry is
set to get worse before it gets better.
Could gold replace real estate as the top safe haven asset in India? It would
take a huge change in the wealth distribution habits of Indian households. Yet,
if current global economic and local real estate trends continue as they are,
more households could look for safer short-term investments.
Could Gold Replace Real Estate as the Top Safe Haven Asset in India?
