Could Gold Replace Real Estate as the Top Safe Haven Asset in India?

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. 

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