BANGALORE: With the festive time here, a buyer has to start evaluating various investment options for better returns. The dilemma of whether to invest in a property or gold is not new but the situation is different this year. Experts believe that the economy is showing signs of improvement. Therefore, it bodes well for the growth of the real estate sector and depicts a hard time for gold. There is a chance that the rupee will gain strength over the dollar due to higher growth in the economy and therefore, pull the prices of the yellow metal downwards in the coming days.
Home buying is a highly emotional and rational decision, and festivals are considered to be the most auspicious occasions to take important decisions, when it comes to buying your dream abode. The belief of seeking God’s blessings before investing in a property or moving into a new house has come down through the ages in Indian culture and still continues, leading to the booking of their dream abode by house hunters.
Traditionally, people buy gold on the eve of Akshaya Tritiya but in recent years, consumers have also begun to book property for themselves. One of the main reasons is the various incentives and discounts offered by the developers, which make it lucrative for the buyers to opt for investment in property. Developers across the country launch new projects around Akshaya Tritiya that offer innovative amenities in upcoming and flourishing destinations, promising to provide the comforts of modern living. A lot of people often hold back their decision to buy a property till the auspicious day of Akshaya Tritiya. So, year-on-year, developers receive an overwhelming response during this time for homes.
Property versus gold outlook
“At present, there is some level of uncertainty which will continue till the election results are declared. There is a possibility of a strong coalition government post elections, and chances of a hung parliament are less. In such a scenario, the real estate outlook would be very positive. With a strong government, the decision-making would be faster hence, the economy would improve. It would also improve the sentiments in the real estate sector. In case there is a weak coalition post elections, the problems of the real estate sector will continue and growth will remain sluggish. Till the election results come in, there are good discounts available in the market. But post elections, the scenario will change immediately. With the chances of a strong government post elections, the existing discount will go away. But it does depend on the poll results,” shares Mudassir Zaidi – national director, Residential Agency, Knight Frank India.
As the market is coming out of the slowdown and people are awaiting the outcome of the elections, Akshaya Tritiya, this year, may not see the desired traction for all the asset classes. Still, since it is one of the most auspicious days for many people, prospective property buyers sitting on the fence, may take this opportunity to book their dream home, opine experts.
After fluctuations in gold prices where prices have come down by 15-20 per cent from the peak, the yellow metal is no more considered as a safe investment. However, property has always shown positive growth over a period of time. Even when the markets were bad, the real estate sector always gave profits in the long run. With the recent price fluctuation in the yellow metal and a long stagnancy of the price, it is very difficult to put exact parameters on gold’s ROI, whereas, looking at past trends, we can be sure that real estate will grow at a minimum 20 per cent p.a.
Property, as an asset for investment, has several advantages over gold. Firstly, there is a large unmet demand-supply gap in the affordable housing sector. Hence, fundamentally, prices will rise. This is as compared to gold, which is for hoarding and the perception of safety. The tax benefit, rental income and sustained growth in value, are some other aspects that make property a better choice over gold, in the long term. Simply put, gold prices are not expected to appreciate, either globally or in India. Forecasts by leading experts as well as economic indicators have predicted that the Indian GDP growth will be around 5.5-6 per cent this financial year, as compared to around 4.5 per cent last year. With interest rates having peaked, along with inflation coming down, fundamentally and liquidity wise, residential property prices are expected to appreciate, especially in the affordable housing sector.
Realty experts strongly believe that gold is not supposed to be treated as an investment. Instead, it is an alternative to cash, something that doesn’t lose as much as paper currencies when inflation runs high. Investing in a rental property will provide a steady cash flow. An investment in real estate will provide a constant flow of cash coming in, whereas gold is considered a dead weight. This means that when inflation hits, real estate prices will rise just like gold.
Gold will yield profits as well but it is considered a dead weight because once it is purchased, it cannot bring in a steady flow of cash. Given the trend of rising property prices over the last few years, the price of the property you have shortlisted, will most likely keep going up as you wait. Gold has appreciated from Rs 20,000 to Rs 30,000 with fluctuations, which is not more than a 30-40 per cent increase over a period of three years, whereas the property you book at the launch stage would have given over 50 per cent returns in the same time frame.
Return and risk aspects
People believe that making investments on Akshaya Tritiya is highly auspicious and can procure better property valuation in the future. This is one of the reasons why developers across the country launch new projects around Akshaya Tritiya that offer desirable amenities and exclusive offers to a buyer. The focus should primarily revolve around the reputation of the developers with worthy credentials. Selecting a project with the required permissions and approvals would be a wise choice, in terms of security of the investment decision. International gold prices have softened significantly in terms of international prices, whereas, in terms of the rupee, it has not corrected that much. The decrease in international prices of gold has not reflected in the domestic bullion market because of the depreciation in the rupee value against the dollar but now, the rupee value is appreciating and it is moving towards the stronger side.
“Overall, there is a tendency that the rupee would now appreciate towards Rs 55 per dollar. If the upcoming government is strong, then the appreciation would be stronger. In consequence, gold prices would soften in the coming months because of a strong rupee and lower value of gold in the international market. There is also the possibility of opening up of gold imports by lowering the existing duties which would further strain the gold prices in the domestic market. In comparison to gold, real estate would be a better asset to invest in. It all depends on how the political scenario evolves in the coming days but if there is a strong government, then a high rate of return in 4-5 years is quite possible from investing in the real estate market’s upcoming destinations,” concludes Zaidi.