Gold has always been a hot favourite during Akshaya Tritiya. This year, however, the scenario is slightly different, with investors seriously considering alternative assets to make investments. Property has emerged as one of the stronger alternatives this year.
In fact, it is important to make a thorough comparison between property and gold.
To solve this dilemma, we need to first understand the prevailing economic situation, and then analyse the products using various strategies. The Indian economy is showing signs of improvement in terms of growth prospects, political stability and fiscal deficit. The rupee has also gained strength against the dollar in the last few months. In this situation, most of the investors are looking for assets that are safe and, at the same time, offer sound return prospects.
Still the gold standard?
Many investors call gold a hedge against inflation. In the last few years, however, gold has failed to outperform its own benchmarks. At present, there is an import duty on gold, which the government levied to curb the current account deficit and discourage excessive accumulation for investment purposes.
Gold has been trading in the R28,500-30,000/10 gram level in the last few months, which is way lower than its peak. It is expected that the government will lower the import duty in coming months, which will further put strain on prices in the domestic market.
In 2013, gold provided a negative return of 3% even though the rupee decline 12% against the dollar. With expectations of appreciation in the value of the rupee against the dollar, gold is expected to slide further in coming months.
Returns from property investments have a positive correlation with economic growth. With expectations of a stronger rupee and improvement in the economy, returns from property are expected to improve significantly. Having peaked, interest rates on home loans are consolidating now. Lending rates are
expected to fall in coming months with improvement in key economic indicators.
Property investments returned 12-15% in 2013. It is important to understand that the calculation of returns from property depends on many factors and it can vary significantly, depending on the selection of the asset.
Though gold is highly liquid, property can give phenomenal returns in the long term. If you consider the real rate of return, benefits from investing in property exceed those from gold. The property investor has an edge over gold buyers in the current market scenario. Property investors can leverage their finances by taking a loan for funding at a cheap rate. For a margin of 10-15%, funds are easily available.On the other hand, investors need to use their own funds to invest in gold.
Property developers and financiers come up with discounts to attract buyers during Akshaya Tritiya, but gold can be purchased only at the actual market rate. The extra discount in the property market due to elections makes it a hot choice this Akshaya Tritiya.
Thorough due diligence and precautions are required while investing in property. It is important to check the background of the developer, clearances by local authority and tie- ups with financial institutions. There is no doubt that returns from investment in property have been phenomenal, and they are expected to perform even better, but investors must take extra care to ensure they have chosen the right property.
- Adhil Shetty
(The writer is CEO, BankBazaar.com)