Will Real Estate Follow the Gold Crash..?

Published on April 23, 2013, 07:20 PM IST
invest in gold or real estate

Real estate prices in India are unlikely to go the way of gold and decline, experts said. Gold and real estate are primary targets for retail investors in India.

“The drop in gold rates could have some knee-jerk reactions and impact short-term sentiments, but fundamentally speaking, gold and real estate have their own dynamics that drive their prices,” said Samir Jasuja, founder and chief executive at PropEquity a real estate research firm. “At the face of it, gold prices may look correlated but structurally, the demand-supply equation for gold and real estate are different.”

The argument that the sudden drop in gold prices would have a knock-on effect on real estate may not be correct, he said.

Gold prices collapsed internationally last week after the European Commission said Cyprus—one of the countries in the European Union—may have to sell gold worth about €400 million (around Rs2,845 crore today) to rein in its fiscal deficit.

“The correlation between gold and real estate prices is not as distinct as one may at first assume, but the demand drivers for real estate are not the same as for precious metals,” said AnujPuri, chairman and country head at real estate consultant Jones Lang LaSalle India, adding that the fundamentals of India real estate are strong.

Experts say the market dynamics differ—gold is a more suitable asset class when it comes to opportunistic trading because it can be bought in small or large amounts and liquidated quickly. Residential real estate is not the best avenue for short-term investors, they said.

“More and more regulations are being brought in to subdue the appetite for speculation in this sector. Also, the lowest entry point is definitely much higher than for gold,” Puri said.

Real estate is fundamentally a long-term investment with a higher entry price, said Jasuja.

On the Multi Commodity Exchange of India, gold has fallen 18.21% to Rs 26,548 per 10 grams from its peak of Rs 32,460 on 26 November. But it has gained 6.35% in the past five days.