Graphic: Prajakta Patil/Mint
After a 17-18% decline in gold prices from a peak in end-November, investors are wondering whether real estate will follow suit. In developed markets such as Hong Kong, there seems to be a correlation between property and gold prices, which are considered alternate asset classes compared with equity and debt. If gold prices drop as an asset class, money is likely to flow into buying more of the precious metal. Hence, property purchases would cool off, bringing down prices.
The lack of an established property price index in India makes an accurate prediction a challenge. But, extrapolating from an analysis of property prices and movement of gold prices since 2000 in Hong Kong and India, Karvy Stock Broking Ltd says the correlation is high at 0.8. Property prices in India went up steeply in the past 13 years and so did gold, with most of the rise seen after 2005. The decline in gold prices offers an opportunity for investors to switch from realty to gold.
The table below shows the movement of property prices in Delhi and Mumbai and that of gold for 13 years. In this, markets such as national capital region and Mumbai, which have a higher investor concentration, could see greater decline as money flows out from real estate to gold. Southern markets, where realty purchases are believed to be more need-based, may not be affected so badly.
http://www.livemint.com/Money/PEZ9LNeQ6aCqWwaWdhBm4I/After-gold-real-estate.html
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