There are many comments and emails asking me why I am against gold and against real estate.

Well I am not against gold, and neither against real estate. However what do you call a market which is completely dependent on new investors bringing their fresh money. Well some people call it a Ponzi scheme. I would call it a Madoff scheme.

What drives the gold market is difficult to say – insecurity? Spain? Korean war? – and periods of extremely long price stagnation are scary. Similarly for gold to come down – just shrinking of demand (which is driven by prosperity?) can spook prices.

Real estate again has many myths. ‘Prices in Mumbai do not come down’. Look at the lucky people whose parents bought flats in Santacruz, Ghatkopar, Bandra, Khar…..the list is endless. However this is just 8% return !!

I still insist that you should have gold and real estate in your portfolio – but stop thinking of them as growth assets. They are not. They are Savings assets. You will see some steady appreciation – or a spike – but on a 10 year rolling basis you would have got about 1-2 % of real return.

FOR MOST PEOPLE I KNOW, THIS IS A FANTASTIC RETURN – they let a few million sleep in their savings bank account. So on a comparative basis they are better off doing a SIP in a gold etf – but stop expecting to get 24% return. Just not possible – the market has enough people who will buy put options soon…and there will be enough WRITERS.

Whowever thinks he / she has got good returns in real estate over say 30 years, please put it in an excel sheet..and see the IRR – very likely that you will get a number like 7 or 8% p.a. Not very impressive, no?

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  1. The madness especially in real estate is so high, that instead of preaching “gyan” to others i feel taking advantage of situation and fuelling more “madness” in people mind has a better ROI over long term . How ever giving “gyan” is not helping anyways .

    Do you have idea of what segment most of the real estate transactions comes from ? I am trying to see that if that even if “Net savvy” class is tought about real estate , will the prices and madness still continue ? Does most of the transactions comes from a class which me and may be you (or any other blogger) do not have a direct reach ?



  2. no Puneet there is no real estate fund available in India, and frankly given our ability to regulate something as complicated as real estate, I do not see any launch in the near future.

    OK personally I do not take / give calls on real estate or gold, but on gold we are nearer to the end of the bubble (whether it is a bubble, I have no doubt). So the ‘reversion to the mean’ will prevail in 2010, 2011,…..

    When I spot a bubble…I stay away, holding back my urge to go short…’cause a bubble hurts.

  3. gold may or not be a bubble.probably not -i dont think it occupies udayan mukerjee’s mind that much.
    govt debt is a definite bubble.those with too much debt will be wiped out just because their economies are not going to be spurting forward.i would be wary of buying any rbi bonds in india.

  4. As far as gold is concerned…I think it is critical to understand the price movement of ruppe as a currency along with gold prices. The gold price charts for an ounce of gold for the last 30 year is different for dollar / rand / rupee. What if one is able to buy gold in an strengthing currency ( say yuan ) and being able to sell in a weakening dollar & then being able to convert the dollars to rupees ? Can’t resist imagining a situation to be able to trade actively in currency as well as gold as commodities….

  5. Hi Subra , I read many of your articles and I agree with almost all but real estate is confusing as I am thinking of buying a home . My question is are you suggesting that if a person get to live for another 40 years , it is better to continue on a rented property than buying a house? Assume 40L property with 25L Loan for 15 years and 9% interest rate?

  6. Hi Subra, The real estate returns are very real. Normally we tend to keep these assets for a long term and thus benefit a big way. As for gold, there are sentimental reasons for this investment. Wifes are very happy if you accumulate real gold over time. In our society, there is need for gold at the time of children’s marriage. I agree the gold investments rise at the same rate as inflation. But real estate can really be more rewarding. problems related to real estate are that it can be difficult to buy & sell. Not suitable for retired people. Better to keep these as inheritance transferred to next generation.

  7. Rajeev,

    Real returns in Real estate is at best like camphor (karpur?). Work out returns over 20 years..and you will not beat bank rate…

  8. sukumaran,
    I do not know what is your experience, but I disagree with you. Real estate adds value to your life style. You can enjoy your life more privileged way if you stay in a special colony or neighborhood. Same goes with owning a second home away from the city in a natural environment. It also creates a legacy for your children. Just compare the rise of housing cost over time and you will see that what was possible in the time of our parents is not possible now and will be impossible for our children, like owning an apartment in a good area in your city.

  9. People like you and Subra are fighting a losing battle..the emotional appeal of a gold and of real estate is just too much. And people do not like excel. Also 2003 to 2010 is a poor indicator – immaterial of asset allocation, your X would have become 6X. It did not matter whether you had real estate, gold or the sensex. Sure I do know people who have done a 12X of their portfolio…but generally 6X is a given for people in good funds, SIPs…and not interrupting it in 2008.

    However ‘status’ of a house, a good car parking, etc. are emotional. Paying a hotel is far, far, far sensible than owning a house in the hills….but who has time for all this…

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