Dream Home Vs Gold – Productive Vs Non Productive asset

Indians are basically mad about or fond of following Four

1. Increasing Population (India’s population is proof of same)

2. Cricket 

3. Movies 

4. Last but not the least the craze for Gold (Simply check out qty of gold with few of ur frnds/relatives)

Gold and Property are 2 most preferred investments mode for Indians with Gold being at No. 1 position…Most of the times, people are confused between Dream Home Vs Gold…Recently one of my friend asked same question to me which put me in confusion then after lot of research and analysis my conclusion is, though Gold act as potent tool/hedge against Inflation but at the end of the day it is non-productive asset, in a simple terms non-productive asset is one which has potential to appreciate but don’t yield any returns during holding period e.g.  Suppose today u bought gold worth 1 Lac Rs and u hold it for 5 yrs..After 5 yrs u sold it for 2.75 Lac thus booking a profit of 1.75 Lac since gold has potential to appreciate and during 5 yrs of holding, there were no returns therefore Gold is Non Productive asset. Now u must be thinking what about Car, answer is it’s just an asset becoz it does not have potential to appreciate (Excluding vintage cars)..By now you must be wondering the topic is about Dream Home than why I am discussing about gold..It is required to understand the concept behind this topic.

With this background, Have u ever wondered why the interest rates on Home Loans are much lower compared to Car Loan, Gold Loan, Personal loan or Education Loans though the cost of borrowing is same for bank irrespective of the fact whether bank is lending for Home Loan, Car Loan or Personal Loan..Answer is very simple (a) Property is a productive asset (b) Loan against property is more secured (c) Home Loan is for longer duration compared to average duration of all other loans (d) Housing sector is a priority lending sector for Govt

The take away from para 2 is that compared to Gold, House is a productive asset i.e. property has potential to appreciate and it yield returns during Holding period i.e. Double Bonanza…Now lets assume you have 50 Lac Rs to invest and consider following 2 scenarios

Scenario 1: You invested 50 Lac Rs in Gold..Now ur investment is appreciating but its not yielding any return..Now say after 3 years your investment is worth 65 Lac but this 65 lac is virtual and is mirage i.e. illusion of having 65 Lac until & unless u sell it off and book the profits…If u hold it for 10 years though it is appreciating but literally speaking your investment is blocked and not yielding any return during holding period.

Scenario 2: You invested 50 Lac Rs in Flat or a house, In this case also ur investment is appreciating but at the same it is yielding regular returns…Assume u r staying in same house so u must be saving 15k-20 k rent per month which is indirectly the yield on ur investment and even if u have put it on rent then also u must be getting rent of 15k-20k pm which is direct yield from ur property…So in this case, reality and mirage exist together i.e. if ur property is now 60 Lac then its virtual money or mirage (until & unless u sell) and at the same time in reality u r getting returns from ur investment simultaneously by way of Rent or Saving rent (In case of self occupied)…If u have taken loan then triple bonanza of saving tax.

Crux of the matter is, it is always advisable to invest in productive assets rather non-productive assets..Between the dilemma of Dream Home Vs Gold, I am not saying we should not buy Gold but investment in Gold should only be restricted to extent of its need..

Property investment is always judicious and more fruitful decision compared to investment in Gold becoz of its inherit advantages & having roof on our head  always provide sense of security for old age.

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