Gold glistens as scared property investors switch exposures

KARACHI: The controversial property valuation is diverting the flows of investment from real estate sector to gold, lifting up the prices of the yellow metal, which is already tracking the uptrend in the world market, industry officials said on Friday.  

All Sindh Sarafa Jewellers Association’s President Haji Haroon Chand said the 24-karat metal was previously traded at a discount of around Rs2,700/10 grams against the international rates.

“This discount has now shrunk to approximately Rs1,200 as property investors are shifting their exposures to gold after the government conducted the revaluation of properties,” Chand said.

The local commodity prices have surged more than five percent since 1 July to Rs45,500/10 grams.

The government revised the decade’s old collector rates of properties in various cities and now a property bears a withholding tax in line with the revised rates. Property investors and traders are also required to pay capital gains tax while the revenue body is also authorised to inquire about the source of investment.

There are no estimates about the quantum of property trading business in the country, but according to the World Bank, in most countries, real estate, including land, accounts for between half and three-quarters of the national wealth.

Gold dealer Muhammad Abid of Ayesha Jewelers said the jewelry market is dull, but the demand for gold bars is on the rise.

“Gold is the asset, which is still not documented, therefore investors from the property market are converting their money into gold,” Abid added.  Association of Builders and Developers (ABAD) acknowledged that new registrations of properties had almost stopped.

Irfan Ahmed Khan at Arfeen Estate said property trading slowed down to a significant extent as investors are scared.

“The taxation rules and revaluation of properties hurt the business, but it would be beneficial for the people as property values would stabilise. There would be no unjust multiplication in the property values as was happening since long.”  Hoarding gold is a centuries-old reaction during the times of crisis and the post UK exit from the European Union (EU) elicited the same response.

The yellow metal soared in value since the Britain voted to leave the EU as investors switched to traditional safe assets.   Moreover, gold is sensitive to higher rates by the US Fed, which lifts the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced.

Chand said the commodity rates are likely to move in the range of $60 and $70 in the short run. “In the long-run the metal is expected to hit $2,000/ounce mark.”

Amid weakening greenback and fears of Eurozone crisis, the central banks across the world will buy more gold than they sell in a bid to diversify their reserves, causing the supply constraints and subsequent increase in gold price hike.