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-Investment diversification best solution for risk management under all circumstances

-Al Mazaya Holding: Gold vs Real Estate Investment: A quest for safe haven under scarce opportunities

-80% of real estate investments post growth,

20% decline from time to time

Gold has proven to be a safe haven in times of economic deceleration and headwinds, said the Weekly Real Estate Report of Al Mazaya Holding.

However, according to the report, the yellow metal has failed to be a feasible alternative to other investment vehicles in terms of overall risk and returns, while real estate investment has secured qualitative leaps and often provided a safe haven for businesses, rather acting as an inexhaustible source for durable asset values.

The report reaffirmed the importance of gold as a tool for safe investment considering market fluctuations and economic crises, but the metal in the same time cannot be compared in terms of returns to other investment tools, including stocks and bonds or investments in solid assets such as real estate.

In this regard, the report points to the urgent need to search for safe havens by individuals and institutions alike, in light of the continued volatility of global and local markets and the tendency of a large number of countries towards adopting tough financial and economic plans. Industry data indicate that the tracks recorded by gold during the last 30 years show that it is difficult to conclude that gold is a safe source of wealth and investment. It is rather a commodity, not a stock or a bond. Its investment does not involve dividends or returns, and its profit rates purely depend on price hikes.

Industry data on the value of investments in global financial markets indicate that their returns exceed the real value and growth of gold tenfold, a fact which plays down the authenticity of the theory about the strength of gold as a safe haven over the long-term.

Therefore, Al Mazaya report suggests that gold and other precious metals are more conducive to wealth conservation and are also a valuable asset for the future, while they don’t seem to be a useful tool for generating returns and profits that can compete with those generated by investment in capital markets or in real estate products around the world.

Monetary policies have become more inclined to adopt audacious approaches which will affect the inflation rates of a number of influential economies around the world, especially the US economy, which drives investors to restructure investment instruments and diversify their portfolios to maximise returns and mitigate unexpected risks.

Al Mazaya stressed that the economies of the region seem to be more inclined towards direct investments, such as investment in real estate or industrial sectors and other economic platforms, like capital markets. Furthermore, investment options in real estate products appear more attractive and clearer than other markets and investment instruments. Realty markets have proved to be a safe haven for investors as they enjoy growth under most investment conditions.

Industry data suggest that, about 80% of real estate investments grow in value, while 20% of them fall from time to time. For example, the average prices of new homes on the Chinese market recorded a growth rate of 5.3% while home prices have maintained an upward trend over the past two years, which reflected favourably on the national economy.

British property rose by 2.7% in Q1 2018, reflecting a return to growth. In Turkey, the re-empowerment of the middle class increased demand for real estate, which helps keep real estate a strategic goal for investors seeking secure capital gains.

The report pointed to the real estate market trends in Saudi Arabia where market movement indicates the continuation of price declines, especially after the imposition of penalties against the white land, which has led to a decline in demand for residential land in the hope of lower prices. However, demand for developed residential land, in specific, has not been significantly affected, as the Saudi market continues its activity and dependence on high demand considering the decline in supply in addition to the rapid population growth. In addition, white lands are located in commercial areas rather than residential lands, which means that the real estate market is currently in a state of stagnation that will be followed by a state of high demand that exceeds the supply thanks to the Saudi government’s incentive packages, including accelerating direct and indirect credit growth.

Therefore, the Saudi real estate market will not decline as expected, but it is still a safe haven for Saudi investors and perhaps safer than gold, which lost a big chunk of its value after rising to $1,900 per ounce only to fall back to $1,350 per ounce, with fluctuations continuing until the moment as a result of geopolitical concerns and other direct influencing factors.

Al Mazaya’s report affirms that the fluctuations recorded by gold prices are due to a number of factors, foremost of which is its continued decline against the US dollar. There is a number of factors that ensure high value for gold, including a weak dollar and low yields of US Treasury bonds besides market volatility that gets investors to prefer to invest in assets such as gold, being easy to monetise, while enabling investors to avoid potential negative surprises.

Al Mazaya Holding’s weekly real estate report stressed that investment diversification is the best solution to manage tall types of risks. Concentrating on gold will not be the best solution and the trend towards stock and bond markets will be difficult as daily volatilities continue. Durable assets such as real estate is more practical under conditions of decline and recovery. However, the report noted that real estate investments are not easily monetised without losses in times of decline, underlining the importance of identifying the most attractive and useful real estate market, while experience is needed to seize good investment opportunities.

It should be noted here, according to the report, that financial-cum-commercial hype created by the pace of urban activity far outweighs the mobility caused by investment in gold and financial markets, which indicates that real estate investments will retain its competitive edge over the long-term, while the yellow metal will continue to shine over the short-to-medium range.