Opportunities In Luxury Real Estate, Gold

The year 2024 has been marked by a constantly shifting financial landscape. Elections in various countries, persistent inflation, rising geopolitical tensions, and overvaluation in equity markets have prompted high net worth individuals (HNI) to broaden their horizons and diversify their portfolios.

As the market faces moderate growth prospects—with interest rate cuts largely factored in—HNIs are increasingly on the lookout for avenues that promise higher returns. Recent trends suggest a clear shift towards luxury real estate and gold, along with a growing interest in alternative investments. According to a report by Capgemini, the share of alternative investments in HNI portfolios has risen to 15 per cent, up from 13 per cent in 2023.

Alternative investments encompass commodities, currencies, private equity, hedge funds, structured products, and digital assets. This reflects a broader strategy to mitigate risks associated with traditional equities and cash holdings, which have faced challenges in the current economic climate.

Additionally, fixed-income instruments have gained traction, now making up 20 per cent of HNI portfolios. This shift is particularly evident among ultra-high-net-worth individuals (UHNIs), who are increasingly using bond strategies to hedge against inflation and preserve their wealth.

Real Estate
As of 2024, 19-20 per cent of HNIs’ wealth is allocated to real estate, reflecting a sustained focus on physical assets. Real estate is favoured for its tangible nature, stable income, steady returns, and intrinsic collateral value.

Particularly noteworthy is the luxury property market, as highlighted by a recent Knight Frank report showing a 10 per cent year-on-year appreciation in prime property values across key global cities. The rise of smart home technology is also fuelling demand for luxury properties equipped with advanced features. Developers are increasingly focused on creating exceptional living experiences, complete with high-end amenities and services. The action is particularly vibrant in cities like Mumbai, New Delhi, Bangalore, Goa, and Kolkata, with flats selling out like hot cakes.

Trust in the Yellow Metal
While gold continues to be a staple for wealth preservation, HNIs are now balancing its use with more dynamic assets. Traditionally viewed as a safe haven during uncertain economic times, gold in 2024 is part of a broader strategy that also includes real estate and private credit.

Gold has made a robust recovery from its 2022 lows, emerging as a strong-performing asset in 2024. Year-to-date figures till May 2024 show a 16 per cent surge in gold prices, reaffirming its status as a preferred investment choice for both institutional and retail investors. This renewed momentum highlights the yellow metal’s resilience in uncertain times, reinforcing its reputation as a reliable asset class amidst economic volatility.

A key driver behind gold’s impressive performance is significant central bank buying. Between January and June 2024, global central banks purchased a staggering 483 tonnes of gold, marking the highest first-half accumulation since 2000, according to the World Gold Council. The Reserve Bank of India (RBI), in particular, has bolstered its gold reserves to 841 tonnes, now comprising 10 per cent of its total reserves. The absence of default risk in holding gold, coupled with global economic uncertainties, has driven these aggressive acquisitions by central banks worldwide.

On the consumer side, gold jewellery demand has softened due to elevated prices, but investment interest in gold bars, coins, and ETFs is on the rise. Investors are turning to gold as a safe haven, with expectations of further price increases. In India, gold exchange traded funds (ETF) saw net inflows of Rs 730 crore in June 2024, surpassing the 12-month average, as reported by the World Gold Council. By the end of June, the total assets under management for Indian Gold ETFs reached Rs 34,400 crore, reflecting a remarkable 54 per cent year-over-year growth. This trend signifies a clear shift toward investment-grade gold as opposed to traditional jewellery.

Another factor boosting gold’s appeal is the widening gap between domestic and international gold prices. This divergence has led to significant discounts in India’s gold market, with price reductions reaching up to $50 per ounce. Such discounts have further fuelled investor interest, providing an opportunity for savvy buyers to capitalise on favourable pricing conditions.

Moreover, the depreciation of the Indian rupee and a growing trade deficit are expected to positively impact gold’s performance in the coming months. For investors looking to diversify their portfolios and secure risk-adjusted returns, gold remains a highly valuable asset. Its role as a hedge against inflation and currency fluctuations continues to attract interest, solidifying its position as a cornerstone of both central bank reserves and individual investment strategies.

Bottom Line
As 2024 comes to a close, the investment landscape for HNIs is characterised by a clear shift from conservative, cash-heavy portfolios to a diversified approach that emphasises luxury real estate, gold, and alternative investments. With smarter and diverse portfolios, HNIs are only preserving wealth but also pursuing growth opportunities.