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Physical assets witness subdued growth in FY17

Author: Kavita Mallya/Wednesday, December 20, 2017/Categories: Commodities

Physical assets witness subdued growth in FY17

Government reforms like demonetisation, Goods and Services Tax (GST) and Real Estate Regulatory Authority dealt a blow to growth of physical assets like gold and real estate in fiscal 2017, said Karvy’s India Wealth Report 2017.

Growth of individual wealth in physical assets nearly halved to 5.92% in FY17 as opposed to 10.32% recorded in FY16. Real estate and gold accounted for 92% of wealth in physical assets. Individual wealth in real estate grew only 8.62% to reach Rs 60.25 lakh crore in FY17. 

The real estate sector is going through a transitional period. Reforms introduced by the government will bring medium to long term benefits but the sector has been impacted on a short- term basis.

“The sector has been impacted in the short run due to these policy measures as customers are still in the wait-and-watch mode from the angle of confidence and transparency. For the developers, there is a 360 degree change of their business model because it’s a new era for them,” said the report.

Meanwhile, interest rates for home loans have also touched 8.3% to 8.4%, reminiscent of 2009-10 period. Sales in prime real estate locales like National Capital Region (NCR) and Mumbai Metropolitan Region (MMR) have fallen by 50-70% since the peak of 2010 and 2011. RERA has also reinforced customers’ confidence in timely deliveries by the developers. Developers are optimistic that the sales volume will increase eventually.

Similar to real estate, gold demand was massively impacted post demonetisation in 2016. It recovered slightly in the January-March period of 2017 before being hit by the implementation of GST.

“Total wealth held by individuals in gold was Rs 68.45 lakh crore in fiscal 2017 with a marginal growth of 3.86% as compared to 15.31% last year.

Purchase patterns have also undergone drastic changes. “As awareness is increasing consumers are opting for purchasing digital gold at market-linked prices over buying physical gold coins. Some e-payment firms have introduced ‘digital gold’ to facilitate buying of the commodity in digital form,” the report said. Also, sovereign gold bonds are also being encouraged to allow buyers to hold gold in the paper form.

For the future, the report predicts individual wealth in physical assets will grow to Rs 236 lakh crore by fiscal 2022 and real estate and gold will get their shine back.

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Kavita Giridhar Mallya

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The technical studies / analysis discussed here can be at odds with our fundamental views / analysis. The information and views presented in this report are prepared by Karvy Consultants Limited. The information contained herein is based on our analysis and upon sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither Karvy nor Karvy Consultants nor any person connected with any associate companies of Karvy accepts any liability arising from the use of this information and views mentioned in this document. The author, directors and other employees of Karvy and its affiliates may hold long or short positions in the above mentioned companies from time to time. Every employee of Karvy and its associate companies is required to disclose his/her individual stock holdings and details of trades, if any, that they undertake. The team rendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares or other securities till such a time this recommendation has either been displayed or has been forwarded to clients of Karvy. All employees are further restricted to place orders only through Karvy Consultants Ltd. This report is intended for a restricted audience and we are not soliciting any action based on it. Neither the information nor any opinion expressed herein constitutes an offer or an invitation to make an offer, to buy or sell any securities, or any options, futures or other derivatives related to such securities.

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