BEIJING (Commodity Online): Yes, you have heard about the Chinese move to rein in the realty prices by barring people from buying more than one house. But, investors may not be aware that if Chinese realty falls then the bullion market will gain some benefit from it because if the huge Chinese economy is hit then investors will panic and rush to park their money in gold.
China this week banned its citizens from buying more than one home in Beijing in an effort to rein in the artificial demand created by the real estate sector and curb the sky-high prices of apartments.
The order was passed with a directive to implement the central government policies banning mortgages for the purchase of a third or third-plus home.
The capital in the recent months witnessed soaring real estate prices even though many of thousands of sky scrappers dotting city skyline have large empty spaces.
Ever since the government lifted the ban on private property about two decades ago, Chinese of all hues invested in more and more real estate sector buying more and more flats taking advantage of the easy lending policies adopted by the government controlled banks. This means Chinese are making good profits from the realty.
Speculation is the main reason behind high home prices in Beijing. The measures will curb housing demand and reduce the medium and long-term risks for China's economy and the financial sector.
This move has also triggered rumours about Chinese realty market crash and an impending slowdown in economy. This will surely help the gold prices as a fall in realty prices will make investors search for other options for investment.
And, gold is the bets bet when there is a crisis. Gold's safe haven value is very high and investors always tend to go for gold when the equity and realty markets are down.
As much as 60% of China's gross domestic product relies on construction. The government has also banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7% across 70 cities in March from a year earlier.
The clampdown on property speculation may also prompt investors to turn to the nation's stock market. But that too is not very promising. So, the best bet for them is gold.