Business: Spreading Rush to Tangibles

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Most reputable diamond houses certify the quality of their gems and agree to repurchase them from customers at the prevailing market price for a fee of perhaps 5% or so. But if a dealer goes out of business, those who bought from him might find themselves having to sell their gems elsewhere for maybe 500 on the dollar. The same is true for emeralds, an other of this year's hot rocks. Mostly because of high demand from Europe, top-quality gota de aceite (drop of oil) gems from Colombia have climbed 33% in the past twelve months and now cost three to four times as much as similar-sized diamonds. Yet lower-grade emeralds are very poor investments: they are sold virtually by the shovelful as semiprecious stones, there are no universally recognized grades or appraisal system for them, and only a highly flexible and informal trading network.

Real estate is also not one big market but many little ones. In the past year the new single-family house has increased in value by a nationwide average of 17.2%, but houses in Sunbelt states have risen more than those in the energy-dependent Northeast. Condominiums have done well almost everywhere. In Miami, new condos have risen 27% in value, and luxury projects are sold out even before construction work begins. In Chicago, condo values are shooting up at a 19% annual clip. Economist Otto Eckstein calculates that at least 12% to 14% of U.S. housing purchases are made not because people need houses but because they speculate that they can sell them at high profits.

Investing in raw land is more complex, and riskier.

Farm land now goes, on average, for $559 an acre, an increase of about 15% over last year, but location, development restrictions and a host of other considerations Housing: are what really matter. Real estate investors are paying $30,000 an acre for avocado farms around Santa Barbara, Calif, but only for housing development. Anyone paying that much in order to get into avocados would be crazy; at present prices for the fruit, an acre of avocado trees normally yields no more than about $2,500 per year. Conversely, anyone interested in cattle would have to pay $2,000 an acre for northeastern California ranch land, but state agricultural assessors estimate that for any other use the sage and scrub grazing pastures are worth no more than about $15 an acre.

Some investments are clearly bummers no matter how they are billed. For example, anyone who bought an $8,500 ranch mink twelve months ago might well have to pay $10,000 for the same coat today, a rise of nearly 18%. But getting into a mink is easier than getting out of one, and the resale value of a fur that is a year old is rarely if ever the full initial purchase price.

Yachts are another doubtful investment. Gloats Barry Ware, a yacht broker in Marina Del Key, Calif: "Our customers want to get out of money and into anything. If they can afford it, they are going for boats." They should think twice.

Some top-quality used vessels are appreciating in value by as much as $1,000 per month, but that is usually only true for yachts that already sell for more than $100,000. In addition, maintenance and insurance costs for these can add as much as $20,000 a year to a skipper's bill.