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IS REAL ESTATE AN INFLATION PROOF ASSET?

IS REAL ESTATE AN INFLATION PROOF ASSET?

July 27, 2023

Over the past 2 to 3 years, inflation has been a keyword in the global market as it continues to rise by many factors such as the Covid-19 pandemic impact and we have all seen the terrible effect of the outbreak on businesses and several industries.

This has been accompanied by a sharp rise in prices and wages. This has brought the real estate to the forefront as it is frequently argued that “property is a good hedge against inflation”.

During these times, owning a home is no longer thought of as just a place to “lay your head” anymore for a lot of people. More people are beginning to see how real estate strengthens economic development, increases wealth status, and more importantly is a necessity to live a satisfying life.

There’s no doubt that real estate is a great investment and over time it has proven to be one of the most stable and reliable ways to grow your wealth.

But is real estate immune to inflation? In this article, we will explore the relationship between real estate and inflation.

WHAT IS INFLATION?

Inflation can be defined as an average increase in the prices of goods and services. Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year. From a real estate perspective, the greater the demand, the more the property is worth. So this brings us to the question – How does inflation affect real estate? When inflation is high, property prices tend to rise as well. This is because demand for housing is usually high when there is economic growth and prices go up when there aren’t enough homes to meet that demand. Rental rates also tend to rise during periods of inflation because landlords are looking to protect themselves from the potential for higher prices down the road. Inflation can have several different effects on real estate. One of the most direct is on real estate prices, when inflation is high, prices for both commercial and residential real estate tend to increase. This is because as the cost of goods and services goes up, so does the cost of land and buildings. In addition to prices, inflation can also affect real estate buying behavior. When inflation is low, buyers are more likely to purchase real estate, since it’s a relatively safe investment. However, when inflation is high, buyers may be more hesitant to invest. Despite these effects, real estate is still considered a relatively safe investment during periods of inflation because it is a physical asset that cannot be devalued by inflationary pressure. Additionally, real estate tends to appreciate over time, which can help offset the effects of inflation.

 

IS REAL ESTATE A SAFE INVESTMENT DURING INFLATION?

Real estate is generally considered to be a safe investment during periods of inflation. This is because prices for houses tend to rise along with inflation. Since real estate is a physical asset, it’s not as susceptible to the volatility that can occur in the stock market.

Let’s look at the main reasons why real estate is a great investment during periods of marketing instability and inflation:

1. It is a physical asset: real estate is a physical asset which means it is not as susceptible to the unpredictability that can occur in the stock market.

2. It tends to appreciate in value: over time, real estate has tended to appreciate in value even during periods of inflation.

3. It can provide steady and multiple streams of income: if you choose to rent out your property, you can generate a steady stream of income that can help you offset the effects of inflation.

4. It can be a hedge against inflation: since real estate tends to appreciate in value during periods of inflation, it can be a good way to protect your wealth from the effects of rising prices.

 

SO IS REAL ESTATE INFLATION PROOF?

Here are some of the reasons real estate is not technically inflation-proof:

1) Property prices don’t always go up: while property prices have tended to appreciate over time, they don’t always go up because there have been periods of deflation (when prices fall) in the real estate market.

2) You could still lose money: if you need to sell your property in a hurry, you could end up selling it for less than you paid for it.

3) It’s not a liquid asset: real estate is not a liquid asset which means it can sometimes be difficult to sell quickly.

Despite these risks, real estate is still a great investment during periods of inflation. Just remember to consider the risks before investing and to consult with a real estate coach to get the most accurate advice. Understand that it is a physical asset that tends to appreciate in value and is a safe investment during periods of market volatility and inflation.

 

HOW CAN YOU INVEST IN REAL ESTATE DURING PERIODS OF INFLATION?

If you are thinking of investing in real estate, there are a few things to keep in mind.

First remember that real estate investment could be a short-term or long[1]term investment. This means you will need to be prepared for periods of inflation. You can also consider investing in real estate securities such as Real Estate Investment Trusts (REITs) which are designed to provide investors with exposure to the real estate market without the hassle of owning and managing property.

There is also fractional ownership which can help investors get started in real estate with a minimal budget. Fractional ownership is when an investor owns a certain percentage of a property and shares usage rights. This allows multiple people to share the ownership of a real estate asset.

Make sure you carry out proper research and due diligence and understand how inflation might affect your investment. Be prepared and know what to expect so that you can prevent protect yourself from the most common pitfalls.

In conclusion, real estate is the ideal investment since it has the potential for capital growth and keeps its value even when inflation is high. Although it is only natural for there to be inflation, real estate investors don’t need to be concerned about it. The wonderful news for investors is that real estate surpasses other asset class.

I hope this was insightful?

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