Inflation refers to an increase in the general prices of goods and services over a period of time. If one has some money saved up in an account over the years, the purchasing power of the money will reduce due to yearly inflation.
Hence, investing is always a better option, and one of the safest and low-risk investments is in real estate. An ideal rate of inflation through international standards is 2%, but Pakistan is facing the highest inflation rate of all time which is 31%.
From the perspective of real estate, the inflation rate can impact the price of properties in a range of ways, such as increased cost of borrowing, high cost of developing, increased rental property rates etc. Inflation’s pros and cons impact the real estate sector, yet it is a good investment during inflation.
Graana.com, in collaboration with the Iqbal Institute of Policy Studies, explores why real estate is a better investment opportunity.
Why is Real Estate a Good Investment during Inflation?
Real Estate as a Hedge Against Inflation
Many investors buy assets such as real estate or gold as a hedge against inflation. Property prices respond proportionally to inflation which often increases the value of the property as inflation rises.
Other investments like stocks and bonds usually react negatively to rising inflation. Responsible banks encourage some per cent of yearly inflation to achieve price stability; however, with very high inflation rates, different investments react differently.
Investing in real estate during inflation is wise as the prices mostly go up and the property value appreciates. Compared to other viable ways of investing, buying a property may be more useful and worthy in future.
Real Estate Asset Holds Intrinsic Value, Whereas Money Devaluates
In Pakistan, the exchange rate is vulnerable and changes every day. Due to the instability of dollar rates, the prices of goods and services are constantly changing and uncertainty is high.
Rather than keeping money in savings during inflation, which may be losing its purchasing power every coming day, it is best to invest in real estate as it has intrinsic value, and with time, the value of the property appreciates.
With high inflation, one affords less for the same amount of money in the saving account, whereas the investment in real estate has several benefits in future, such as the appreciated value of a property and passive income.
Moreover, due to inflation and high construction costs, the market slows down, and prices usually come down, making it the best time to buy property.
All Businesses and Industries Require Real Estate Development
Real estate development is always in demand as people must carry on their businesses and need places to live. Huge industries also cannot work without real estate development, hence, this business may slow down but does not stop even during inflation.
As a property owner, one can compensate for rising inflation rates by charging higher rents, and if one uses the property, one can protect themselves from high rents. Since running businesses and industries are necessary, they require real estate development, no matter the prices; investing in real estate is a good option.
Great Time to be a Landlord
In periods of high inflation, the new developments start suffering as the construction costs increase. It increases the demand for developed properties, resulting in an increase in prices.
Many people have no choice but to rent, which keeps the demand for rentals high with fierce competition. A slump creates even more demand, further pushing up the prices. If one is a landlord, one can earn more than expected, and it is a good time to have real estate assets for selling or renting out.
As the prices increase, the property’s value also increases, and one can sell their property for a higher price than what they paid for it. However, it can turn the other way around if the economy weakens.
Conclusion
The bottom line is that rising inflation rates impact the real estate industry differently. It is tough to find buyers as many are looking for affordable options, but landlords unburdened by rising prices will be sitting pretty.
Despite high inflation rates, real estate investment is sustainable, viable, stable, profitable, and low-risk. Investing in real estate rather than saving them in an account makes sense, leading to lower purchasing power every day.
The inflationary period presents an opportunity to invest in a lucrative long-term asset, and other investment options such as gold, stocks, and shares are less profitable or might even result in losses.
Real estate has consistent demand and with appreciating values over the years, it is a long-term investment option with many benefits, especially for a landowner.
