Real Estate

Rising Inflation – Is Real Estate a Safe Investment?

–  Santhosh Kumar, Group Vice Chairman, ANAROCK

The last two years has witnessed a sharp increase in prices, a fluctuating market, new demands, changing socio-economic conditions, rising interest rates and much more. Inflation is clearly at its best, with an acceleration for the first time in the last four months to 7% in August 2022 from 6.71% in July 2022, which is surely above market expectations which was around 6.9%.

There is one sector that investors vouch for as a good hedge against any kind of inflation. Real estate is the most appropriate answer as it is considered the most preferred asset class and the safest investment in India. Is that really true? Let’s find out.

Why is real estate considered the safest bet? 

After agriculture, it’s the real estate sector that generates most jobs in India. It is estimated that the Indian real estate market will reach US$ 1 trillion by 2030, up from US$ 200 billion in 2021. In the next three years, experts are expecting a 13% contribution to India’s GDP from real estate, exhibiting a CAGR of 9.6% by 2027.

Another vital aspect expected to drive this market over the forecast period is increasing government initiatives to improve infrastructure such as roads, railways, and bridges, which will surely catalyse the Indian real estate market.

How does inflation affect Real estate? 

Inflation has its pros and cons in terms of its impact on real estate.

For property owners, it’s good news because rents are bound to rise, which means a higher cash flow. There would be a greater demand for rental homes.

For a homebuyer, this may be concerning as property prices will rise; however, for a home owner, it’s good news as the home value appreciates and a greater RoI. A developer will worry because construction costs go up.

Despite all this, advisors and investors have consistently favoured real estate due to its ability to weather inflationary pressures while preserving and building value. This sector gives you the option to diversify your portfolio as per your requirement, while delivering relatively high yields.

Our Take

The time is right. The time is now. All you need is the right guidance. With more positives than drawbacks due to inflation and with technological advancements that will bring down operational costs, investing in Real estate is surely a stable and more reliable long-term investment. So don’t let your money lie in a dormant FD. Get smart, save taxes and make profits.