Why It’s A Good Idea To Co-Invest In Properties To Beat Inflation

Opportunity India Desk
Opportunity India Desk May 12 2022 - 5 min read
Why It’s A Good Idea To Co-Invest In Properties To Beat Inflation
Gross Domestic Product growth will be 7.6 per cent for fiscal 2023 and 6.7 per cent for fiscal 2024, 30 basis points lower than the previous estimates.

With rising price of the consumer goods and further weakening the purchase power of people, the real estate could be a good hedge against inflation.

Let’s find out how one can invest in these assets in a smart way to grow your nest egg.

Inflation is a growing concern for everybody. Since the beginning of the COVID-19 pandemic, the Federal Reserve has been adopting an ultra-easy monetary policy stance, which took form in a massive quantitative easing exercise. This resulted in excessive consumer demand, which, coupled with a supply chain disruption, has sent US consumer prices soaring to 7.9 per cent in February 2022 — the highest level in 40 years, since January 1982.

To add to the consumer price woes, the impact of the current Russia-Ukraine armed conflict is just not helping the situation.

Meanwhile, according to the Reuters poll, the retail inflation in India likely increased to an 18-month high in April owing to the rising price of fuel.

In a latest development Morgan Stanley--an investment bank has lowered its forecasts for growth of Indian economy in the next two fiscal years and said that a global slowdown, surging oil prices and weak domestic demand would take a toll on Asia’s third-largest economy.

Accordingly, gross domestic product growth will be 7.6 per cent for fiscal 2023 and 6.7 per cent for fiscal 2024, 30 basis points lower than the previous estimates.

Inflation Chips Away At Your Money

Inflation would decrease the value of your money over time, diminishing your purchasing power and setting you back further from your retirement goals consequently. What this implies is that you will need to make your money (or yourself) work harder in order to get closer to your intended retirement objectives.

Your Savings Will Still Lose Value In A Bank

If you believe in putting all your money in a bank account to grow your savings to beat inflation, history has proven that doing so would not achieve that, and may still shrink the purchasing power of your savings.

Real Estate Has Been An Effective Hedge Against Inflation At A Lower Risk

Research has shown that real estate investments typically have a low correlation with equities and bonds, and could provide diversification benefits.

This is evidenced by many studies, including a 2020 study by Stanford University’s Department of Economics as well as a 2019 report from the Bank of Singapore, among others.

What this implies is that investment returns from real estate investments are less likely to be influenced by the vagaries of the equity and bond markets, hence more stable and predictable.

Commercial real estate too has been observed to perform well in an inflationary environment.

According to a 2011 report by the Counselors of Real Estate, commercial real estate in the US had ‘handily’ beaten inflation, except when there were severe supply gluts from excessive construction or a fall in demand for such properties.

Investing In A Portfolio Of Fractionally Owned Properties Is A Smart Way To Beat Inflation

You may think that investing in physical real estate is only for the well-heeled. But the fact is, investors can now have access to co-invest in and fractionally own investment-grade physical properties through the route of a real estate private equity investment platform, as a possible means to protect their money against inflation. 

One advantage of co-investing in physical real estate through this approach is that the barriers to entry are much lower than if you were to purchase one yourself, as you could start with a relatively lower capital outlay.

In addition, you could ride on the different favourable macroeconomic and market conditions of different countries by investing in properties worldwide to further mitigate your investment risks in an investment portfolio.

Don’t Let Inflation Devour Your Money Before You Start To Act

It is clear that inflation will only diminish the purchasing power of your savings over time and set you further apart from your retirement goals if you do nothing to safeguard your money. While you could invest in a myriad of assets to grow your nest egg, it is definitely worth considering co-investing in physical real estate through the fractional ownership route, as the benefits are evident. Importantly, always remember that it is never too early, or too late, to start securing your wealth and the future of your retirement.

What’s Fueling The Real Estate Market in India?

Due to low home loan interest rates, the India’s residential real estate segment has seen an increase in the first three months of 2022.

According to a property consultant Anarock report, home sales have been highest in the first three months of 2022 in the last seven years.

Housing sales in the top seven cities in the country rose 71 per cent in the January-March quarter to 99,550 units, compared with 58,290 units sold in the year ago quarter.

The report by the Gurgaon-headquartered company shows 70,623 units were sold in Q1,2022, as compared to 66,176 units sold in Q1,2021, registering 7 per cent YoY growth.

The improvement in terms of new supply was significantly higher, with a YoY growth of 50 per cent in new launches during the same period.

Meanwhile, Confederation of Real Estate Developers Association of India (CREDAI), in a report last month said, residential real estate prices are expected to go up nearly 10-15 per cent in the coming months as commodity costs have been on the rise over the past several months, in the wake of supply chain constraints due to Covid-19 pandemic, which has only worsened due to the Russian invasion of Ukraine.

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