Thinking About Hedging Inflation by investing in property?
Something that always hit-back in a portfolio is the Inflation. This inflation is just not from the perspective of WPI only. An investor is exposed to several expenses like Education, Marriage, Medical, Holiday and etc. Staying invested in Stocks and Fixed income just don’t help cushion against these high-rise expenses. So it becomes a very pertinent question how to hedge against the so called Inflation?
Over the years, it has been seen that one of the best way to hedge against inflation is staying invested in properties and real estates. The investor again has two choices for this either he can go for commercial property or else he can go for residential property. Research has shown a residential property generates better return then a commercial one for the simple reason in the residential property, contract is for 12 months and the rent can be renegotiated after the expiry of contractual period. This helps in increase in rental income if the inflation is high. But in both the cases the investment provides sufficient protection from inflation.
Previously Gold and Silver use to be a sacred asset for hedging inflation but currently the prices has shoot up so much that it has created a speculative prices and we can see a market correction at any point of time. On the contrary, real estate prices appreciate with time and the prices don’t subside like the way we have seen in stocks and gold and silver.
Investment in property should be a continued and prolonged activity to benefit against inflation. This investment should be proportionally sizable in contrast to equity and debt.
This is a guest post by Mr. Mitesh Agarwal, BBA & MBA (Finance). Currently working as Financial Analyst with a leading firm in Mumbai.