Global Inflation 2022

With the current inflation going on, prices keep increasing for fuel, electricity and food. And pushing the cost of living up.

In March 2022, Thailand inflation, the rate at which prices rise, increased 5.73% year on year, which is the highest monthly rise in 13 years. And it will likely increase further. [1]

In the United Kingdom, prices are soaring at their fastest rate for 40 years as higher energy bills hit households. There was a jump of 9% in the 12 months to April 2022, up from 7% in March. In fact, UK has the highest inflation rate of any G7 country. [2]

Source: www.bbc.com

Real estate: A hedge against inflation?

For investors, real assets have been a primary way to hedge against rising inflation. Real estate remains an attractive investment option and alternative to the uncertain stock market. Land scarcity and local demand are factors that support the overall market. [3]

Historically, real estate is one of the physical assets that performed well during times of high inflation, specifically for single-family homes, multifamily, self-storage and farmland.

Elon Musk, CEO of Tesla Motor, indeed mentioned in his tweet, “As a general principle, for those looking for advice from this thread, it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high…” [4]

According to PropertyGuru Malaysia, 53% of Malaysian homeowners plan to purchase an additional property as an investment while 43% are buying for rental income. Many consider investing in properties due to the inflation, current low-interest rates and government initiatives (eg. Home Ownership Campaign). [5]

Holding magnifying glass to study charts, property value

HoW Does inflation affect the market?

For property owners: Inflation has a good impact on their properties because the value of the home increases with the inflation rate. They are able to sell higher in conjunction with the low supply and high demand. Good time to sell, difficult time to buy.

For investors: If the property is a leveraged asset, with the current low financing rates, investors will notice that they are paying the same fixed rate even as their property’s value rises. Thus, the return on investment (ROI) can be expected to increase.

For potential investors: This will depend on whether the property is for a long-term or a short-term investment. If it’s for the long haul, they will experience the same value increase as the existing owners/ investors. If it’s for a short term investment (e.g. through flipping the property), there’s a risk of getting caught in a real estate bubble. And they may find themselves at risk of losing money when the bubble bursts. [6]

Here are more reasons to invest in properties.

  1. Leverage. Overtime, the value of your property is more likely to increase than to decrease.

  2. Stable Investment. The annual appreciation rate for house prices has averaged 9% in the past five years.

  3. Extra Income. Buying out a property and renting it out, can often times add some extra cash to your bank.

  4. Necessity. The demand for nice and comfortable homes is on the rise, especially places that provide ample amenities nearby.

  5. Retirement Plan. The right property investment can still assure you an income even after retirement, bringing in yields and profits from sales or rentals.

  6. An Asset. Property can be considered an asset as it will increase in value and provides a stable and secure investment.