By Amrita Singh
Inflation is the silent killer of wealth. It erodes the purchasing power of money quietly - as the prices of goods and services rise, the same amount of money buys less than before. Amid economic uncertainty caused by geopolitical conflicts and changing trends in the job market, protecting real wealth has become a key concern for investors.
Real estate and gold are two examples of traditional inflation hedges; Inflation hedges are assets that are expected to retain or grow their value as the purchasing power of money decreases. Real estate has one advantage over gold: apart from capital appreciation, it also offers potential recurring rental income.
Rental income can maintain its purchasing power over time. Rental agreements have escalation clauses: rents are periodically increased, allowing income to keep pace with the rising cost of living. Shorter leases offer more frequent rent reviews, which means income adjusts faster to changing prices. For commercial properties, triple net leases pass on operating expenses to tenants and annual indexation changes the rent amount based on an economic index and protects investors from rising costs.
In an inflationary environment, construction materials, labour etc. become more expensive and new developments become less financially feasible. At the same time, land is limited in supply, particularly in popular urban locations. As a result, existing properties in prime and established areas become scarce and more sought after by investors and tenants, increasing their value. Given its limited supply, property values tend to rise much faster than inflation.
Residential real estate in particular is structurally resilient to economic uncertainty and inflation. During every economic crisis, people cut down on their wants but they always need somewhere to live. This inelastic demand forms a permanent floor under residential property values. By 2036, India’s urban population is expected to reach 600 million up from the 500 million today, and they will need around 33 million homes. Even during the COVID-19 pandemic when stock markets were falling, rental properties in India’s top cities continued to generate income as people worked from home.
Traditionally, investing in real estate has had two drawbacks: it needs high minimum investment and the asset cannot be sold off quickly. Fractional ownership platforms like Alt DRX address both of these - you can invest in property with amounts as low as Rs. 10,000 and diversify your investment across various prime properties pan-India. These investments can be liquidated comparatively easily through Alt DRX’s own digital real estate marketplace, TradeX.
To conclude, real estate is not a magical silver bullet that shall protect you against every inflationary shock. But when carefully selected, a good property can offer a combination of rental income, tangible value and long-term capital appreciation. For investors seeking to protect and build their real wealth, real estate, and new opportunities in it such as fractional ownership, can be a crucial part of a diversified investment portfolio.
