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Real estate has become a “popular hedge” against high inflationary pressures in India for it is safe and appreciates over time, according to an analysis by sector consultancy Anarock.
Compared to inflation rates of 6.7 per cent in 2022-23 and 5.4 per cent in 2023-24, real estate prices have increased at a compound annual growth rate (CAGR) of 13 per cent, it said.
"This trend signifies a clear outperformance of real estate prices compared to inflation."
Real estate prices are increasing as the population grows and the country becomes urbanised. As more people migrate to cities for better opportunities, demand for homes is pushing up prices.
Inflation, which is the gradual increase in the general prices of goods and services, erodes the purchasing power of money over time.
"For investors seeking to preserve and grow their wealth amidst inflationary pressures, real estate has emerged as a popular hedge against this dreaded but inevitable dynamic," said Anarock.
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Real estate investment generates rental income that grows over time in response to inflation. "Investors can leverage their real estate assets to borrow funds for further real estate acquisitions," said Anarock.
"During inflationary periods, the cost of borrowing (interest rates) typically rises. However, investors who have secured fixed-rate financing before inflationary pressures set in can benefit from lower borrowing costs in real terms, enhancing the profitability of real estate investments."
Shobhit Agarwal, managing director and chief executive officer at Anarock Capital, said real estate should be part of an investment portfolio as it is safer.
“Unlike financial assets such as stocks and bonds, which may be negatively impacted by inflationary pressures, real estate - including residential, commercial, and retail - provides a tangible asset with intrinsic value," he said.
"Diversifying investment portfolios with real estate holdings can mitigate overall portfolio risk and enhance long-term returns."
