Real Estate investments are evolving and going through vast promising changes. Currently, the US dollar value is equivalent to PKR 287.57… unfortunately, Pakistan is going through the worst inflation of its time. Luckily, the real estate sector of the country is stable and holds future prospects, which means, property investments are in the safe hands.
Real Estate- A Good Investment During Inflation
During inflation, short-term/loss-prone investment opportunities become less favorable; whereas on the other hand, long-run assets, including real estate and gold act as inflation hedgers.
To keep you informed and motivated with your investments during the rising inflation, here we are with this quick guide that will help you safeguard your capital.
Inflation in Pakistan
First thing first…
What is Inflation?
Inflation is the constant and persistent increase in the general price level of an economy.
Tangibly speaking, the illustration of Inflation rising could be explained with help of an example of a small bakery business. In last few months the cost of basic ingredients like flour, staple ingredients all surged by 20%. A 50-pound bag of flour cost was $20 but it rose to $24.
It initially seems modest increase but if we calculate monthly usage of 200 bags so the increased cost per bag comes up to be an extra $800 per month. This amount over the year turns out to be $9600 expenditure. The bakery faces tough decision to maintain profit margins. They need to think either should absorb extra cost or reduce profits or decide prices of products accordingly.
This example clarifies how inflation hits-hard on the operational costs affecting the substantial financial challenges for the businesses. It has negative impact on businesses competitive abilities and customer loyalty.
Statistically speaking, at the start of the year, the dollar was at Rs. 226.53, and in just six months, it reached Rs. 274.41. The worst exchange rate due to inflation hit it.
What Causes Inflation?
As we discussed above, rupee devaluation is the fundamental reason for the increase in inflation. Another reason is the worldwide economic turmoil due to the pandemic that hit the world and brought a lot of unrest. This led to increased demand for commodities and an overall increase in prices.
Also, the other causes of increased inflation are the increased prices of oil and prices of manufactured products worldwide.
Especially in Pakistan, the uncertain economic policies have disturbed the country’s fiscal and monetary policies. Also, the political situation is the reason for unrest and negative impacts. Due to all this the imports and exports progress is hindered.
Hence, the balance of payment is not impressive and positive. The country depends on oil and essential goods imports, causing inflation to rise. Moreover, the purchasing power of individuals is decreasing.
Meanwhile, inflation has accelerated from 12.7% to 13.4% since March 2022, according to the Pakistan Bureau of Statistics.
Inflation and Investments
To safeguard a country’s purchasing power, inflation is supposed to be hedged with the help of investment in different economic sectors against loss of value caused by rising prices due to inflation or macroeconomic factors.
In easy terms, inflation hedging saves the economy from future losses due to rising prices. For instance, if you have invested for a high return on investment, inflation can hurdle profitability, but to save the potential investors, they should look for safe options that will not depreciate in value due to inflation.
In Pakistan, people normally invest in options like as follows;
- Real Estate
- Bank saving accounts
- Gold
- Stocks
- Agricultural land
- Residential plots
- Government Bonds
Here, we can say that except for real estate, all the investments mentioned above are not safe from inflation. It is pretty evident from the records that real estate’s value only increases during inflation.
How Real Estate Hedge Against Inflation?
Pakistan’s real estate market is estimated to be around $300 billion to $400 billion. As per the Pakistan Bureau of Statistics, construction contributes to 2% of GDP, with housing accounting for less than half of it.
According to World Bank records, real estate assets account for 60% to 70% of the country’s total wealth. It is why the growth of this respective sector is essential for the economy’s well-being.
Experts of real estate say the safest option is investing in real estate. No matter how uncertain and volatile the situation of the economy, real estate remains unaffected, and prices would not fall due to inflation. Thus, real estate is the investment asset that hedges inflation.
People try to save themselves from the negative impacts of inflation by investing in real estate properties and plots to earn profit in the long run. Also, it is a fact that real estate investment is a long-term hedger for inflation.
Real estate investment is also passive income generation. Once you purchase a property, rent it out so it keeps giving a return in the form of rent. This hedges inflation and also boosts property value.
Best Properties to Invest in Pakistan
In order to protect your capital and maintain perfect flow of income, and long-term investments are the excellent option. For better and secure growth opportunities, the high-risk investments can attract maximum returns.
There are a couple of investments that you can invest in for getting long-term returns. Few of them are mentioned below.
- Peer-to-Peer Lending
- Gold
- Stocks
- Banks and Investment Companies
- Forex
- Bonds
- 3D Printing
- Savings Account
Invest NOW
The most helpful tactic is an investment in real estate opportunities to hedge inflation. In today’s challenging times for Pakistan, real estate is the savior and positively impacts the economy.
If you are thinking of saving your hard-earned income, look for the option of commercial real estate projects that will help you gain maximum capital over time, as it is the safest and sound investment option.
