UAE owners will find their assets a good hedge against inflation

As with everything in the first two and a half years, the pandemic is somehow related to the recent spike in inflation. More specifically, our super-fast return to normal life is at the heart of it. Restaurants, malls and other public places are open for long periods of time, as they have in the past. People travel a lot, and commuting to work is on the rise, even if hybrid and remote employment is an option.

Moreover, rising prices haven’t stopped the financially strong group from splurging cash at any time. While it’s great to see economies around the world recover from the devastation of COVID-19, there are also potential impacts.

Since the coronavirus outbreak, people have been saving more. In the UAE in particular, by April 2021, the total amount held in bank savings accounts in the country has exceeded Dh9.5 billion. Since then, that number has risen sharply.

However, it seems that many of us are spending in a hurry right now, as if trying to make up for the time lost during these months of social restrictions and lockdowns. Spending too much too quickly can have disastrous consequences for the economy. Excessive demand will only lead to higher inflation.

Wisely investing in real estate in the right neighborhood at the right time can hedge against inflation over time. In real estate, whether commercial or residential, the risk factor is very low. A property can be rented out and used for multiple purposes and will continue to appreciate in value over the long term.

Real estate can turn things around during inflation. As a result, your income will increase with rising prices. The impact of inflation on the housing market is usually twofold. First, when inflation surges, real estate prices go up. Many potential customers can’t buy because the home has become more expensive.

Therefore, these people are likely to temporarily turn to renting. This in turn drives demand for rental properties. As a result, rents for these units have also experienced an upward push.

Over time, rising real estate prices can reduce the loan-to-value ratio of any mortgage debt. When this happens, your equity on that particular property increases, even though fixed-rate mortgage payments remain at the same level. So you get a kind of “natural discount”.

In addition, inflation is very beneficial to real estate investors who rent out properties. This is especially true for assets that operate on short-term lease arrangements, such as multifamily residences, as they tend to renew their leases each year. When house prices rise, rents tend to be higher.

So if you can adjust your rent upwards while keeping the same mortgage, this presents an opportunity to make more money.

Additionally, property prices tend to maintain a steady upward trajectory over time, regardless of inflation. For example, most homes that hit rock bottom when the housing bubble burst in 2008 have recovered to their pre-crash values ​​in less than a decade.

Inflation has various unavoidable aspects, such as rising interest rates and rising consumer prices. Still, real estate is a great way to protect yourself from the other effects of this price hike.

When investing for your future, analyzing the impact of inflation on your assets can help mitigate against your savings accounts and retirement funds before they drop significantly in value. By investing in income-generating real estate, you can hedge against inflation risk and protect your assets over the long term.