Out of the box

Real estate and inflation

Ismail Al Hammadi

January 18 2022

Global markets are witnessing a wave of rises in the prices of a range of consumer goods, including real estate, selling and renting.

The local real estate market was not isolated from these influences due to the increasing rates of economic inflation globally.

The waves of rise recorded by the real estate market in the country, especially Dubai, are seen by some analysts as the beginning of a “bubble”, while others see it as a kind of speculation, while in fact this rise is not alarming, which is expected to harm the market, as it is a natural rise linked to high demand for Real estate, and the rise in the prices of building materials, affected by the increase in the rate of inflation, which contributed to raising the cost of construction, and consequently the rise in the price of the real estate product, maintenance services and other associated fees.

Official studies indicate that the inflation rate in the country is stable and does not exceed 3.5%, and it is very unlikely that inflation rates will rise to higher levels similar to levels before the previous global crisis, and it is also unlikely that real estate prices will reach a ceiling that the consumer cannot bear, thanks to The rationing policies pursued by the government, to reduce inflation, contain exaggerated increases in prices, by tracking the market, and protect the national economy from negative external influences, through legislative amendments, stimulus strategies, and flexible plans to maintain consumer purchasing power, contain variables, and absorb Its side effects on vital investment sectors, particularly the real estate sector.

The government has adopted a set of effective ways to confront any negative factors in the real estate sector that may raise inflation levels, especially in the field of rents, to control the balance of the sector. This contributes to curbing the wave of inflation, as low interest rates and debt repayment delays are inflationary factors.

Looking at inflation from a positive angle on the real estate sector, the reality is that many property owners and real estate assets have benefited from the wave.

From this section, economists report that real estate is one of the most important savings and protection vessels for individuals’ financial savings during waves of inflation, rather than saving them in cash, as the purchasing power of cash balances decreases and becomes more vulnerable to risks in light of the ambiguity of future trends of inflation.

Therefore, real estate is considered a safe portfolio for investing capital, preserving its value, and even doubling it. The high rental prices of homes, shops and other real estate guarantees the owner a rewarding rental return, while the high buying and selling prices guarantees an increase in the value of real estate over time.

Therefore, experts believe that real estate investment is one of the most profitable investment projects in waves of inflation.

Although the inflation rates in the country are currently at acceptable levels, the biggest challenge facing the real estate sector is the waves of inflation in foreign markets and the prices of building materials that are still witnessing a continuous rise, as well as fluctuations in supply chains as a result of the new mutations of the “Corona” virus and the turmoil climatic.

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