One of the many things that keep an average Nigerian up all night is inflation.
I know it may sound funny…It’s just the bitter truth.
And YES
The word Inflation itself is almost enough to kick most people to sleep.
The reason is simple.
First of all, inflation in simple terms is just prices going up.
Right?
Take, for instance, your favourite soft drink.
Remember when you could buy a Coke for 200 Naira?
And now it costs, like, 300 Naira. That’s inflation.
And you know how fuel prices always get higher every year?… Inflation
This means if prices go up by 5%, the inflation rate is said to be 5%.
It’s just so simple.
However, it’s easy to see why this might piss off the average Nigerians.
None of us want to pay more for our favourite drinks.
But why should this scarce us? Or even scarce real estate investors?
In the end, if prices increase, an average Nigerian should earn more, right?
Also, if prices increase, properties should appreciate more, right?
Correct…
But, sometimes, inflation doesn’t seem to head that way.
In short, when inflation rises, people can no longer afford all things they used to.
Higher supply, less demand.
In fact, companies’ sales tend to decline, and profit falls accordingly.
Well, there’s a bigger reason why inflation terrifies the markets.
For an investor, who is looking to build a house.
The higher the inflation, the less raw materials you can buy with your money.
For instance, the price of cement 4 months ago was 5000 Naira.
Guess how much is selling for now?
…10k per bag
This means whenever the price of a commodity goes up, people won’t be able to buy as much quantity as they ever wanted.
Should Real Estate Investors Lose Sleep Over Inflation?
The answer is No
And why?
First of all…
Real Estate Investors can diversify their investment options.
What do I mean?
The real estate market offers a diverse array of investment options catering to different risk appetites and investments.
From residential properties to commercial properties, industrial or retail spaces.
This means investors can tailor their portfolios to weather inflationary storms effectively.
This diversification helps spread risk and mitigate the impact of inflation on overall investment returns.
Another example is elasticity of supply
What do I mean?
Unlike other sectors where production can be ramped up in response to increased demand.
The supply of real estate is relatively inelastic in the short term.
Why?
Because it takes time to plan, approve and construct new properties.
This means that existing inventory retains its value even as prices soar.
In other words, this scarcity value acts as a buffer against inflation, shielding real estate from the rapid devaluation witnessed in other asset classes.
In conclusion, inflation may scare the living hell out of financial investors like the stock market.
Unlike financial assets whose value is derived from market perception and sentiments.
For Real Estate?
It provides hedging capabilities, supply-demand dynamics and property appreciation.