In this context, five commercial real estate industries in markets throughout the world have the potential to prosper.
During the pandemic and period of uncertainty, the most volatile sector of the Indian economy has been real estate. It has undergone ups and downs and has withstood market downturns. Real estate is one of the most thriving industries of the Indian economy and has long contributed to the country’s GDP. Despite being in the latent stages of the pandemic, it has increased and is showing symptoms of rapid recovery. This is one of the reasons why real estate is regarded as the most secure investment.
In fact, despite stock market crashes throughout the epidemic, the real estate industry remained strong. Furthermore, the epidemic has helped many people appreciate the value of having property and that real estate is the finest and safest investment choice.
Despite being the oldest investment choice, it is the finest long-term investment. You may buy an apartment, a completely furnished house, or a parcel of land, and the property will constantly appreciate and provide a good ROI.
Let me discuss why real estate investing is the greatest option in 2022.
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Real estate may safeguard against inflation
Despite historic inflation levels and great uncertainty about future inflation trends, real estate can provide long-run inflation protection for investment portfolios.
The present bout of inflation is a cost-push, in which higher input prices are passed on to consumers, resulting in lower aggregate demand and slower economic development. Some argue that real estate is not a good hedge against short-term cost-push inflation. However, we believe that long-term 40-year statistics suggest that real estate is an inflation hedge and that the five select industries highlighted in this research will be supplanted in the short run by new, structural demand drivers.
There are five global gateway business cities where data has been collected for a long enough period to detect the consequences of inflation: New York, London, Paris, Frankfurt, and Sydney. Since the mid-1980s, market rents have been largely inflationary for lengthy periods. Short-term supply and demand cycles drive office rent increases, with GDP serving as a significant driver of office demand. However, in the long run, data reveal that office rents rise generally in line with inflation and that actual rents are rather stable within the framework of real estate cycles.
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Long-term data also demonstrates that real estate yields are real yields, and hence are unaffected by inflationary pressures or inflation expectations. Global office rates have been rather steady throughout time, with considerable reverse yield gaps from nominal yields on government bonds during periods of double inflation in the 1980s and 1990s.
As a result, true government bond rates serve as a significant benchmark for real estate yields, and the difference between the two can be viewed as a risk premium for property ownership. According to our estimates, the long-term average for this risk premium in five worldwide office markets was around 340 basis points. The difference of 515 basis points surpasses the long-term average by the end of 2021, providing a buffer against increasing real bond rates.
This is significant because, in the second half of 2021, some central banks became hawkish in the face of rising inflation and began or announced plans to tighten monetary policy. Real long-term government bond rates have risen by 50 basis points in the eurozone and 65 basis points in the United States since the end of 2021. Real gilt rates in the United Kingdom have risen by around 90 basis points (bps) since mid-December 2021, following two rate rises by the Bank of England.
However, because real estate yields have a greater than normal spread above real government bond rates, real bond yields have more ability to climb without placing upward pressure on real estate yields. The year 2022 began with high inflation in several nations and a significant level of uncertainty about future inflation dynamics. Our five emphasized real estate sectors are thus among the top alternatives for internationally diversified core portfolios in the current climate. Their appealing investment proposal is built on inflation-linked revenue streams (through lease indexation or, in the long term, inflationary market rents) and a sizable yield margin over actual risk-free rates.
Also Read: 6 Statistics To Reason Why NRIs Should Invest In Indian Real Estate
We are certain that you are considering Real Estate investing now that you are aware of the reasons to do so. When all of these factors are considered, there is no greater long-term investment than real estate. Assetmonk is a high-yielding real estate investing platform. It is a website that serves as a middleman for NRI real estate investments. It offers high-quality real estate assets at competitive costs. It frees NRIs from the inefficient and time-consuming procedure of looking for property in India.