Real estate may not hedge effectively against inflation

INFLATION is rising globally and in Singapore.  Core inflation in Singapore  – which excludes accommodation and private transport costs – jumped to 3.3 per cent in April, up from 2.9 per cent in March. This is its highest level since early 2012.

People are looking for assets to hedge against inflation. Physical property could be one such asset.  In an inflationary environment, rental rates may rise.  With higher construction costs, developers may pass cost increases in building homes to end-buyers.  

The nominal value of money gets eroded faster when inflation is high, so putting money into physical assets such as homes, which have historically appreciated over the long term, can make sense.