Why property is a smart hedge against inflation?

What does your idea of financial freedom look like? Do you see yourself living comfortably without worrying about everyday expenses, or having enough saved for retirement?

If you aspire to financial security and independence, preserving the value of your money over time must be a top priority.

When inflation rises, the value of money decreases, making it more expensive to purchase goods and services. This means that the income you earn from your job will also have reduced purchasing power.

However, the Australian property market has shown a remarkable propensity to not only retain its value but also appreciate over time, even during periods of high inflation. This makes property investments a reliable way to protect and grow your wealth.

As the two graphs below illustrate, the Australian property market has consistently outperformed inflation. Property prices have grown at a significantly higher rate than consumer price index (CPI) in most major cities across Australia.

Comparing real estate to other popular inflation hedge strategies like gold, stocks, and bonds reveals a unique set of advantages and disadvantages. Gold has traditionally been seen as a safe haven during times of economic uncertainty, yet its price can be highly volatile and does not generate income. Stocks offer the potential for high returns and income through dividends, but they can also be unpredictable and affected by market volatility. Bonds typically offer lower returns and can be negatively impacted by rising inflation rates, making them less attractive as an inflation hedge.

Real estate, on the other hand, not only tends to appreciate over time but also provides the opportunity for rental income, adding an additional layer of financial security. Additionally, property investments offer a great opportunity to leverage your investment, enabling investors to control a sizable asset with a modest initial investment. This blend of capital appreciation and income generation makes real estate a compelling choice for those seeking to safeguard their wealth against inflation.

Identifying inflation-proof real estate involves thorough market research and an understanding of long-term economic trends. Areas with a consistent demand for housing due to factors like job growth, planned infrastructure, and population growth are ideal targets for investment. By focusing on such locations and making smart investment decisions, you can protect your investment from the effects of inflation while simultaneously generating a steady cash flow and potential capital appreciation.