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PROPERTY INVESTMENT: A HEDGE AGAINST INFLATION. By

ABSTRACT
The aim of this study is to examine property investment as a hedge against inflation with a view to providing information that will help investors in making informed investment decisions. The theoretical research approach was adapted for this study. During periods of high inflation, it has been observed that certain investment asset classes not only do not protect the investor’s earnings, but actually perform as perverse hedges. Property investment has traditionally been perceived as a good hedge against inflation; however fears have been expresses recently about whether it really is a hedge against the background of economic volatility and recession that has characterized many economies. The study revealed that there is no consensus on the ability of property investment to hedge against inflation. While some studies showed that property investment performed excellently as a hedge, others showed that it does not, in fact in some cases, it was even found that it serves as a perverse hedge. The hedging characteristics of property investment across inflation components (actual, expected and unexpected) were also found to differ considerably. The study concluded that due to the highly localized nature and the dynamism associated with property investment, empirical test of various sub property markets with respect to the inflation-hedging question need to be carried out. Recommendably, investors are advised to also consider property investment with strong historical risk-return profile and diversification benefits rather than concentrating on solely beating inflation.

Keywords:Property Investment, hedge, inflation, economic factors

 

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