Can Investing In Property Combat Inflation?

Inflation occurs when prices rise due to increases in production costs, such as raw materials and wages, as well as a surge in demand for products and services as consumers are willing to pay more, especially now when the world is entering into the post-pandemic period and the sentiment of spending is high.

Therefore, if you feel that the value of money has become smaller, it is definitely not a delusion because the inflation hit we are experiencing now is real.

While most people are struggling to cut down on spending to survive the inflation hit, there are people who are looking to invest in property to create more value with the money in their pocket.

It is not a wrong strategy, but before executing the wealth creation plan, perhaps we should first understand what money is.

Money is just a concept, which most people define as “rich” by the amount they have in their bank account. However, do you know that rich people do not care about saving because, in their perception, the money sitting in the bank does not create more value, it will instead depreciate when inflation hits?

Use the gold prices in 1971 as an example. The gold price has risen to nearly USD1,000 per ounce today, up from USD35 in 1971, when the US government decoupled gold and currency to address the country’s inflation problem. The reason for such a price hike is not that the value of gold has increased, but that the value of money has depreciated over the years.

Another example closer to home is the property prices in Kuala Lumpur City Center. In 1990, a property in KLCC was sold at RM100,000. Today, the asset value has increased to at least RM1 million. In other words, if you missed the chance to buy the property 30 years ago, it means that your money in the bank has depreciated by up to 90% today.

Inflation is part of the economic cycle and something that cannot be avoided. If you do not know the gameplay, you will be misled that the value of money has increased when all the products and services have a price hike. The fluctuation of the value of money is a normal phenomenon in the economy because money has never had a fixed value.

Therefore, one tip to survive the inflation hit is to never let the money sit in the bank but to invest it wisely in the market. The question is, where should they be invested?

Malaysia’s interest rate is one of the lowest in the region and property prices have always been on an uptrend in history, making it an ideal investment tool to fight against inflation.

When the mortgage interest rate is lower than the current inflation rate, the value of the loan amount will be smaller due to inflation. For example, the monthly mortgage repayment for a property that you bought 10 years ago was RM2,000. It could be quite high for you at that time as you were only earning RM3,500 per month. However, as your salary increases to RM5,000 10 years later, the RM2,000 repayment has become fairly affordable to you. It is because your income has increased, as well as the inflation rate has depreciated the value of RM2,000 today compared to 10 years ago.

On top of that, do not forget that Malaysia’s property prices have generally been on an uptrend no matter when. This is due to the rise of building materials and labor costs, which was never eased.

Whatever your investment strategy is in the current inflationary environment, it is critical to understand your financial situation, investment risk, and appetite before making a wise decision to combat inflation.