Is realty shelter against inflation?

Real estate has always been considered as one of the best bets against inflation. This is evident in the gain in the share price of some of the realty companies in the last three months. For example, the share price of DLF has gained as much as 91 per cent in the last one year while in the last three months, it gained by almost 15 per cent.  

 DLF share price performance  

There were indicators in the last one year that the real estate market would be strong despite the COVID-19, because of high demand, low supply, and the low-interest rate on housing loans. As the demand for homes increased, property prices increased as well.   

There are few options through which, you can take exposure to the realty sector. First is buying a house, second is buying shares of well-managed realty companies or you can even buy units some of the listed real estate investment trusts (REIT). Buying a house for investment is something that we do not suggest because of liquidity issues and the higher cost of owning a house. Therefore, we are left with two other options that are shares of listed company or REITs.  

The following table shows the performance of BSE Realty, representing the share price movement of listed realty companies and three REITs.  

As we can see from the table above, S&P BSE Realty Index has performed better than the REITs in the last three months, six months, and year-till-date period. Even if we consider the income distribution of REITs that comes out to be around 3-9 per cent, they do not beat the performance of the realty index.   

Therefore, at the current juncture, exposure to well-managed realty companies indeed can prove to be a better opportunity for retail as well as HNI investors to protect their investment from rising inflation and add more diversification to their portfolios.