Rental properties emerge as safer bet against inflation than high-risk commodities futures

Commodities futures hedge inflation but carry high downside risk and may be unsuitable for many retirees. A better alternative is rental property: while rents aren’t a perfect hedge, they can rise over time

Source

The Hindu — Business →

Quick Revision

Prelims-testable facts

01Rental income in real estate investments can be adjusted according to inflation.
02Historically, both real estate and commodities have been considered effective shields against inflation.
03Real estate benefits from rising replacement costs and rental income streams that adjust upwards with inflation.
04Commodities are often the raw materials whose prices are affected by inflation.
05Listed Real Estate (LRE) provides good inflation hedging due to adjustable rental income and cap rate compression.
06Historical data suggests that real estate is a good hedge against inflation, but investors should consider current macroeconomic realities.

Trap alerts

Most people think commodities are a better inflation hedge than real estate, but actually, real estate provides more stable returns and can adjust to inflation.
Most people think real estate is a perfect hedge against inflation, but actually, it can be affected by factors like interest rates and supply and demand.

Mains Practice Question

Critically examine the role of commodities futures in hedging inflation and the associated risks.

250 words

Practice this in the exam hall →

Prelims Practice MCQs

Single facteasy

Which of the following bodies is responsible for managing inflation?

A.The Reserve Bank of India (RBI)
B.The Ministry of Finance
C.The Ministry of Commerce
D.The Ministry of Industry

The Reserve Bank of India (RBI) is responsible for managing inflation. This is a key function of the central bank in a country.

Statement I & IIhard

Consider the following two statements: Statement-I: Rental property can be a better alternative to commodities futures for hedging inflation. Statement-II: Rents can rise over time, making rental property a viable option for hedging inflation. Which one of the following is correct in respect of the above statements?

A.Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
B.Both Statement-I and Statement-II are correct but Statement-II is not the correct explanation for Statement-I
C.Statement-I is correct but Statement-II is incorrect
D.Statement-I is incorrect but Statement-II is correct

Statement 2 explains why Statement 1 is true because it provides a reason why rental property can be a better alternative to commodities futures for hedging inflation: rents can rise over time, making rental property a viable option.

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