Inflation means inflating or blowing up something, like a balloon. In the world of economics, it also means increases in prices and costs along with a drop in the purchasing power of capital/money.
Inflation means average increases in prices for various services and goods within an economy over a specific duration, usually calculated on the basis of yearly price movements. It mostly means a reduction in purchasing power of money/currencies over the period of time. For example, a gadget bought at Rs. 25,000 in the earlier year could cost an extra Rs. 2,000 in the current year due to inflation. Inflation is not the same as appreciation.
Inflation is strongly correlated to the real estate sector. It is different from appreciation. The latter means an increase in home prices due to higher demand and favorable market dynamics. Appreciation may surpass inflation over the long haul or may not. This determines whether your investment has been enough to combat inflation or not. During inflation, prices go up for rental housing or accommodation. Mortgage applications become tougher during inflation as interest rates rise and buyers have lower purchasing power in general to afford homes. They stick with rentals and this demand increase leads to higher rental rates which benefit landlords.
Housing prices usually go up in inflationary market economies. The debt cost also goes up significantly at this time. There is the higher cost of development and borrowing alike, making new constructions tougher investments throughout prolonged inflation. Commercial banks are more likely to raise interest rates whenever there is inflation. Many big developers and companies also shy away from making sizable capital investments at the time of inflation. This naturally affects big-ticket real estate projects as well. Such is the impact of inflation on the real estate market throughout the world.
