Does Investing in REIT a Good Option During Inflation?

Pakistan’s real estate sector is increasingly attractive to local and foreign investors. It is experiencing phenomenal growth; however, the concept of a Real Estate Investment Trust (REIT) is relatively new for the majority of its citizens. Investing in real estate through REITs is similar to investing in stocks through mutual funds. Several benefits come with REITs, such as liquidity, diversification, transparency, and stable cash flows. 

REITs are investment companies that manage, own or finance income-generating real estate. Individual investors receive dividends without having to manage any property themselves. Capital is pooled from multiple investors that can get a steady income from REITs. Relative to conventional real estate, REITs are highly liquid and can own several real estate properties. These properties include apartment buildings, cell towers, data centres, hotels, medical facilities, offices, and retail centres. Investment in REITs doesn’t come with huge financial intermediaries and allows small and middle-scale investors to invest with minimum risk.

Currently, the country is facing a record-high inflationary period which has adversely affected several sectors of the economy. The high inflation negatively impacts investments, such as stocks and bonds. During high inflationary periods, the stock market tends to be volatile, and with higher interest rates, bond prices go in the opposite direction of interest rates.

However, in such situations, experts have considered REIT investments a good hedge against inflation as they have low capital risks. They provide natural protection against inflation. Real estate rents and values tend to increase with the increase in prices. This supports REIT dividend growth and provides a reliable income stream even during an inflationary period. In this macroeconomic environment of high inflation, REITs’ regular income streams tend to rise with inflation and high dividend payouts, which can help investors find higher and more stable income than other market segments.