Real Estate as a Hedge Against Inflation: Myth or Reality?

ESV Solomon Ogunami Ehikwe

In periods of economic uncertainty, investors often seek safe havens to protect their wealth from eroding under the weight of inflation. One asset class that consistently comes up in such conversations is real estate. The argument is simple: as the cost of goods and services rises, so too does the value of land and property, making real estate a natural hedge. But is this a guaranteed reality or just a widely held myth?

Historically, real estate has shown resilience during inflationary periods. Unlike cash, which loses purchasing power when prices climb, property values and rental income tend to increase with inflation. For landlords, this means the ability to adjust rents upward, thereby protecting income streams. For homeowners, rising property values often outpace inflation, preserving—if not enhancing—wealth over time. Another factor is tangibility. Real estate is a physical asset, unlike stocks or bonds that may feel abstract or volatile. In economies with weak financial systems or depreciating currencies, land and property offer a sense of security that paper assets cannot provide. This explains why, in countries like Nigeria, real estate is not just an investment but also a cultural symbol of stability and legacy.

However, the narrative is not without flaws. Real estate is not immune to economic shocks. Inflation often comes hand-in-hand with higher interest rates, which increase borrowing costs. This can slow down demand for property, causing price stagnation or even declines. For instance, when mortgage rates soar, affordability shrinks, limiting how much buyers are willing to pay—even in inflationary times. Liquidity is another challenge. Unlike stocks, which can be sold at the click of a button, real estate transactions are slow and capital-intensive. Investors looking to quickly exit may find themselves stuck, particularly in markets with weak demand. In emerging economies, issues of land ownership, unclear titles, and regulatory bottlenecks can further undermine real estate’s role as a reliable hedge.

Moreover, not all real estate is created equal. While prime urban properties may appreciate steadily, speculative land on the outskirts of cities may remain stagnant for years, offering little to no hedge against inflation. Similarly, rental income as a cushion depends heavily on location, demand, and tenants’ purchasing power.

The effectiveness of real estate as an inflation hedge depends largely on context. In mature economies with stable financial markets, real estate can complement other asset classes in an inflation-protected portfolio. In contrast, in developing countries, while property may serve as a store of value, its performance is tied to structural issues—such as infrastructure development, government policy, and market transparency. It is also worth noting that real estate should not be viewed in isolation. Diversification remains the golden rule of investing. While property can help shield against inflation, combining it with other assets—such as equities in inflation-resistant sectors or commodities like gold—offers more balanced protection.

So, is real estate truly a hedge against inflation? The answer lies somewhere in between. Real estate can indeed preserve wealth during inflationary cycles, especially when backed by strong demand and good location. However, it is not a guaranteed shield. Interest rate pressures, market inefficiencies, and liquidity risks can erode its protective qualities. The reality is that real estate works best as part of a broader strategy, not as a one-size-fits-all solution. Investors who treat it as a guaranteed hedge may find themselves disappointed, while those who approach it with caution, diversification, and long-term perspective are more likely to harness its true value.

In the end, real estate is neither pure myth nor absolute reality—it is a conditional hedge, powerful when applied wisely, but flawed when relied upon blindly.

Ehikwe, an Estate Surveyor and Valuer, writes from Asaba, Delta State.