There are few things more troubling for a nation’s economy than a runaway inflation rate. It can take a simple roll of toilet paper that normally costs Tk17 and skyrocket its price to Tk34 in the span of a single day — doubling its cost. Venezuela, Zimbabwe and Hungary — where, in July 1946, prices doubled every 15.3 hours — are some of the more noteworthy instances in recent history. Hyperinflation can leave a country devastated and at the brink of collapse, from which, it is very difficult to return to normal.
However, inflation need not be all bad, it, after all, a constant in all economies. In fact, controlled inflation can actually have beneficial effects on the economy of a nation and its people.
It was reported by the Bangladesh Bureau of Statistics (BBS) that the rate of inflation in the country fell by 0.61% in May, from 5.96% in April to 5.35%. The numbers are unexpected, as, according to the major economic and financial institutes of the world including the Asian Development Bank (ADB) and International Monetary Fund (IMF), the entire world is currently experiencing a recession, and recession and deflation make for a very unusual couple.
According to economists, the reason for the reduction of the inflation rate is mainly due to the falling prices of food, which fell by 3.07% in May. But that doesn’t paint the proper picture. While inflation fell in pen and paper, the price of some items actually went up — which is how inflation works. It doesn’t affect all aspects equally.That is why it may be the right time to invest in real estate now.
It is the nature of inflation to impact different things at different rates. While food prices have gone down in recent times, along with others, prices of hygienic items and electronic items have gone up due to high demand and a shortage of supply. Masks that were selling for Tk5 just six months ago were selling for Tk30 last month. That is a 500% inflation of price instead of the overall inflation target of 5.5%.
But when it comes to real estate, a slow-moving product, it takes a while for the price to catch up with the inflation — thus, creating a brief window of opportunity for real estate investors, especially for those who have been thinking of investing in the very near future.
The current economic scenario in Bangladesh is vastly dependent on finding the right balance. Businesses have and continue to suffer financially as the Covid-19 situation worsens. The fear is, many businesses will not survive another lockdown. To keep the economy afloat, the government has taken necessary and invaluable steps to introduce stimulus packages which can be used by farmers, entrepreneurs and small and large businesses as refinancing schemes to pay salaries of employees and keep economic productivity ongoing.
As such, eligible entities can borrow money from approved financial institutions at a lower interest rate than the one available on the market. In some cases, that interest rate is 50% lower than the recently announced interest rate cap of 9% — rest of the interest rate will be shouldered by the government. But that means increased spending for the government at a time when, according to some economists, there is a liquidity shortage in the market.
There were reports of a capital shortage of around Tk17,658 crore in 12 banks as recently as the start of the year. And as it fell on the financial market shoulders to disburse the stimulus packages to Covid-19-hit businesses, the shortfall intensified as banks and non-bank financial institutions (NBFIs) began to find the necessary fund.So, to increase the capital of these institutions, the central bank is buying securities held by banks in massive amounts and even thinking of printing new money to compensate some of the shortfalls —while the national debt of the country continues to increase due to loan from ADB and the World Bank to counter Covid-19.
All of these make up the perfect mixture for inflation, and sticking to the planned inflation target of 5.4% limit for the next fiscal year might become difficult if we fail to maintain the proper balance.
And if unplanned inflation does hit the market, those investing in real estate now would be greatly profited in the near future. In the coming next months, the chance of real estate market offering discounts and special prices is high as the number of transactions is less than normal and developers would probably be looking to attract buyers.
So, if inflation does indeed rages on unplanned, or even it if continues its planned path of 5.4%, a real estate investor could substantially increase his or her asset even by spending less than they would normally have to. However brief, now and the coming months could be a great window of opportunity for real estate investors.
