Gold vs real estate – which is a better inflation hedge?

[i4value]

Gold and real estate are considered potential hedges against inflation as both tend to appreciate over time.

But real estate differs from gold in that real estate can provide a steady stream of rental income, and owners can adjust rents to account for inflation.

So, when comparing the gain from gold and real estate, we should compare gold price with real estate total gain (capital gain + rental).

In the Malaysia context, the total gain from gold or real estate are about the same. Refer to the chart. Note that I used the Malaysian Housing Price Index with 3 % net rental yield cumulatively to represent the total gain from real estate.



‌The results are sensitive to net rental yield. If the net rental yield is 4%, real estate does better than gold after 20 years.

But as you can see, the path to the gain for gold is more volatile. And the results are different for a shorter holding period.

Of course, we are just looking at one factor – total gain. There are other factors to consider such as liquidity, initial capital required, etc.

The point is don’t keep cash. Have it invested whether in gold, real estate or stocks.

For more gold insights, refer to “Are there Bursa gold proxies?”

[weijian]

hi i4value,

I remember you had an article that broken down the HPI into different housing types. If the HPI is the overall (regardless of housing type), I am guessing that landed properties (semi-D/detached and terrace) probably beat gold hands down? While high rise probably didn't beat gold?

[i4value]

You are right if you assumed that they all have the same rental yield. If you want to see how they look graphically go to https://i.postimg.cc/50CZ9HdJ/Gold-vs-va...-types.png

Unfortunately there is no national statistics on rental yield by house types so it is hard to verify whether the various house types have the same rental yield.