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Protection From Inflation By Investing In Real Estates, Albanian Case

Author

Listed:
  • Dorina KRIPA

    (Faculty of Economy, University of Tirana, Albania)

  • Alban KORBI

    (Faculty of Economy, University of Tirana, Albania)

Abstract

Nowadays investing in Real Estates is one of the main investing alternatives. It has spread fast in all the international markets, and has evolved in other indirect tools of investing, based on the investors’ demands and a country’s economic situation. Investing in Real Estates has become an attractive alternative because it offers protection from Inflation and also diversification. Therefore, the increase in these assets’ prices, and the increase in Inflation at the same time, provides the investor with high rate of returns from his portfolio. Even the periodic income from the rent, reflects the changes in Inflation. As a result, reviewing the literature, we conclude that Real Estates are protective in inflationist periods. The income from Real Estates tends to increase faster in inflationist environments, allowing the investor to keep real rates of returns. Real Estates have always behaved different from bonds, options and stocks. Real Estates have their particular life cycle, which is distinguished by the boom and bust periods, in particular The Commercial Real Estate in the 80’ and The Residential Real Estate in the 2008 crisis. Usually Real Estates have a low correlation with other classes of assets. This makes investors invest more in Real Estates, and now it is normal for an investor with passive or active strategy to own more than one Real Estate for profit intentions. This topic has been chosen in order to understand in details the relationship between Real Estates and Inflation in Albania. To explain this relationship, it has been used the model of a linear regression. It has been identified The House Price Index (a representative of Real Estates in Albania) as a dependent variable and Inflation as an independent variable. From this model, we conclude that there is a positive and linear relationship between The Price Index and Inflation. In conclusion, if the economy has Inflation and the GDP Deflator increases by 1 %, then The House Price Index increases by 1.39, meaning that The Index covers the increase in Inflation and there will be a real increase in the market by 0.39.

Suggested Citation

  • Dorina KRIPA & Alban KORBI, 2015. "Protection From Inflation By Investing In Real Estates, Albanian Case," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 14(2), pages 45-53.
  • Handle: RePEc:pts:journl:y:2015:i:2:p:45-53
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    References listed on IDEAS

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    1. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
    2. W. B. Brueggeman & A. H. Chen & T. G. Thibodeau, 1984. "Real Estate Investment Funds: Performance and Portfolio Considerations," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 12(3), pages 333-354, September.
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    More about this item

    Keywords

    Real Estate; Inflation; Linear Regression.;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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