Inflation has been dominating the yield on assets from the late 1970’s. First, it affects relative yields, and people expecting high yields on ‘money’ bonds will have to allow a fall in the value of money. Even so, the high rate of inflation in 1974 and 1975 meant that, in fact, a negative real rate was likely to be in force. In contrast, over a long period, equity interests do offer some hedge against inflation. Thus the best investment option in those times was to invest in ordinary shares and also in prime properties.
By 1972 the yield from investments in offices was a little more than that on equities, but the yield from agricultural land was much lower. It should be noted, that only the prime properties have been able to attract investments from the leading investors. The scarcity of these properties tended to force down the yield considerably in comparison with other properties, though, as substitutes, these too experienced some fall in yields. Inflation led to restrictive government measures to protect the balance of payments. Rates of interest rose and earnings on shares and property looked less rosy. In such circumstances since yields on assets generally became lower, there was a slump in the property market.
Even in recent times due to the increasing price of oil, the government is finding it difficult to rein in the annual rate of inflation. Advertisements on Builders for Sale are now commonplace in the major national dailies and other magazines. The small and medium builders catering to the local population are unable to stay afloat due to the fluctuating prices of the building materials and increasing property prices. Thus the only way out for them is to divest some of their finished and half finished construction projects.