Inflation Adjustment Factor
An inflation adjustment factor converts nominal values to real terms by accounting for purchasing power changes, essential for evaluating long-term property returns.
| Calculation Method | Formula |
| Real value | Nominal value / (1 plus inflation rate)^years |
| Inflation index | CPI or specific real estate inflation measure |
| Inflation index | Historical 1% to 3% annually |
| Adjustment example | AED 1M nominal at 2% inflation = AED 980,000 real year 1 |
| Cumulative impact | 2% annual inflation = 18% erosion over 10 years |
| Investment implication | Nominal returns must exceed inflation for real gains |
| Inflation-Adjusted Analysis | Application |
| Rental growth | Distinguish nominal vs real rent increases |
| Exit value | Project future value in today's purchasing power |
| Return calculation | Real IRR accounts for inflation |
| Comparison across time | Standardize values to same base year |
| Lease escalations | CPI-linked vs fixed percentage increases |
| Long-term planning | Essential for 10+ year hold periods |
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