Will Inflation affect real estate?

The financial markets and economic analysts have shown some apprehension regarding the evolution and behavior of inflation, both with the consumer (with the impacts of production) and with regard to investment sectors, such as real estate.

The fluctuations that have been witnessed in terms of production costs and raw materials have affected the entire economy.

Whether shortages are due to production constraints or transport difficulties, all these variables affect producers' costs and, consequently, prices for the final consumer.

Energy and fuel costs, which we all know, have affected all the chains, which has consequently affected the final consumer's living costs.

Also the costs associated with construction and the implied labor costs are influencing the sector.

We lived for several years, perhaps one of the longest periods in history, with very low interest rates and controlled by central banks.

The pandemic caused a disruption that affected every nation and every supply chain. It is a phenomenon that nobody, nor any institution (local or global) can control, and that has spread to all areas of activity.

The fact that vaccines are a business, and that they are not freely available for the entire world population (not that we have any objection to free markets, but it is a public health situation), has created pandemic and health control problems. emergence of variables that propagate without borders.

The new variants have created waves, which prevent a return, even if controlled, to the re-establishment of all supply chains and the recovery of production areas.

This disruption has generated an exacerbated increase in inflation that was at negative levels in some cases, or at least close to zero.

This was one of the motivations for buying a house, with very beneficial rates for buyers. And mainly for high investment in real estate across Europe, thus for an exponential growth in property market prices.

A sector that presents safer and higher returns than other more speculative markets.

If the circumstances that have generated the growth of inflation continue, and as the European Central Bank has already warned, the fact that this is a market that is overvalued (as warned by this and other economic and financial institutions) continues , there will have to be a price correction movement.

It is necessary to consider that, despite being limited by the intervention of the various states with the help of central institutions such as the European Union, the impacts on the economy of the pandemic continue to exist, namely due to the increase in the cost of living.

In addition to this fact, household incomes did not grow in proportion to the growth in prices (and inflation). In many cases they have stagnated, or there is even a loss of purchasing power.

So yes, inflation, and according to the analysis of various institutions such as the "Economist Intelligence Unit" (in the "Cost of Living Index"), in its assessment of the cost of living in 173 cities, will have an impact on the real estate area. .

Depending on the country, it may occur differently.

Investments should address issues related to these fluctuations and develop proposals that take into account the variations that may occur on the client side.

The solution of adapting the products to the customers' needs and to their purchasing power, which is applied in other markets, will have to start earning a presence in this market as well.

Empréstimo

The indebtedness capacity of promoters and investors must be taken care of and contingencies prepared so that the necessary correction in terms of prices does not correspond to situations of undercapitalization.

The market remains dynamic, and the needs and problems in the housing market have grown, and in certain segments, as a result of the pandemic.

Segments such as rental, or housing for middle class segments, continue to have a low stock and intense demand in several countries.

The market should prepare for an increase in inflation, even if in a moderate way, above what companies and financial institutions have become accustomed to in the residential real estate market in recent years, as markets such as offices are undergoing an adaptation and those related to logistics are growing with the adaptation to e-commerce and its growth.

We are in a disruptive phase and will deserve close monitoring and strategic advice adjusted to the needs and intentions of each project.

We are going through volatile times and where the development of multi-pronged scenarios is a necessity to adjust supply to demand.

And on your side, do you have perspectives regarding the future and evolution of the sector?