Does real estate offer protection against inflation?

Does real estate offer protection against loss of value in times of crisis? How do real estate prices develop in phases of high inflation and high interest rates? Specialists are optimistic about the future for property owners: strong housing markets remain strong.

The market for real estate is currently undergoing a significant change. After about ten years of low interest rates, in which the price of real estate rose unceasingly, a new economic phase is now beginning. It brings changes with itself for owners and renting, for prospective buyers and selling.

This change takes place not only in Germany, but in completely Europe. The service company Savills reports: While the number of property sales declined in Germany, Ireland, the Netherlands and Sweden in the second quarter, there was a significant increase in market activity in the UK, Denmark and Spain. Investors with higher leverage have temporarily pulled back to wait for interest rates, inflation and construction costs to develop.

How a change in the market can take place in a very drastic way can just be observed in Australia and New Zealand. Handelsblatt reports that prices there are collapsing more than anywhere else in the world. In the New Zealand capital Wellington, the median house value in the metropolis in February 2022 was still at 995,000 New Zealand dollars, meanwhile it has plummeted to 780,000 New Zealand dollars.

Strong housing markets remain strong. So the conviction of the consulting firm Colliers is: "Rising interest rates and construction prices are currently leading to a sharp decline in new construction activity. The consistently high demand will therefore exceed supply even more significantly than has been the case to date. We expect a stabilizing price level, significantly rising rents and, as a result, increasing rental yields."

In Germany, real estate transactions are currently slowing down, but continue to have a stable trend. In Berlin, purchase prices for condominiums rose by 4.3 percent in the first quarter of 2022, while in Frankfurt am Main, new apartments became three percent more expensive. In Munich, there were about ten percent more transactions.

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(Photo: © Kerstin Herrmann, Pixabay)

Legal notice: This article does not represent tax or legal advice in individual cases. Please have the facts in your specific individual case clarified by a lawyer and/or tax advisor.