How Inflation Affects Property Investment

8 Nov 2021 | Blog, News and Events

The risk of inflation seems to benefit property investment. A study conducted by EAE Business School “The Property Market After Covid 19. A Worthwhile Investment or A New Housing Bubble?” concludes all indicators point to property becoming “safe haven assets”.

The study indicates “high inflation, along with the construction of new buildings slowing down, less offers for older properties, and lower interest rates lead investors to the property sector, turning it into a safe haven once more.” The recovery of the tourism industry and the request of either rented or purchased houses by foreigners revitalises activity.

The vaccination campaign and the easing of movement restrictions have transformed those properties turned into residential rentals during the pandemic back into holiday lets.

Prices for new houses are higher than for older ones and they are over the average housing prices. The shortage of raw materials and labour show this trend will continue in the upcoming months.

New rental agreements entered into for at least 5 years may trigger more purchases and holiday rentals. Given the current picture and economic prospects for 2022, experts predict short-term rentals will become once more one of Spain’s GDP driving forces in its main cities and coastal areas.

The new housing law suggested by PSOE (Partido Socialista Obrero Español, Spanish Socialist Workers’ Party) and UP (Unidas Podemos, United We Can) includes regulating rentals in strained areas and adding 150% to property tax on unoccupied dwellings. Moreover, a monthly government benefit of €250 will be created to help youngsters leave home. This law and the withdrawal of the European Central Bank’s monetary stimulus could jeopardise the housing market’s growth, including rentals and purchases.

The price level has not reached that during 2007’s third quarter. At that time, HPI was at 151.7 compared to 130.9 during the second quarter of 2021.