DO YOU KNOW THAT;The value of your property rises with inflation?!!

DO YOU KNOW THAT;The value of your property rises with inflation?!!

Billcotey brings to you :Effect of inflation on Real Estate

As this price of things increases with inflation, so too does real estate. Generally speaking, when inflation increases then housing and other real estate asset prices follow suit. That said, because we also see mortgage rates rise, this tends to put downward pressure on demand for real estate because debt becomes more expensive.
This can in turn put downward pressure on asset prices as demand decreases.

Inflation causes construction costs to rise
Because things get more expensive with inflation, the cost of materials used in construction will also rise. There’s a lot that goes into real estate development, and all of those prices will generally increase as inflation creeps in.

It is widely understood that inflation increases wages, machinery costs, and building materials. It also puts developers and investors in a scenario where cost-overruns are much more possible. If you planned a build several years ago in an inflationary environment, your costing will need to account for the inflation of all the building materials and labor.

Studies have shown that historically high periods of inflation also saw a similar increase in rent prices. According to a recent study, during the high-inflation period from 1973 to 1983.

Given that under most circumstances an inflationary environment leads to higher rents and higher asset prices, real estate is considered to be a great hedge against inflation.

This is due to three general phenomenon:

Rents rise with inflation
The value of your property rises with inflation
The debt on your asset is devalued as the value of that debt decreases with time
That said, investors need to be wary of high-inflation environments, primarily because the cost of borrowing will increase, putting downward pressure on your cash flows and demand for real estate if you want to liquidate. It also makes new real estate development more costly.

With more positives than drawbacks, an inflationary environment can be positive for real estate investors if they make smart acquisitions and stress test their portfolio again inflationary pressures such as rising interest rates.

Incase you need a property to buy download the BillCotey app


android >

Related Posts



Enter your keyword