Higher inflation - can luxury real estate protect the value of money?
Wednesday, August 3, 2022 @ 12:59 PM
This post is a continuation of the previous entry https://www.eyeonspain.com/blogs/remortgage-refinance/21685/inflation-drives-up-interest-in-luxury-real-estate.aspx where I believe the estimations made have been in the right direction.
Central banks worldwide are now scrambling to raise interest rates to stop inflation. The graph below shows the evolution of the inflation index in Spain, currently standing at 10.8% annualised.
As of the writing of this post, the approximate interest rates set by the major central banks hover around 2%. This means that the banks are currently "paying you" to have a mortgage: the real cost of it is eroded at a 10.8% pace, while you are only required to pay 2-3%. Let's get straight to the point of the headline - would it make sense therefore to actually buy property in this environment? What follows is not financial advice, just a personal opinion of mine from what I observe in the Marbella real estate industry. It would seem that many European and USA clients believe that luxury properties, especially in the Marbella area, with particular features/locations, is a good bet against inflation. The idea being that there is a long way before central banks reach the dizzying heights of 10+% and there is hardly any political will to do so. The table below shows there has been an inflection point in number of mortgages in Spain:
As always, this is all circumstancial evidence, to be dis/proved at the next post :-) Hope you enjoyed it, and see you at the next installment!