Apart from GDP and interest rates, the most important macro‐economic influence on real estate performance is inflation. In the short term, inflation is bad for real estate. Demand pull inflation arising from a positive output gap almost always leads to a rise in interest rates and a fall in user demand for space. Cost push inflation, due to rising oil or commodity prices, also has a negative effect particularly on retail real estate, because it reduces the real spending power of households and their willingness to travel to the mall by car. In the medium term however inflation often boosts real estate returns. This is because the rental payments for real estate tend to rise in line with the nominal incomes of households and businesses. Moreover, as inflation develops, investors tend to allocate greater amounts of capital to real estate because of its ability to maintain its real value in the longer term. Chapter 4 looks at the way in which inflation develops in a modern economy and explores the impact of inflation on real estate returns. The research indicates that real estate values can be relied to rise with inflation in the longer term.
Inflation and Real Estate
Real Estate and Globalisation ; 93-114
2012-03-21
22 pages
Aufsatz/Kapitel (Buch)
Elektronische Ressource
Englisch
food prices , oil prices , printing money , retailing , indexation , real wages , output‐gap , hedge , capital preservation , inflation
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