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New study proves - real estate protects against inflation and increases in price in the long term

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08.

March 2023

Good news for real estate buyers - real estate protects against inflation and increases in price in the long term. According to a recent study by @Deutsche Bank, the rise in interest rates should reach its temporary peak in mid-2023. After that, the experts expect price increases again and a stabilization of the overall market. In the long term, they even expect new record prices.

This is because rents are expected to rise in the future due to inflation, irrespective of government regulation. This means that real estate would provide protection against inflation even in the current market phase.

As the study by DB research reveals, house prices typically increase in the long term with inflation, although there may be price declines in shorter periods. However, in most cases, these phases are short-lived. There was one exception, however, in the years from 1995 to 2012 when house prices fell and did not rise again until after 17 years. During periods of high inflation, house prices increased more strongly than inflation itself. If inflation remains high in the future, this could again lead to inflation protection.

Rent growth at an all-time high: Will prices soon hit rock bottom?

DB Research forecasts that rents will undoubtedly have an impact on future price levels. However, rent increases are difficult due to regulations. Nevertheless, rents are currently rising due to the massive shortages on the housing market. According to the vdp, rental growth for new leases reached a new all-time high of 6.5% year-on-year in the fourth quarter of 2022. It is therefore likely that the current price declines will soon bottom out. This however, assumes that interest rate rises end, which is expected in mid-2023. After that, the negative short-term effects should weaken. In the long term, prices could reach new highs. This is also relevant for institutional investors who are considering expanding their bond holdings due to higher interest rates.

Lars Schriewer, CEO of ACCENTRO Real Estate: "What we have been aware of for a long time has now been confirmed by the latest Deutsche Bank survey: Real estate represents a protection against inflation.

According to it, not only is the rise in interest rates expected to peak in mid-2023, but prices are even expected to reach new record highs again in the long term.

Rising rents due to inflation and the associated increase in value allow the experts to draw only one conclusion: real estate continues to be an effective inflation hedge and thus remains one of the most attractive asset classes for investors. It is important for our company to make this inflation protection available to as many people as possible. That is both our mission and the basis of our business model."

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