Recently, more and more economists are referring to the danger of stagflation, warning about its effects on the economy and society. Stagflation combines in one word, two different terms, stagnation and inflation. This is a period of low economic growth and high unemployment, accompanied by an increase in the cost of living.
The main problem lies in the fact that conventional measures to reduce inflation, such as raising interest rates, may exacerbate the slowdown in the economic recovery. This is because central banks can raise interest rates to reduce inflation, but this means that borrowing becomes more expensive, which can adversely affect the economy.
Today, the crisis of war, rising energy prices and turmoil in the global supply chain have led to an increase in inflation, while the global economy is still affected by the pandemic and geopolitical developments. As such, many claim that the global economy is headed down a dangerous path and call for immediate action to prevent damage.
If we are facing a bubble that is ready to burst, then what is the right investment decision?
During periods of inflation or stagflation, i.e. periods where the rate of growth is low or non-existent, real estate prices rise. If, for example, inflation is at a rate of 10%, a good costs €110 from €100 where it was before inflation, assuming that there is no change in its demand conditions. In the case of real estate, if a property is acquired today for €100,000, after one year with 10% inflation it will cost €110,000. This is a nominal increase, but a large percentage of which is real, especially if the property has quality features. For example, if the property has some perennially sought-after features, at least until the general energy crisis is brought under control, it will continue to attract particularly high demand, fueling its real appreciation in value. Conversely, if this amount of €100,000 was in a savings account, then after one year of inflation its real value would be €90,000.
Higher commodity and commodity prices pose a challenge for investors in such times because they continue to drive inflation higher while dampening the growth prospects of commodity-importing regions. Historically, looking at the stagflation of the 1970s, we see that this was a bad time for investment, mostly in real terms, with real estate being among the few exceptions.
Our view is that investing in land and real estate is consistently the best option. We are facing unprecedented changes in the global economy and generalized increases. We are not dealing with a simple run-up in prices in the housing market. We are dealing with serious inflation. And in such a situation, land and real estate are power, not burden.
Future generations will find it difficult to acquire real estate as they once could. Throughout time, real estate and land have functioned as investment vehicles. And they are by no means in a bubble. In fact their value rises (like everything around us) at a normal rate.
For all these reasons, real estate will remain an investment priority and a good response to galloping inflation.
Thanasis Stamou is the director of
INVESTA Real Estate - Larissa real estate agency. He has experience in the field of real estate since 2005. He is a real estate agent, appraiser, negotiator and investment advisor. Specializes in training Real Estate Consultants.
