Property is a good bet against inflation, which partly explains the boom in sales

Inflation in Spain. Red line = CPI, yellow line = underlying inflation

Property is the only way you can borrow to bet against rising inflation that just hit 5.5% in Spain whilst mortgage interest rates are below 2%, which partly explains why Spanish home sales are currently so strong.

If you are an ordinary person, not a hedge fund manager, property is the only asset you can borrow against to bet against rising inflation. Banks will lend you 70% or more of the purchase price, with long-term finance up to 30 years, and fixed interest rates currently below 2% if you shop around. Nobody will lend you money to buy gold on those terms, let alone crypto currencies. Real estate is the only game in town if you want to borrow to bet against inflation.

And real estate, like gold, is inflation proof. Better than gold, property also has an essential utility value. Property is home. Everyone needs a home to live in. Housing access is a fundamental need. Nobody really needs gold.

Spanish inflation hit 5.5% in November, compared to 5.1% in the UK, 6% in Germany, and 4.9% as Eurozone average, according to Eurostat. Inflation was mainly driven by rising energy prices up more than 27% in a year. Economists and central bankers, who might as well flip a coin to make decisions because they get it wrong just as much as they get it right, argue that inflation is transitory, but with energy policy now firmly controlled by the climate catastrophe lobby I can’t see a return to cheap energy anytime soon. 

And in Spain, labour market policy is now controlled by the hard left faction in government who want to get credit for protecting workers wages not by taming inflation, but by increasing labour costs. Expect changes to the labour laws that bake inflation into wages. To my mind, inflation pressures in Spain will only get worse. I expect double digits in 2022.

Meanwhile interest rates are currently near all-time lows (chart below), and you can still get long-term mortgage loans with fixed rates as low as 1.4%. The obvious attractiveness of real estate as a bet against inflation must at least partly explain the current boom in Spanish home sales. If inflation keeps rising, and mortgage rates remain low, this compelling argument in favour of property investment will remain in place.

Thoughts on “Property is a good bet against inflation, which partly explains the boom in sales

  • says:

    There may be a boom in sales, but overpriced resale properties are still being heavily discounted to sell.
    There are some bargain properties near the Cabopino area, with some villas reduced by a fair margin, priced to sell.

  • Clearly, Mark Stucklin, knows very little about gold. Gold is liquid, property is not, especially in periods of great uncertainty (i.e. today). He claims “Nobody really needs gold.” Em …. wonder why so many countries throughout the world are increasing their gold reserves. Ireland, as one example increased her gold reserves by 20% very recently. So did Singapore. A bit more homework needed here me thinks.

    • Mark Stücklin says:

      Hmm, that’s the last time I write an article in a hurry on a Sunday morning to get my news bulletin out. I also got punished with much higher spam complaints than usual from people who have double opted-in to receive my news bulletin. I’m not sure why but I think it’s because of this article.

      Mike, I’m perfectly aware of the benefits of gold, I would buy it if I had any cash to spare, and gold before crypto. I know it has some utility value like jewellery and stuff, but it’s main value is a store of wealth, not utility, which is why those countries you mention are buying it. Maybe I shouldn’t have mentioned gold because it’s not relevant to my point I was making that rising inflation and low interest rates are helping to stimulate the Spanish property market.

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