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.