How does inflation affect real estate?

Inflation is the increase in prices or the increase in the cost of living in a country. The inflation rate in Kenya has been alarming, From 5.1% in February to 7.9% in June 2022. For 2022, projections indicated annual average inflation at five percent in Kenya, above the rate projected in other African countries. This is partly affected by the war in Ukraine and the ongoing COVID 19 pandemic.

The real estate sector will be affected in the following ways;

 Higher mortgage rates

The mortgage rates rise in tandem with the rate of inflation. When loan rates are low, more people borrow, which increases their disposable income. As a result, inflation increases. Consumers will often save more money than they spend as central banks raise interest rates to combat inflation because the gains from higher interest rates are more alluring. It is anticipated that by reducing consumer spending, inflation will drop. In Kenya, the monetary policy committee increased the rate by 50 basis points to 7.5% in May 2022, the first increase since July 2015 to curb inflation expectations.

Increase property value

Following ongoing Russia’s onslaught on Ukraine, there have been fears about supply. The price of key construction materials, including steel, paint, and cement has shot up due to local shortages. According to business daily, the prices of steel in the international market have moved up by around Sh15,390 per tonne since February 2022. Locally, a kilo of steel has risen to Sh180 from 100 while a bag of cement has moved from 600 to 1000. If this continues the property value will also increase.

Increasing Rents

While some people view inflation as a negative, investors view it as a positive. For those looking forward to investing in rental property now is a good time. For landlords, inflation is a positive thing because it will enable them to push rents up. There is also an opportunity for mortgage lenders If they increase the monthly rent while maintaining the same mortgage payment, you will have extra cash on hand. Having said that, investing in real estate now may present landlords with more chances down the road.

The Bottom-line.

It can be difficult for investors and property owners to navigate the effects of inflation on real estate. Depending on your viewpoint, inflation can be both harmful and positive. Fortunately, Mintvilla Housing is capable and willing to assist you. Contact us on 0711082929 or 0708888222 or email us at [email protected].