Inflation is characterized as a sustained rise in the overall level of prices for goods and services. In clear terms this means that as time passes and inflation rises, the purchasing power for the same sum of money diminishes.
That becomes a really big issue if you have some savings in your bank account for some years.
Due to the stimulus measures, which the European Central Bank has put in place during the pandemic, inflation has reached its highest level since the coronavirus pandemic last year.
According to this recent article of the Financial Times, “the fastest jump in more than a decade was driven by a combination of one-off factors rather than a revival in underlying demand, as many of the bloc’s shops, schools and leisure venues remain closed due to lockdowns to stem the spread of the virus.”
So here the question, how do we protect ourselves from this wave of inflation?
Real estate investments are quite often regarded as inflation-hedging investments. Inflation hedge investments are usually assets that are supposed to rise in value or at the very least retain their value over time.
Appreciation is one of the most advantageous aspects of real estate. According to recent statistics in Spain, property prices rise between 3% and 5% a year on average.
In some areas, such as Marbella, we have seen appreciation rates ranging from 5% to 9%, depending on the year.
Therefore, we make a clear example, if you buy a property of a value of 1.000.000 € and assuming a conservative appreciation of 4% in 10 years you would have a property valued 1.400.000€
In this case not only you would have kept up with inflation but you would have also have gained value with the property appreciation.
Not only you would have gained with the property appreciation, but also if your property was rented out you would have also receive additional cash flow, not bad!