Property Investing and Inflation

Real estate investment trusts or rental properties generally hold up well when inflation is high. It’s evident that property value is keeping up with inflation as we’ve seen the price of properties soar over the last 12 months, and it appears rental prices are keeping up with inflation with the highest rental prices recorded in over 16 years.

If we look at the national average asking rent around London, UK, we can see it hit another new record of £1,126 per calendar month which is a rise of 3.5% from last quarter, and a staggering 11.8% higher than last year. 

While it isn’t the time to buy, those with a portfolio of properties, including real estate investment trusts, right now tend to outperform the market. We saw inflation reach its highest peak in 40 years in 2021, where REITs outperformed the S&P 500 by 13 percentage points. When inflation is lower, they tend to underperform, overperforming when inflation increases, usually over the 7% mark. With inflation currently around the 9% mark, we are seeing positive results, giving REITs a productive financial year. 

As of July 2022, we are sitting at an annual property price growth of 9.3%, with the price of property coming to market hitting its sixth consecutive record, of £369,968, up 0.4% this month already. We are seeing more buyers locking in longer mortgage terms to decrease their outgoings, with lenders now offering similar rates for either two-year and five-year fixed mortgages. Despite the cooling market, Rightmove suggests a full-year 2022 house price forecast up from 5% growth to 7% despite the market showing signs of cooling.

For investors, this may mean holding off extending your property portfolio just yet, though we are seeing signs of improvements. 

There are a number of new sellers coming to the market, with property investors up 13% compared to this time last year. This may be explained by a large influx of property portfolios being sold off while the price and demand is higher. We can see that buyer demand is still up 26% when compared to June 2019, although this remains at 7% lower than this time last year. 

House prices have never been higher, and the demand for properties isn’t expected to drop dramatically any time soon, despite the market showing signs of cooling. With the expected increase in mortgage interest rates throughout 2022 we are seeing more and more pressure on landlords. As a landlord feeling the pressure of the financial market, you can consider selling your portfolio of properties, investing your capital into something that has a hedge against inflation, like REITs, gold, or reallocating your money into stocks.