In the first half of 2023, China's prices are generally weak, and even face deflationary pressure. However, inflation is an inevitable part of the economic cycle, and in the long run, inflation is certain, and its cumulative effect is very obvious. Both developed and developed economies, regardless of their economic system, can almost always verify this with long-term data. Inflation not only affects the cost of living of residents, but also has a huge impact on asset markets, especially the real estate market.
The relationship between inflation and house prices is complex and close. Properties have both residential functions and asset attributes, which usually respond earlier than inflation. Let's look at some international cases to see the impact of inflation on house prices and how to deal with it.
1. Australia: Inflation and rising house prices
In 2021 and 2022, Australia's inflation rates were 2.9% and 6.6% respectively, while house prices rose by 17.4% and 9.2% respectively over the same period. This shows that inflation has a clear positive effect on house prices. Real estate is seen as a safe-haven asset, and investors tend to put money into the housing market to protect against the erosion of cash by inflation.
2. Canada: Inflation drives house prices up
Canada experienced inflation of 3.4% and 6.8% in 2021 and 2022, respectively, while house prices rose by 12.6% and 10.01%, respectively. This once again confirms the stimulating effect of inflation on the real estate market. Investors seek real estate to preserve and increase in value, which is driving up home prices.
3. Germany: Inflationary shocks under strict policies
Germany has implemented strict restrictions on real estate investment, but inflation still rose to 3.1% and 6.9% in 2021 and 2022, respectively, and house prices rose by 11.5% and 5.5% respectively. This suggests that even with policy intervention, the impact of inflation on house prices remains significant.
4. Japan: Inflation and rising housing prices
Despite challenges such as zero growth and an aging population, inflation was 0.2% and 2.5% in 2021 and 2022, while house prices rose by 5.9% and 8.4%, respectively. This shows that the impact of inflation on house prices is not limited by economic fundamentals.
5. Russia: Inflation and house prices rose sharply
Even in turbulent situations, Russia experienced inflation of 6.7% and 13.7% in 2021 and 2022, respectively, while house prices rose by 13.7% and 28%, respectively. This highlights the strong impact of inflation on the housing market.
6. Singapore: Inflation has led to higher house prices
Singapore experienced inflation of 2.3% and 6.1% in 2021 and 2022, respectively, while house prices rose by 8% and 10.2% respectively. Inflation fuels demand for home purchases, driving up home prices.
7. UK and US: Inflation and soaring house prices
Both the UK and the US experienced higher inflation rates in 2022 at 9.1% and 8% respectively, while house prices rose by 9.8% and 13.7% respectively. The impact of inflation on the real estate market is particularly pronounced in these countries.
8. Turkey: Inflation causes house prices to soar
Turkey experienced inflation of 19.6% and 72.3% in 2021 and 2022, respectively, while house prices rose by 39.1% and 157%, respectively. Inflation has had a huge impact on the Turkish real estate market, showing the relationship between inflation and house prices in its extreme cases.
From the above cases, we can draw the following conclusions:
- Inflation usually spurs house prices to rise because investors tend to put money into real estate to preserve and increase in value.
- Real estate is seen as a safe-haven asset that can combat the erosion of cash by inflation.
- Even with policy restrictions, inflation can still have an impact on house prices, although the magnitude of the impact may vary.
- The impact of inflation on house prices is not only affected by economic fundamentals, but also by investor confidence and demand.
So how should households respond if inflation in China is 5% or higher in the next 10 or 20 years?
Coping strategies:
- Diversification: Families should consider diversifying their portfolios and not just relying on real estate. Asset classes other than real estate such as stocks, bonds, and gold can help diversify risk.
- Fixed income assets: Holding fixed income assets, such as Treasuries or bonds, can provide relatively stable returns that help protect against inflation.
- Investment Education: Improve financial investment knowledge and understand the characteristics and risks of different asset classes to make informed investment decisions.
- Property Management: For families with multiple properties, careful management is required, considering whether to sell a portion of the property for liquidity.
- Home buying decisions: For families who are just in need, the purchase decision needs to be carefully considered, and you can choose to buy a property at the right price to avoid overvaluation.
In conclusion, inflation has a significant impact on the housing market, but households can meet this challenge by diversifying their investments and planning wisely. Understanding risks and opportunities, as well as developing appropriate investment strategies, will help protect household wealth from inflation. In an uncertain economic environment, financial planning and investing in education have become particularly important.