After peaking at 10.8% in July, the highest reading since 1984, inflation edged to 10.5% in August. The broad rise in prices and the corresponding depreciation of the currency are shaping the current economic landscape. Housing investment stands out as a potential way to preserve wealth with relatively low risk and to pursue higher returns on savings.
Driven by higher energy and food costs and intensified by the war in Ukraine, price increases are evident across most product categories, according to the National Institute of Statistics. This trend represents a significant challenge for many families as it erodes purchasing power and squeezes budgets.
In July, inflation reached a historic 10.8% largely due to rising costs in leisure and tourism sectors. Although the rate eased slightly in August, price gains remain a major economic concern, with forecasts anticipating continued headwinds into late 2022 and early 2023. In this context, real estate investment emerges as an alternative for savers seeking to combat inflation. When money sits idle in a bank account, its value declines; investing in property offers the possibility of value growth over time.
Real estate is often viewed as a safe and potentially profitable refuge for investors, especially after the disruptions of the COVID-19 pandemic. Property investments can offer higher returns with manageable risk compared to many other financial products, making housing an attractive option for diversifying portfolios.
revaluation capacity
Even during the toughest periods for real estate since the 2008 mortgage crisis, housing has shown resilience and the potential for sustained appreciation. It remains a tangible asset that can hedge against rising prices and adapt to shifting demand. In the latest market snapshot, second-hand housing in Spain reached a regional average price of 1,951 euros per square meter in August, up 5.26% from August 2021. This underscores ongoing demand and price resilience in diverse markets.
According to Iñaki Unsain, president of the Spanish Association of Personal Shoppers of Real Estate, some investors with liquidity in financial assets are already turning to property as a store of value. They prefer buying and renting a home to ensure money retains purchasing power as inflation persists.
The inflation-hedge appeal of real estate is particularly strong in urban areas with growth plans, good connectivity, and favorable development outlooks. These factors tend to support property values and rental demand over time.
Rental Facilities
One clear advantage of real estate as an investment is the potential to generate rental income when properties appreciate. Data from Piso.com show that gross rental yields in Spain in the second quarter approached 6.36%, marginally lower than the first quarter of 2022 but still above the 5% threshold that many consider a healthy benchmark for property investments.
Regional differences matter. Castile-La Mancha shows the highest profitability at 7.76%, followed by Extremadura at 7.76%, Aragon at 7.15%, and Canarias at 6.6%. At the other end, the Balearic Islands, the Basque Country, Castile and León, and Madrid report lower yields ranging from about 4.2% to 5%.
Looking ahead, rental markets are expected to remain favorable, even as mortgage costs rise and inflation pressures household budgets. The number of real estate transactions has cooled recently, influenced by higher financing costs and reduced savings. Yet, for renters who cannot or prefer not to buy, leasing remains a critical driver of rental demand and, potentially, rental price growth as some households seek flexibility and affordability in a shifting economy.