The impact of inflation on the real estate sector’real estate in France

You have probably already noticed the increase in inflation in France, although France is not the European country most affected by inflation. Inflation is reaching record levels, driven by various events, including the rise in energy prices. Can this impact the French real estate market? ? This is what we have been interested in, and we share with you our answers on this subject right away.

Inflation on the rise in France and the rest of Europe

Let's first take a closer look at the current level of inflation. In France, inflation has reached a high rate of 5.1%, although it does not exceed the inflation rates of other European countries, estimated at 7.6% for Germany and even 9.8% for Spain.

This inflation can be explained by different factors, including the Covid years, which had a heavy impact on the state of the economy, both in France and in the rest of the world. For various reasons, the price of certain services and products has also increased drastically in recent months, including the price of oil, which interferes with the cost of transporting all goods, but also the cost of energy, electricity and especially gas. Certain products such as cereals are also experiencing a significant increase due to the war in Ukraine, and a shortage of many materials and electronic components due to the delay in many factories around the world, including China.

All these elements form a complex situation, for the States and for their citizens. An economic situation that affects all aspects of our daily lives, including the real estate sector.

The impact of inflation on real estate

What may be the real impact of inflation on the real estate sector ? In light of the latest observations by French and foreign economists, it is now possible to take stock of the impact of inflation on real estate, a point that you will need to take into account if you wish to invest in real estate or are thinking of moving in the coming year.

An increase in the cost of real estate loans

Inflation represents a general increase in prices, which also concerns the increase in the cost of real estate loans. As a result, many people having planned to invest in a real estate property could choose to retract, since the cost of the credit does not allow them to invest the desired amount, and to buy the type of property previously targeted. Banks should not be impacted on the real estate credit side, but individuals and professional investors will have to take this point into account for their purchase projects, which will sometimes have to be postponed.

The cost of rent is rising with inflation

Once again, due to inflation, a rise in rents is expected, as rents can be indexed to inflation, to help landlords and investors. In fact, every year, landlords can increase the price of rent by a few euros, which they will have to pay for their property’acquit their tenants. Although this protects landlords from inflation, tenants are the first to be affected, and they will need to be able to understand this increase in their budget, which is not the case for everyone.

This may mean for some people a need to move, to find a smaller home or one further away from the big cities, for a lower rent.

A possible decrease in real estate prices

Due to inflation, and the increase in credit, the price of real estate could decrease in the coming months. Indeed, the demand could decrease regarding the purchase of a property, many people preferring to postpone their investment projects and their search for an apartment or a house. Due to a lower demand, owners who wish to offer their property for sale will have to adapt to a lower price per square meter, depending on the region.

In Paris, for example, the price of a square meter has been falling for several months, which has an impact on real estate estimates. It is therefore possible to find a property at a lower price per square meter, particularly due to the Covid-19 pandemic, which has pushed many households to leave the big cities to settle in the countryside and enjoy a different lifestyle. The estimate for a house could therefore decrease in the coming months, as could the estimate for an apartment.

A drop in real estate prices that could work in your favor if you are looking for a new real estate acquisition, although it is also necessary to take into account the increase in the cost of credit, which can have an impact on your budget.