Real estate as a safe heaven

Inflation is on the rise, is real estate a good investment to protect your savings?

Real estate as a safe heaven



The specialized press has extensively covered the consequences of the Covid pandemic on the economy. The noticeable economic recovery and dynamism have been accompanied by a resurgence of inflation. Indeed, in 2021, prices saw a significant increase. This return of inflation may worry investors who are concerned about protecting their savings. A well-known saying suggests that “real estate is a very good hedge against inflation.” Why? Is it still interesting to invest in an inflationary context? PATRIMOLINK provides some insights to shed light on the matter.

Inflation, definition

Inflation is defined by a general increase in prices. Its main consequence is a loss of value of the currency and therefore purchasing power: one needs to spend more to buy the same things.

It is calculated based on an average basket, including basic products (food, services, durable goods), as well as significant expenditure items such as energy. This calculation determines what is called the cost of living.

How does inflation occur? It is multifactorial but stems from 2 main causes in the current situation.

The first is an imbalance between supply and demand. The demand for a set of products increases without the supply following suit. What is rare is expensive: the price of products, becoming scarce, mechanically increases.

The second is cost-induced inflation. The value of raw materials, notably energy or construction materials, is soaring, leading to an increase in the prices of goods and services that depend on them.


The recent return of inflation

Since the transition to the euro between 1999 and 2001, consumer prices have increased on average by 1.4% per year. This is a much lower evolution than the one recorded from the post-war period until the 1980s (an average of about 10% per year), or between the 1980s and the early 2000s (about 2% per year). Contrary to commonly shared perception, the current period is therefore characterized by relatively stable prices. This is mainly due to the convergence and stability policies implemented within the European Union (post-Maastricht Treaty). Whenever the index has exceeded 2%, the causes have been clearly identified (climatic phenomena and increase in the price of agricultural products, geopolitical problems and increase in oil prices, for example).

In 2021, the OECD (Organization for Economic Cooperation and Development) measured an inflation rate of 4.2% over one year in July (3.1% without food and fuels, which are highly volatile). This surge in prices is mainly due to the rebound in household consumption and the recovery of economic activities post-Covid. Demand has rapidly increased, while supply has struggled to respond. Many raw materials have seen their prices soar, such as wood, steel, but above all, energy (oil, gas).


Inflation rate (%)




Real estate as a safe haven, a historical perspective

Land remains one of the favorite non-financial assets of the average French person. But is it a good hedge against inflation? A historical perspective on the French real estate market seems to indicate so.

asset composition



Unlike financial products battered by the crisis, real estate has shown little volatility and guarantees stable profitability.

Real estate is a tangible investment (building, house, land). It (normally) slowly loses its value and is relatively less exposed to economic conditions. A quick look at the combined historical evolution of real estate prices and inflation proves that while purchasing power may decrease, real estate value does not diminish in the long term. On the contrary, it has increased over the past decades.

Since 1965, local differences /House Price Index” (HPI).



Post-Covid real estate, what to expect?

At the time of writing, the pandemic continues to weigh on economies. INSEE (National Institute of Statistics and Economic Studies) indeed speaks of a “recovery under tension” and an “uncertain international environment,” characterized by a slowdown in growth, a tightening of monetary policy, and an increase in inflation. The economic press has often emphasized in recent months that real estate was too expensive compared to the average income of French households. Some economists thus envisaged a rapid correction of this strong demand for “abnormal” goods sustained by low-interest rates.

However, the real estate market has confirmed its improvement. After a significant rebound post-confinements, the number of transactions reached a record high, and real estate prices continue to rise, driven by a chronic deficit in construction and this favorable lending policy continues. Institutional investors have also entered the residential real estate market in force. The Immostat Economic Interest Group (GIE) monitors the evolution of their residential real estate purchases. While they currently represent only 10% of the total amounts invested in the French market, the index has shown an increase of over 40% in the volumes invested, reaching an amount of 5.5 billion euros in 2020. The Covid crisis has weakened professional real estate (offices, shops) and enhanced the reputation of residential real estate. Their policy of bulk purchase strengthens competition in the market and stimulates prices.

The phenomenon appears to be global. The OECD (Organisation for Economic Co-operation and Development) reported an annual increase in real estate prices of 9.4% in the first quarter of 2021 among its members. This is the strongest growth in thirty years.

Given the recent figures, one might expect a rise in benchmark interest rates, and consequently, borrowing rates (for more details, see our article on financing for non-residents). However, analysts agree that any increase should be very gradual. The pandemic is not yet over, and the economic recovery is fragile. Central Banks are expected to be cautious and avoid a rapid tightening of benchmark interest rates. Christine Lagarde, President of the European Central Bank, stated on November 15th that an increase in benchmark interest rates in 2022 would be “counterproductive.”

Lastly, it is worth noting that loans contracted in France have fixed interest rates. Therefore, inflation does not affect the repayment amount. The leverage effect at the time of borrowing remains real. However, rental income from properties will be adjusted, offering relative protection to landlords. Rents are indeed indexed to inflation, with any increase calculated based on the Rent Review Index (see our post on IRL). Although the adjustment is delayed (typically around 6 months) and partial (the various indices used in the calculation of the indexation may not always fully represent future inflation), it still provides an additional source of income.

Inflation is making a comeback, and investors need to make choices to best allocate their capital. The COVID crisis has greatly disrupted economies, which are currently struggling to regain momentum. In this context, real estate stands out as a safe haven. Less exposed than financial assets, it has proven its resilience to economic fluctuations. Are you looking to invest? Patrimolink is here to support you in your real estate projects.


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Content compiled for informational purposes only and does not substitute for current regulations. Without consultation with our experts, Patrimolink cannot be held responsible for any consequences of implementing the advice and information provided in this article.