Inflation & the property market: what is really happening?

... and what should we do??!!

Inflation increases construction and material costs → the supply of new homes slows down → more pressure on second-hand prices.  • Interest rates: if they rise, mortgages become more expensive and part of the demand leaves the market; if they remain below the inflation rate, demand increases.

What is inflation (simplified definition)

Direct effects on property

1. Building costs more → Cement, steel, wood and labour become more expensive → fewer construction sites, reduced new supply → quality second-hand properties increase in value.
2. Household budgets under pressure → With energy, food and transport becoming more expensive, some households are postponing purchases. But housing remains a basic need: discretionary spending is cut in order to buy or rent a good property.
3. Prices vary greatly
4. Cities with services, universities, tourism or logistics → resilient demand, faster sales times.
5. Areas with low demand → greater choice, larger discounts and longer selling times.

The role of interest rates

• Low interest rates → affordable mortgages → rising demand → rising prices.
• High interest rates → expensive mortgages → falling demand → choice of well-located/well-presented properties.
• Usually, rising inflation = rising rates (ECB/Fed cool the economy). But if real rates remain negative, property protects purchasing power in the medium term.

If you sell today: pros & cons

Pros

• Limited new supply → less direct competition.
• In “hot” markets (city centres, tourist villages, areas near hospitals/universities), deals close easily if the price is right.

• More selective buyer pool (more expensive mortgages).
• Planning irregularities and properties that are not ready risk heavy discounts or stalls.

• Real comparative analysis, not “asking prices”.
• Integrated Technical Report and documents in order before publication.
• Targeted marketing (open house, video, light home staging) to concentrate visits and offers in a short window.

If you buy today: when it makes sense

• Medium-long term (5-10 years): quality properties in sought-after areas tend to retain their value.
• Purchase for renovation: can protect against inflation if you lock in the price/contractor now, but check the costs of the work.
• Fixed vs variable rate: fix the instalment if you fear further increases; only consider variable rates with income margins and repayment plans.

Strategies for investors

• Diversify: residential + tourist + student/commercial in different areas.
• Focus on income-generating properties: indexed rents or structural demand (students, healthcare, corporate).
• Follow the ECB/Fed: a 50–100 bps change affects yields, LTV and absorption times.

The Gambedotti Real Estate compass

• Dynamic valuation: fair price today, with 6–12 month scenarios.
• 'No surprises' documentation (RTI, town planning, land registry) before listing the property.
• Open House method: we concentrate qualified demand on a single date → fewer visits, more offers, guaranteed timescales.
• Mortgage plan: advice from partners on rates, duration and coverage.

Want to understand how inflation affects your property?