馃彚馃挵 REAL ESTATE: INFLATION AND RATES 馃挵馃彚
Inflation and interest rates can distort Real Estate valuations. This effect can be analysed from landlord and tenant perspective. Perhaps the easiest but most difficult is the tenant view, where the pressure of demand for more properties, and the lack of them, pushes rents up. Added to this is migration, changes in purchasing power parity and other trends, creating a phenomenon called "gentrification" (forced displacement of people with lower incomes).
On the other hand, from the landlord perspective, interest rates come into play, as a consequence of inflationary shocks. In this process, property can be compared to long-term bonds or any other asset with maturity approximately >10 years. Similar to the debt market [know more: https://t.co/5Anqd4IxTb ], when there are high interest rates, there will also be high rents. High rents are synonymous of inflationary processes, so it must be stopped with monetary policy. However, the value of the property will decrease because there will be weak demand that can afford to buy it. If there is a mortgage, the effect will be compounded by the same effect If the debt and interest rates.
If there are a deflationary process, rentals could fall down, but the value will increase due to low interest rates that encourages to get a mortgage and buy a property. Additionally, it may be aggravated by the limitation associated with obtaining property in a specific neighborhood or area, and the willingness to go into debt.
After the 2021 inflation, the Real Estate sector [REITs] fallen expecting a hike in interest rates. This means anticipating the expectations in the value of the property once the peak of interest rates was reached. For now, the brake seems imminent during 2023-2024; This means the expectation of the rise in the value of REITs. It was pointed out by Joel Padilla in its post from last months [ https://t.co/3BsiLAVQgs & https://t.co/4MoboLM72W ].
The chart shows the 23 main Companys according to its value capitalization. In spite of there is no strong correlation or variable that justifies the relationship between operating margins and debt to capital, the comparison reflects that the best ones can be to the right and down. Of course, more data must be taken into account in order to make any assignment.
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J. Joel Padilla
Copyright: Joel Padilla 2023
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