Inflation’s impact on real estate investing – Navigating the changing landscape with Zunikh

Inflation has been a challenge for many households over the last year or so and there appears to be no end in sight to the upward pressure being exerted on everyday items, that ultimately means families are struggling financially in a way not felt since the dark days, that followed the Global Financial Crisis in 2008. This is particularly the case because income levels have for the most part, been unable to keep pace with inflation as nearly every sector of the economy tries to deal with the consequences of prices increasing across the board.

Whilst the obvious ramifications of this are most harshly felt by those who live hand-to-mouth, inflation also has a material impact on investments, and can mean that what may have been a good investment only a short time ago is no longer an attractive proposition today.

Stocks and shares are a good example of this, with retail investors generally setting the benchmark for a good return at 6% a year. In a market where inflation is considerably higher than this, stocks and shares are no longer a safe investment for the purposes of “making your money work for you”.

In these conditions, and presuming that Central Banks all choose to increase interest rates as their main weapon in the fight against inflation, it is more likely the case that a passive savings account can deliver a similar level of return without the underlying risk that a stock or share bears. In turn, this (as well as performance fears) can drive share prices down.

Real Estate is a slight anomaly in the context of investing, as there are various ways of generating a return on your initial investment in property. In the context of residential developments, this ranges from traditional developer-generated returns garnered from unit sales following the practical completion of a build, to institutional investments that can be made on a forward sale basis for a development that generates the desired yield and short/long-term capital growth.

Yield returns on a forward sale tend to be about 4.5%, but this figure will fluctuate depending on the risk profile of the scheme in question – determining risk on this basis requires an understanding of the location of the scheme (both the city and locality), the demographic being targeted (student, professionals or families) and a plethora of other variables. In the context of the rising inflation that 2022 and 2023 have witnessed, it is questionable whether a yield of 4.5% remains attractive to investors.

The current hike in inflation has also made it more difficult for individuals and families to save for a deposit on a house, ultimately leading to an increase in the number of people looking to rent. The amounts landlords can charge will (logically) increase as demand for rental properties is increased, making Build to Rent (BTR) schemes extremely attractive. The antithesis of this is also true, making traditional Build to Sell (BTS) schemes less attractive as families struggle to find the necessary funds to buy their first home or move “up the ladder”.

Add to this, the ever-increasing cost of building new homes and you can easily see how hard it becomes to find BTS schemes that “stack up” and why the consensus in the current market is to seek out BTR schemes.
Of course, this is not to say that all BTS schemes will be unviable as, again, there are many variables that need to be considered and there are plenty of schemes out there that will still deliver good (if not excellent) returns.

Zunikh, like most in the real estate industry, is unable to predict the future. What Zunikh can do (and does do exceptionally well) is read market conditions and anticipate trends which allow it to maintain market-beating profitability and investor returns. Something as simple as assessing yield against the backdrop of inflation allows us and the people we work with to make fully informed investment decisions and demand a better – more appropriate – return from the money invested in any climate.

One of the keys to unlocking this ability is Zunikh’s unrivalled agility. This is combined with Zunikh’s ability to deliver the full gamut of development types, including leisure, heritage, commercial, healthcare and residential schemes. It also chooses to employ a small team, but one which is made up of highly professional and commercially adaptable individuals who work only with hand-selected, best-in-class partners that share the values, culture and relentless ambition that drives Zunikh.
With this winning formula, Zunikh is able to safely navigate an ever-changing economic landscape and deliver products that change communities for the better whilst proving just how much good investing in real estate can achieve for those who need it the most.

If you would like more information about Zunikh or anything featured in this article, contact us now.

By Sean Gough
Chief Commercial Officer