The impact of inflation on the energy 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. The latter is reaching record levels, driven by various events, including the rise in energy prices. Can this have an impact on the French real estate market? ? This is what we are interested in, and we are sharing with you our answers on this subject right now.

Inflation on the rise in France and in 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 various 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 risen drastically in recent months, including the price of oil, which affects the cost of transporting all goods, but also the cost of energy, electricity and especially gas. Some products such as cereals are also undergoing an important 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, and that also affects the real estate sector.

The impact of inflation on real estate

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

A rise in the cost of real estate loans

Inflation represents a general increase in prices, so it also concerns the increase in the cost of real estate loans. As a result, many people who have planned to invest in a property could choose to withdraw, since the cost of credit no longer allows 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 it is individuals and professional investors who will have to take this point into account for their purchase projects, which may have to be postponed.

The cost of rent increases with inflation

Once again, due to inflation, an increase in rents is expected, since the price of rents can be indexed to inflation, in order to help owners and investors. Indeed, each year, landlords can increase by a few euros the price of the rent that will have to be paid’pay their tenants. Although this protects landlords from inflation, tenants are the first to be affected, and they must 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 rising credit costs, real estate prices may fall in the coming months. In fact, demand may be declining for the purchase of property, as many people prefer to delay their investment plans and their search for an apartment or house. Due to 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 per square meter has been falling for the past few months, which has an impact on property valuations. It is therefore possible to find a property at a lower price per m2, especially due to the Covid-19 pandemic, which has pushed many households to leave the big cities to move to the countryside and enjoy a different lifestyle. The estimation of a house could therefore decrease in the months to come, as well as the estimation of 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 loans, which can have an impact on your budget.