Inflation and investment.

  • 08/13/2015
Klo Dollar Rolle

Already with the definition of "inflation", the scholars argue. Speaking about inflation one may understand the increase of the money supply, the others the increase of the prices on the wide front. However, a prize increase must not necessarily occur to an inflation of the money supply, and a deflation not always deals with a shortage of money in the market. However: it is indisputably that the word “inflation” origins in the Latin word "inflahere" (= blow up) and refers - at least originally - to the expansion of the money supply. With the same values but more money, the prizes increase as a result of the market-laws. If one looks at this legitimacy from the other side, the money simply is less worth. And exactly here, the story starts being interesting for investors. Since they invest their money that it may not only increase, but also that the value of their investment rises; a fine, but important difference.

Official statistics veils the inflation danger

However, one should exactly look at the official figures of the general prize increase. These are strongly distorted because of average figures and do not reflect the national, regional or even local circumstances. Also the official statistics incline to show the ascertained figures in such a way that they support the economy in unsafe times. Though this is possibly such as if one cools down the clinical thermometer to lower the fever, but for short-term investors this seems to work one-sided to falsifying interpretation.

Property protection by real Investments

With value investments, one assumes that they increase in the long term at least according to the inflation. A simple example: Construction workers receive higher wages because otherwise they cannot afford the rising costs of living any more. Thereby the building cost of a real estate increases; and with it the selling-price increases too. The value stays the same comparatively to the general cost of living. With hotel real estate other effects concerning the inflation are important too. Hotel real estate generates substance value and earned income. The substance value consists of the value of the land and the building. The building value rises with the inflation, because the new building costs rise by higher wages, material, energy costs etc. With the property value it is a little bit more complicated: Properties – in particular in asked premium locations – are not multiply able arbitrarily (in contrast to money). Therefore they are particularly worth-solidly. In addition, the inquiry has lately strongly risen in the economic-strong Central European area which increases the price in addition. So the chance of a value increase above the general prize increase is very high. However, this is only the security factor of hotel real estate. In addition one may count the yield from the leases with operators. Besides, one should pay attention to subscripted rents. Meaning that the rent is adapted regularly and by contract according to the development of the consumer price level. Then an investment in hotel real estate promises not only the chance of an inflation-corrected value increase of the land and the building, but also guarantees regular income from the lease, which adapt themselves automatically to the development of the inflation.

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