Is property investment still OK if inflation is low?
It’s not so much the absolute capital growth rate that is important, but rather the growth relative to inflation. With capital growth historically averaging between 2% and 4% over and above inflation, even if inflation were to fall, I would still expect property to perform at this level above inflation. In America, where annual inflation has been slightly lower at around 6%, property growth has averaged more than 8% per year, which is still that couple of percent above inflation. Everything need to be put in true perspective and if inflation, and consequently capital growth, is lower relative to everything else, property should still be better than any other form of investment. Furthermore, interest rates would have to fall, reducing the cost of the loan to such an extent that the overall rate of return (above inflation) on the property investment should remain about the same.
