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unanticipated rise in inflation vs property price

U

uktous

Member
hi

ch20 suggest that an unanticipated high inflation will drive down property price.

could you please explain it?
 
Inflation should lead to higher rents and hence higher property prices.

Rent reviews occur typically at five year intervals. So at a rental review the new rent will be set using an assumption of the next five years inflation. This is fine as long as inflation is as we expected.

However, if inflation is unexpectedly high, then rents will be too low. The real value of the rents will be lower than expected and so property prices will fall until rents can be corrected at the next review.

Best wishes

Mark
 
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