GLOBAL - Inflation should not to be seen as a threat but as an asset to the real estate industry, professor Colin Lizieri of the University of Cambridge has argued.
During his keynote speech at the IP Real Estate Investor Forum & Awards last night in Amsterdam, the Grosvenor professor of real estate finance said inflation had served governments well in the past, so there was no reason the property industry should be excluded from its benefits.
Inflation in continental Europe has been stable and below 3% despite recent troubles, whereas recent UK data has seen the higher of the two inflation measures increase beyond 5% in recent months.
Lizieri said: "Inflation is good as long as real stock goes up again because that means a lot of debt is historic, so inflation inflates away our debt.
"That's how governments usually get around their debt problems, so why not incorporate the real estate market?"
Lizieri also addressed the problem of refinancing the growing number of loans, many of which had been agreed prior to the global financial crisis and had since seen the capital value of properties decrease significantly.
Across 12 European capital cities, values fell on average by 40% due to the crisis, and most cities only saw values increase by 30% since the market stabilised.
Lizieri estimated that, across the dozen cities, properties were on average still close to a quarter below pre-crisis value.
"Maybe in thinking about how we refinance, we should also be asking: 'Should we refinance?'" he added, saying that lending should potentially be constrained and that restructuring, as well as counter-cyclical measures, could be employed.
Recent figures from DTZ Investment estimated that €1.15trn in debt was set to mature between now and 2013, with more than 65% maturing in the next five years.
Lizieri said further amortisation and better transparency, as well as more strictly enforced fund limits, would encourage the reemergence of the real estate market.
