Real estate as an investment alternative in an environment with low interest rates and inflation – A comparison between Japan and Sweden

Sammanfattning: Today’s market situation for real estate and property developers in Sweden is very unique. It is characterized by low to negative interest rates and low to no inflation. However, many of the existing economic theories are based on positive interest rates and a positive inflation. This has resulted in uncertainties for investors and market players how to assess this new situation and be able to adequately predict how this will affect the real estate market. The purpose of this thesis has been to investigate how a low interest rate and inflation environment affects real estate, as an investment alternative. The thesis looks closer on the Japanese market since they have had a low interest rate and inflation environment from the middle of 1990’s. The thesis has investigated what kind of relationship that exists between the return but also the prices from real estate and different macroeconomic variables such as the interest rate, the inflation and the GDP growth. The thesis has been performed at Vasakronan, a leading property company in Sweden. Vasakronan management has provided valuable guidance and assisted in making prioritizations of the very extensive data material. Real estate can be considered a good investment alternative and that they still generate a rate of return over time in a low interest rate and inflation environment. Furthermore the findings show that the interest rates and the inflation do not have any direct effect on the real estate returns in a low interest rate and inflation environment. However, we have found that it exist other variables that affect the real estate returns which in turn are affected by the interest rates and the inflation meaning that the returns for real estate are indirectly influenced by the interest rates and inflation. One of the most important variables is the GDP growth, which has an influential impact on the real estate returns. The demand and supply for real estate as well as the expectation concerning the future is also variables that influence the real estate market and returns. As long as the economy is growing as well as the demand is high and future expectations is positive, real estate can still be considered to be a relative secure and good investment.