How do people in countries with very high inflation make big purchases (house, car etc.)?

192 viewsEconomicsOther

Thinking Argentina or Turkey in the recent years – if the local inflation is so severe that the price of grocery in the morning vs evening (on the same day) is different, how do people make large purchases like a house or a car? How is the price determined and who would provide the long term financing?

In: Economics

16 Answers

Anonymous 0 Comments

In Chile, real estate and large business transactions are done in Unidad de Fomento, which is designed to hold a steady value with low inflation regardless of fluctuations in the peso.

Anonymous 0 Comments

One way to do it, has been to make the purchase in another currency, a very stable one, such as USD or Euros. In many counties experiencing monetary issues there is a significant grey market that arises for trade being done in other currencies for purchases. Sometimes this is just arising naturally other times the govt may directly allow it or just accept that it’s how things are getting done.

Anonymous 0 Comments

[deleted]

Anonymous 0 Comments

Countries with high inflation, and even those without, often price things like cars and homes in dollars even if day to day purchases are in their own currency. I know this is how it works where my in-laws live. It’s a smaller country, one with a fairly stable economy and currency but real estate is still in dollars.

Anonymous 0 Comments

In Argentina there is no thing as credit, so people that buy houses do it by cash in USD, most people buy Dollars to save money.

People joke saying that in Argentina you buy a pair of shoes with credit but a house in cash.

Anonymous 0 Comments

Mortgages are denominated in stable currencies. For example, OTP Group, a large lender and a banking giant in Eastern Europe used Swiss Francs for mortgages. Of course, lenders were royally screwed if their local currencies (in which they were getting their salaries) tanked.

Anonymous 0 Comments

When I was in Peru I noticed that many houses were unfinished. People don’t (or can’t) borrow large amounts of money so when it comes to things like houses they build them piecemeal over 10-15 years instead of borrowing money to buy a finished one.

Anonymous 0 Comments

Usually you pin the price to USD or EUR.

For credits/mortgages you would have variable rate interest based on inflation.

Some countries allowed making loans in USD, but in Ukraine a lot of people took low interest USD loans compared to higher interest UAH loans, and when after Russian invasion in 2014 the exchange rate spiked 200% were unable to pay them (as their salaries were in UAH but loans in USD). This caused additional strain on financial system as a lot of people defaulted on their loans, so this practice was banned.

Anonymous 0 Comments

I can speak for Argentina at least. We don’t buy houses. Cars can be relatively inexpensive because a lot of cars are manufactured in Argentina, but you will still need to take out a 5 year loan or something. But the short answer is that people in Argentina don’t buy big things.

Anonymous 0 Comments

Inflation between 50%-100% isn’t as severe as you think, the prices do move significantly month to month but it isn’t fast enough to distrupt settlement of asset transactions that would take days or 1-2 weeks. Maybe the prices will have increased %3-4 by then, oh well then you factor in the expected loss of value in the initial price.

Source: I lived in Turkey.