How inflation affects the value of your investment property

Over the past three months, the SA Reserve Bank (SARB) has been monitoring an increasing inflationary environment. This led to the bank’s decision to raise the interest rate to 9% as one of the levers to curb inflation. As consumers of SA goods and services, we feel that the prices of basic necessities are increasing every day. This effect is clearly inflation and has a negative impact on our lives.

So what does inflation really mean and how does it affect an already active housing market with high demand and low supply? To understand how inflation can affect your property, it is important to first define inflation and then look at its impact on existing homeowners and new home buyers.

What is inflation? Inflation refers to a decline in the purchasing power of your money and is reflected in the rise in prices of goods and services in the economy. So when inflation rises, every rand you earn loses value, thus limiting your spending options.

Although there was already a shortage and demand in the SA housing market before 2020, it is safe to say that the arrival of the pandemic has reinforced these trends. with a sharp drop in interest rates and an increase in the use value of apartments. Many renters are looking for a home in the housing market, and homeowners are looking for opportunities to convert and add space. As this increased demand continues, we will see many existing homeowners stay put, limiting the supply of available properties.

This has caused inflation in the housing market, where the limited supply of jobs and high demand adds fuel to the already raging fire, and the time of real housing prices begins.

For current homeowners, inflation is a positive trend. The most obvious benefit is that the value of your home usually increases with inflation

As we continue to navigate economic uncertainty and a short-term boost in inflation, one thing is certain – buying a property in the right price range (R700 000 – R2m) and at the lowest purchase price (through a new housing development) is reliable. chair to ensure that operating in a high inflation environment increases the value of your property.