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How inflation affects the value of your property investment.

Over the past three months, the SA ReserveBank (SARB) has been monitoring the increasing inflationary environment. This resulted in the bank taking a decision to increase interest rates to 9%, as one of the levers to manage the growth in inflation. As consumers of goods and services in SA, we are experiencing the prices of basic consumer goods going up every day. This impact, in plain terms, is inflation in action and it is having a negative impact on our lives.

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

What is inflation?

Inflation refers to a decrease in the purchasing power of your money and is reflected in an increase in the price of goods and services in the economy. So, as inflation ticks up, every rand you earn loses value and therefore limits your ability to spend.


While the SA housing market was already seeing short supply and high demand before 2020, it is safe to say that the pandemic’s arrival worsened these trends; with the sharp decline in interest rates and the utility value of homes increasing. Many tenants are looking to enter the housing market in search of a home of their own and homeowners are seeking opportunities to trade up and increase their space. As this increased demand continues, we also see many existing homeowners staying put, therefore limiting the supply of available properties.


This has resulted in housing market inflation, in which the constrained supply and high demand at work adds fuel to an already raging fire and a period of real house price growth will emerge.

For existing homeowners inflation is a positive development. The most obvious benefit is that in general, the value of your home rises with the inflation rate.


With housing supply low and demand high, homeowners in the house price segment of R750,000 to R2m can shoot for the moon with their asking prices, and in many cases receive offers for or even above their asking price. This makes it a great time to sell, but a more challenging time to buy in this price bracket, especially when the property is in a well sought after location with great amenities and accessibility.


The sentiment is similar for investors who are invested in a property as an asset. With interest rates at a current low, investors will find themselves paying off a property that is appreciating in value beyond the rate of inflation, which will see the property’s value steadily rising.


For aspiring new homeowners, the circumstances in an inflationary market are different from those for existing homeowners. With that reality in mind, the most important factor for prospective homeowners is timing.


How long do you plan to own the property and is it your primary residence? If you are in it for the long haul, then you should expect the same value increases which existing homeowners are experiencing.


If you are looking at a shorter investment time horizon, much like a speculative investor looking to buy and flip the property for a quick profit, then you should be cautious.


One of the dangers of short-term investing in an inflationary real estate market is the risk of getting caught in a ‘real estate bubble’.


As we continue to navigate the uncertainty of the economy and the rate at which inflation will increase in the short term, one thing is certain – buying property in the right price range (R700,000 to R2m) and at the lowest cost of acquisition (via a new residential development), is a credible defensive way of ensuring a high inflationary environment works to increase the value of your property.