Lower inflation positives for property

While much is made of the effect that lower interest rates and home loan repayments will have on the property market, more needs to be said about the benefits of keeping the inflation rate on a downwards course.

So says Colleen Gray, MD of CENTURY21 South Africa, who notes that lower inflation benefits even those who do not have home loans, and that this bodes well on several levels as the market starts to recover.

The latest figures show that headline consumer inflation slowed dramatically to 6,9% in June from 8% year-on-year in May, and 8,4% in April.

“And if this trend continues when property values begin to recover, property investment returns will shift back into positive territory and draw more buyers into the market,” says Gray

“It’s debatable when that point will be reached of course, but most of analysts and commentators agree that we should see the start of a recovery in the market next year.”

Meanwhile, lower inflation translates into lower building costs increases, which is good news for anyone currently wanting to build a new home rather than buy a pre-owned property.

“It also makes extensions and alterations more affordable, which is encouraging for homeowners planning to improve their properties, perhaps with the intention of selling later or for other reasons such as having to accommodate an extended family under one roof to relieve financial stress,” she says.

“Perhaps most important, though, is the fact that ‘inflationary expectations’ in respect of property prices are likely to remain muted if inflation itself stays low.

“And hopefully this means that when normal market conditions return there won’t be a resumption of the kind of runaway 20 to 30% pa increase in property prices we saw during the last boom, and that growth in values will be more moderate and sustainable.”

Article by: www.century21.co.za