Property is still in the long run a good hedge against inflation

Property - []

Property is still in the long run a good hedge against inflation – all things being equal, according to Erwin Rode, CEO of property research and consultation firm Rode & Associates.

Rode gave an overview of the SA property industry at the annual Rode-REIM Real Estate Conference outside Stellenbosch. His theme was “the prognosis for property in turbulent times”.

“SA did not have a correction in house prices like the US had. In real terms, house prices are still high, presumably because of a supply deficit,” said Rode.

“So, if the economy were to experience a shock event, there is still scope for house prices to decline in real terms. By this I mean that house prices will grow at, say, half of the inflation rate.”

Rode’s medium-term forecast is that house prices will decrease in Johannesburg and elsewhere, because prices are still very high in real terms.

In addition, he said that consumers are under “unrelenting stress” and that the increased risk aversion of SA banks was set to  continue.”Thus the building industry could face tough times,” he said.

At present, house-price growth is moving sideways at about 4% per year, thereby not keeping up with inflation, which is at about 5% to 6%.
As for house price growth in Cape Town, it is outpacing the rest of the country, and is growing on average at about 12%. But Rode questioned how sustainable this growth trend will turn out to be, as affordability will have to become an issue.

“But when that will happen, only time will tell,” he said. 

In his view, the longer term prospects for the SA economy are bleak.
“There is a brain drain, a dysfunctional education system and the government plays a zero-sum game. By this he means the government is not aiming to grow the (economic) pie. Instead its priority is to re-slice it,” he said.
“Furthermore, corruption is endemic and technology will in future cause disruptions, meaning many jobs will be destroyed – especially those of a menial nature.”
Expected long-term growth has been scaled down to about 2%, compared to an average growth rate of between 3% and 3.5% per year in the post-World War II era.
As for shorter-term prospects for the SA economy, these were not bright either, said Rode, considering fiscal limitations, the dysfunctional state-owned enterprises and the over-indebtedness of local consumers.