A question that I promised to return to is the effect of inflation on South African house prices.
Although we know that property has a built-in inflation hedge, what I wanted to investigate is do South African house prices rise as inflation rises?
For this exercise I have plotted CPI (consumer price inflation) v Average South African House Prices to properly investigate the existence of any relationship.
Looking at the South African house price figures since 1982, we can say that the major price growth since 2000 was certainly not driven by inflation. Looking at the chart, it is clear to see that inflation actually dropped to record lows over much of this period.
One can expect South African house prices to keep up with inflation, but don’t expect them to jump as inflation jumps.