How does the Rand Exchange Rate impact South African House Prices?


Having charted the historical Rand exchange rate v South African House Prices, there is clearly a relationship between the devaluation of the Rand and the increase in South African House Prices over time. So you can rest assured that as the Rand devalues, House Prices will keep track – thus providing that inflation hedge referred to earlier.

Did you know that the Rand was under R2 (approx R1.7 to the pound) to the pound until early 1986?!

So property is clearly the winner as compared to keeping your money tied up in cash, which remains at the same nominal value over time. South African House Prices continue to rise as the rand devalues – thereby keeping pace with inflation. Think for a moment about the type of inflation that has been seen in Zimbabwe. Those with cash deposits or pensions have seen their money destroyed and wealth destroyed overnight. Those with property are simply selling it in US$, or adjusted Zim$. The value of it remains, unaffected by currency devaluation!

Of the various economic factors studied so far, the two most compelling factors affecting South African House Prices are Rand exchange rate and demographics.

What does the future hold? Well if there is mass devaluation of the South African currency, that will actually be great for your property investments as you will be able to pay them off quicker and reach positive cash flow much more quickly than originally anticipated. This is because your debt stays constant (doesn’t rise with inflation), while your income on the other hand rises with inflation (through inflation linked salary increases).

In terms of REAL growth prospects (ie growth excluding inflation) for South African House Prices, the scope looks much more pedestrian as the population is only predicted to increase by 22% over the next 40 years.

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