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To make the best possible property investments , you need to have a basic understanding of the economy and what makes it turn . The American economist , Tyler Cowen , made the following powerful statement : ‘ Economics is everywhere , and understanding economics can help you make better decisions and lead a happier life .
We ’ ve summarised some economic factors that impact the property sector below to help you make the best decisions for your property portfolio .
Gross Domestic Product ( GDP ) The International Monetary Fund ’ s ( IMF ) World Economic Outlook predicts a 3.2 % growth in 2024 and 2025 .
In South Africa , the International Monetary Fund ’ s ( IMF ) predicts a GDP growth of 0.9 % for 2024 and 1.21 % in 2025 .
Inflation The IMF defines inflation as “ the rate of increase in prices over a given period of time ”. According to Trading Economics , the annual inflation rate in the US is 3.3 % in May 2024 compared to 3.4 % in April 2024 . The target inflation rate for the US is 2 %.
Trading Economics shows that the annual consumer price inflation in South Africa was 5.2 % in April 2024 compared to 5.3 % in March 2024 .
Interest Rates In the US , the Fed left the target for the funds rate unchanged at 5.25 % -5.5 % ( highest in 22 years !) ( 6th consecutive time ).
The current prime interest rate in South Africa remains unchanged at 11.75 % since May 2023 .
Many economists expect interest rates to remain high worldwide and in South Africa , possibly resulting in a decline in property price growth . But there could also be more people who need rentals as fewer people can afford to purchase property at higher interest rates .
But it ’ s not all doom and gloom . So , where do we go from here ?