An inflation hedge implies therefore that the housing prices will move in the same direction as inflation at a rate that outperforms inflation . Yes , housing prices do have a sensitivity to inflationary movement but often exhibit an asymmetric relationship with inflation over short periods , which means that in such cases residential property cannot be considered an efficient hedge against inflation .
Inflation protection however refers to returns or values exceeding inflation over a longer term to preserve the purchasing power of investors ’ capital . Statistics confirm that consistent growth in Cape Town housing values over sustained periods outstrip the cumulative effects of inflation creep over time . The implication for investors and homeowners is that buoyant housing values and attributed growth in Cape Town act as a potent protection against inflation over the long-term and that residential property in this region is a fundamental feature of long-term wealth preservation .
The graph below tracks the cumulative house price growth of residential property in Cape Town against CPI trajectory over the last 22 years . So , while investors should not look to property to hedge against short-term inflation volatility , in particular acute upward trends , the data empirically illustrates the viability of harnessing residential property in Cape Town as a protection against the attritional and damaging forces of inflation over time .
GRAPHIC OF THE MONTH
Source : Adapted from data courtesy of Stats SA and Lightstone
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