When interest rates go up, many South Africans instinctively think property becomes a bad investment. Higher rates mean bigger bond repayments, and that’s what everyone feels immediately, so it’s understandable that it dominates the conversation. But interest rates and inflation aren’t the same thing, and mixing them up can make people miss one of property’s biggest strengths.
“Interest rates affect what it costs you to borrow money. Inflation affects what your money is actually worth over time,” says Steven van Rooyen, owner at Leapfrog Property Group Western Seaboard. “Property has always been good at protecting you from the second one, even when the first one is painful.”
These two things move somewhat separately, even though they tend to make headlines at the same time.
A quick example makes this easier to picture. Say you bought a home for R1.5 million ten years ago. Even with a few tough years of rising rates along the way, that house is very likely worth a lot more today, because, as a result of inflation, prices and salaries have gone up too, and property tends to rise along with them. Now imagine you’d left that same R1.5 million sitting in a low-interest savings account instead. Ten years later, it would buy you a lot less than it does today, because inflation has been quietly chipping away at it the whole time, even though the number in the account never dropped.
That’s really the heart of why property holds its value so well. It’s a physical thing, and there’s only so much well-located land to go around. The cost of building, labour, and materials tends to rise with everything else in the economy, so property prices tend to rise with it too. Over the long run, this has meant property has generally kept pace with, or beaten, inflation, even through periods of high interest rates.
Rental income works similarly. Unlike money sitting in a fixed savings product, rent isn’t stuck at one number forever. Landlords typically increase rent every year, roughly in line with the rising cost of living. So, if you’re renting out a property, your income has a built-in way of adjusting as prices rise, something a lot of other investments don’t offer as easily.
Having a bond does add a catch. Yes, you pay more in interest when rates are high, and that eats into your short-term returns. But you’re also benefiting from the growth in value of a home you’ve only partly paid for yourself. Over a long enough period, and property really is a long-game investment, the growth in the full value of the home tends to outweigh the extra interest you paid during the tough years.
“We always tell clients to separate what’s happening with interest rates right now from the bigger, long-term picture,” says Van Rooyen “Rates go up and down, they always have. What doesn’t change is that people always need somewhere to live, and there’s only so much good land to go around. That’s really what makes property such a solid hedge against inflation, not what the interest rate happens to be this month.”
None of this means higher rates don’t hurt right now. They do. They make it harder for people to afford their first home, slow down price growth, and cool off buyer demand. That’s a real, valid concern if you’re buying today. But it’s a temporary rough patch, not proof that property has stopped working as an investment.
It also helps to zoom out and look at South Africa’s history. We’ve been through several rate cycles over the past few decades, some far worse than what we’re experiencing now, and property has come through every single one of them as a solid long-term investment. That’s part of why so many people build their retirement and long-term savings plans around owning property, rather than treating it as a short-term bet.
It’s also worth comparing property to other options. Cash sitting in an account slowly loses value as prices rise around it. Bonds and shares can be far more unpredictable, and their value can swing sharply in a way that many homeowners simply aren’t comfortable with. Property tends to be steadier, and its value tends to move in the same direction as the cost of living, which is why it holds its own so well over time.
“None of this means timing doesn’t matter,” says Van Rooyen. “It just means the basics haven’t changed, even if the headlines about interest rates make it feel that way.”
