Why SA is a better investment at this moment due to the effects of inflation

Inflation all over the world is increasing and making it difficult to live. When we talk about inflation we talk about how much a basket of essentials cost today versus how much it costed last year.

Inflation prices have been kept steady for the past 3 years due to Covid 19 and the various variants of Covid. Now that we have gotten over the Covid crisis the world is dealing with the war between Russia and Ukraine. Whilst South Africans thought they would be the worst hit due to the economic rating agencies we are not the worst hit.

Inflation in the Uk has hit an all time of 9,1% high and it is expected to increase to 11%. The USA’s rate of inflation is 9,1% all time high.Israels inflation rate has increased by 25 % the highest percentage of inflation whilst Turkey is the highest inflation in the world at an amount of 79%.

With inflation rising the interest rates all around the world interest rates are going to increase to combat inflation. The United Kingdom’s interest rate went up to 1,25% and expected to increase The USAs interest rate already increased from 1% to 1,75% and expected to increase to above the 2,5% mark later this year.

If we look at the Uk the rate may sound low in comparison to our 8% but if you look at the inflation rate in Uk which is at 9,1%. This means if you take the interest rate and deduct the inflation rate there would be a loss (1,25%-9,1%=-7,85%).This would mean if you place a 1 million pounds in the bank today next year it would be worth less.It will now be worth 921 500 pounds[1] .

As South Africans we are worried about our future and trying to find ourselves better options and a brighter future for our offspring due to the political instability. The question we need to ask ourselves is now the time to do this or do we weather the storm and wait for the correct time. If we take a R 1 million and turn it into pounds the value of the million rand is 49 360 pounds. Turn this into real value for next year and it will be R 921 500. Whereas if we invest the R 1 000 000 into South Africa. The interest rate is 8% and inflation rate is 6,5% which means in real terms we make a profit of 2,5%. Therefore the R 1 million we invest in South Africa will be R 1 025 000. We make a profit of R 103 500 if we invest in South Africa rather than the UK.If the inflation rate increases in the UK as is expected next month going to 11% the loss you would experience would be greater than the R 103 500.

In terms of interest rates the bank charges you a certain rate on credit and a different rate on a debit amount. The loan rate is 8% and is set to go up by ,25% to 8,25%. The amount they give you on an amount you deposit is less than this. When they was written the amount is around 5,5% which means they use your money to loan to other consumers and make an amount back for themselves of 2,5%. Rather than place your money in a bank account the best place to place your money is to place it in an asset.

There are 2 types of assets negative assets which depreciates and an asset that appreciates. A negative asset is a car. This asset depreciates over time. An asset to place the excess money in is a building. A house or commercial property appreciates in a year. This helps hedge against the inflation. Higher interest rates mean more people can’t afford their bonds which means there is a market for rentals in South Africa. Having a home to go to is an everyday essential item which means people would spend on their comfort (rental). Rental prices would increase to combat the inflation rate should our inflation rate get worse.

With the rate of interest and inflation rising the bigger stores would increase their online storage facilities and the smaller stores would go online with the storage facilities being run from a room in their home. People are still working from home and companies would like to save on the rental and rather use the money on keeping employees on. Now would be the time to diversify your portfolios. Get rid of office buildings and take the money and place in into homes where rentals can be obtained. Diversify your portfolio by at least 20% or more in homes whilst keeping some of the commercial buildings for the future. This would leverage your portfolio.

With inflation increasing all over the world now would be the time to invest in Camps Bay. People won’t be going overseas at the rate they were. They would rather spend on going on holiday in Camps Bay especially those from out of town. People from colder countries would come to Camps Bay where the ocean is available and the weather is hot during December and in their holidays when June, July and August when their offspring is on holiday they would rather come to Camps Bay where food and clothing is cheaper for them than their own country. Another advantage to holidaying in Camps Bay all the restaurants are close by to the ocean.

Buying a property in Camps Bay would help hedge the inflation rate and it would increase even more than buying a home in Rondebosch or Newlands.On a Property of R 20 million it increases by a certain percentage depending on the inflation rates. People want to rent or buy in a beautiful clean area that is also safe. What better place than Camps Bay? This is an investment as well as a holiday home.

[1]Should I do a comparison of if that amount of pound was placed in RSA how would the Uk investor benefit or not?