With house prices to rental income ratios deteriorating, suggesting declining attractiveness of residential properties as investment vehicles, according to an article in Intellectual Property magazine.

Investor activity plays an important role in the property market, especially once price increases start to accelerate and even more so when prices start to fall. Says the Standard Bank: Generally, investors are more likely than home owners to sell their property when they expect (or see) a fall in those prices. The simultaneous sell-off by investors to escape or limit capital losses aggravates the decline in property prices.

A large presence of investors therefore gives the property market more momentum and fuels the trend in house prices in either direction.

The ever-present danger in the investment market residential and commercial is lack of occupancy. This coupled with downward pressure on rental is beginning to squeeze the residential market especially in areas where speculation became almost frenzied, such as the Western Cape. This applies particularly to the flat market, other than the Cape Town CBD units and in suburbs around a hub, such as Century City. Interestingly, developers continue to build residential property and investment buyers are still plentiful. This could change however if there is an upward move in the interest rate as investors would be first to sell off.