ALTHOUGH economists will agree it is almost impossible to forecast oil price and exchange rate movements accurately, it is perhaps time for investors to be more vigilant about their property investments and how these could be affected by an increase in the oil price.

One economist says it would be prudent for residential property investors to ensure their total investment portfolio can withstand a sudden rise in interest rates.

One option would be to have investments in the money market as well, to ensure cash flow in a high interest rate scenario.

The price of petrol is expected to reach a record high of more than R5/l next month as international oil prices soar. Economists have warned that the spiralling price of fuel will see consumers paying more for food, clothing, consumables and household appliances, and any material associated with transport.

Property economists have previously said an oil price shock could affect the South African economy and the residential property market.

If there was a major increase in domestic inflation due to an oil price shock, interest rates could be increased sharply in response. This would have a negative effect on residential property.

Adrian Saville, chief investment officer at Cannon Asset Managers, says two of the most important factors influencing petrol prices are movements in the oil price and exchange rates.

Saville says the oil price is close to record highs and it is possible it could move substantially higher.

He says the rand is strong at the moment but is more likely to weaken than strengthen from current levels. "I think that on balance, petrol prices are likely to rise rather than fall."

Saville says that if the petrol price were to increase dramatically, this would spill over into domestic inflation because transport costs are a large component of inflation.

He believes that if the petrol price increased suddenly and dramatically, the Reserve Bank would respond by raising interest rates sharply.

"I would say that, given that oil prices are sitting on a knife edge, investors in residential property should pay particular attention to the threat of oil price inflation and the associated interest rate increases," he says.

Saville says there is a particularly good case here to make sure that investors’ investment portfolios can withstand a sudden change in the interest rate setting, particularly from a cash flow perspective.

"Higher interest rates require higher cash flow," he says. "Investing in money markets would be a good hedge against higher interest rates."

But Absa economist Jacques du Toit says that if the oil price did rise as high as $80 a barrel, this could have a negative effect on the dollar, which could in turn strengthen the rand further. This would counter a very high oil price, Du Toit argues.

He says it is important to keep in mind that northern hemisphere countries such as the US and Europe are experiencing a longer and colder winter period.

He says Europe and the US are to a large extent dependent on heating oil and there is a major demand for this type of oil during the winter months.

He says Absa believes that as the northern hemisphere enters the summer months, the oil price will slip back to $40 a barrel.

He says that even if the global oil price remains high, the South African economy and the residential property market may not necessarily be negatively affected in view of the strong rand.

"We don’t foresee the oil price going to $80 over the next two or three years. Even if interest rates go up, it will not bring the property market down and cause a crash," says Du Toit.

Property economist Francois Viruly says a major driver of the residential property market is the growth of the economy.

He says that even in a higher inflation and interest rate environment, SA could still have a relatively well-performing economy, which would offset any negative effects.