Page 27 - Blue Valley News 2 2021

PROPERTY

2020’S SAFETY NET The Lightstone forecast for 2021, in the graphic below, is based on 3 scenarios:
Personal asset markets tend to respond
differently from other basic commodity
markets through a short-term economic crisis.
In most commodity markets an oversupply
would, for example, quickly lead to a decrease
in the price of the commodity like we have
seen with the oil price during the pandemic.
This is because oversupplied stock needs to
move quickly to avoid inventories piling up at
great cost or, in the perishable goods market,
going bad.
“Property stock, on the other hand, doesn’t
play by the same rules,” advises de Kock.
These assets transact much slower and are House price inflation could High price inflation moves In Scenario 3 new lockdown
largely financed by personal debt. During a drop to 2.1% from its current in sympathy with inflation life increases the demand
pandemic or similar crisis, debt providers can 3%. This scenario anticipates under this scenario, where for residential housing,
– and did – plan with homeowners, providing the number of transactions the economy recovers to particularly luxury housing
a short-term shield to the market. decreasing as the pent-up pre COVID-19 levels over the and house price inflation
demand works its way out of next couple of years with could rise to 5.2%.
In addition to debt relief, de Kock says that the market. Furthermore, the little economic growth over
the cuts in interest rates made a significant negative economic growth the long term.
difference to homeowners and potential has not yet filtered through
home buyers. “It was serendipitous that to house prices.
interest rates were already relatively low
before the pandemic, so when the Reserve
Bank dropped interest rates by 300 basis In the graphic below, sectional title properties perform the least well in terms of Scenarios 2 and
points, it effectively decreased the debt 3 (between 3.1% and 3.5% respectively), while the mid segment – which is more dependent on
service costs as a percentage of household GDP growth and so more susceptible to growth or crashes – performs worst in Scenario 1 at just
income by 15%.” around 0.5%.
A third and possibly the most unexpected In Scenario 1, it’s forecast that high value properties peak at 2% and luxury properties at nearer 1%
part of the safety net that emerged during the - but in Scenarios 2 and 3, it’s anticipated that both perform strongly, with luxury at 6% in Scenario
lockdown was the new consumer routines. 3, and high value at 4.5%
One of Lightstone’s assumptions when
forecasting is relatively consistent consumer The freehold forecasts tend to track inflation, while sectional title properties are influenced by
behaviour and, of course, this pandemic other factors.
and the ensuing lockdowns fundamentally
changed the way many people think about
home ownership and mobility.

For example, much of the downward pressure
experienced in house price inflation across
the luxury house segment might have been
buoyantly affected by the lockdown as many
of the homeowners and potential buyers in
this property bracket had the ability to work
from home, placing a premium on luxury
properties with features which support a
work-from-home environment.

WHAT KIND OF A BOUNCE BACK WILL
WE SEE?
Following an out of the ordinary year, it would
be wise to view any economic forecast with
some caution. The turnaround in luxury
house price inflation - which usually leads
the housing market through upturns, from
-0.5% per annum to 2.5%, could potentially
be temporary as the market catches up on
pent-up demand following the lockdown.
Initial results indicate that the number of
transactions are on their way to returning
to pre COVID-19 levels, but the full effect of
the recovery will only be clear in the latter
half of 2021 as the impact of some of the bad
news is still to be felt. 600 000 people have
lost their jobs, new investments (gross fixed
capital formation) have reduced significantly,
and government debt is expected to grow
to 81% at the end of the fiscal year, which
would require major reform and more taxes
as suggested in the 2021 budget speech. BV

BLUE VALLEY NEWS • Issue 2 2021 • 25