Page 15 - Dainfern Precinct Living 3 2021

PROPERTY

economists were predicting an a pandemic or similar crisis, debt and more taxes as suggested in the
economic decline of around 10%. “As providers can – and did – plan with 2021 budget speech.
it happened, this was not far from the homeowners, providing a short-term
-7.3% expected for 2020, however shield to the market. The Lightstone forecast for 2021, in
house prices did not follow economic the first graph on the next page, is
growth as expected,” says de Kock. In addition to debt relief, de Kock based on 3 scenarios:
says that the cuts in interest rates
SO WHY DID HOUSE PRICES made a significant difference to
TAKE A DIFFERENT PATH? homeowners and potential home
Lightstone, along with other buyers. “It was serendipitous that
economic commentators, did not interest rates were already relatively
anticipate the resilience of the house low before the pandemic, so
price market, with even the most when the Reserve Bank dropped
optimistic scenarios forecasting interest rates by 300 basis points,
negative house price growth. it effectively decreased the debt
service costs as a percentage of
Predicting house prices during household income by 15%.”
normal times can be tricky, but
predictions amid a once in a lifetime A third and possibly the most
catastrophic event became near unexpected part of the safety net House price inflation could
impossible. During the last couple that emerged during the lockdown drop to 2.1% from its current
of years, the economic environment was the new consumer routines. One 3%. This scenario anticipates
in South Africa did not change that of Lightstone’s assumptions when the number of transactions
much from one year to the next, and forecasting is relatively consistent decreasing as the pent-up
typically house prices followed that consumer behaviour and, of course, demand works its way out of
same trend. A ‘Black Swan event’, this pandemic and the ensuing the market. Furthermore, the
which lead to the largest annual lockdowns fundamentally changed negative economic growth
decline in economic growth since the way many people think about has not yet filtered through
the Reserve Bank started recording home ownership and mobility. to house prices.
statistics, makes looking ahead even
more difficult. For example, much of the downward
pressure experienced in house price
De Kock says, “To try and make inflation across the luxury house
sense of the impact of the economic segment might have been buoyantly
lockdown, we looked at the financial affected by the lockdown as many
crisis of 2008 where we also of the homeowners and potential
experienced a sudden drop in GDP buyers in this property bracket had
growth. At the lowest point of the the ability to work from home, placing
2008 recession, the South African a premium on luxury properties with
economy shrunk by -1.5% while features which support a work-from-
house prices shrunk by -5.4%. Using home environment.
a simple rule of thumb, it seems safe
to predict that if the economy was WHAT KIND OF A BOUNCE High price inflation moves
in sympathy with inflation
to decline by 10% in 2020, house BACK WILL WE SEE? under this scenario, where
prices would drop by the same Following an out of the ordinary the economy recovers to pre
percentage or more.” year, it would be wise to view Covid-19 levels over the next
any economic forecast with some
2020’S SAFETY NET caution. The turnaround in luxury couple of years with little
economic growth over the
Personal asset markets tend to house price inflation - which usually long term.
respond differently from other basic leads the housing market through
commodity markets through a upturns, from -0.5% per annum to
short-term economic crisis. In most 2.5%, could potentially be temporary
commodity markets an oversupply as the market catches up on pent-up
would, for example, quickly lead demand following the lockdown.
to a decrease in the price of the
commodity like we have seen with Initial results indicate that the number
the oil price during the pandemic. of transactions are on their way to
This is because oversupplied stock returning to pre COVID-19 levels, but
needs to move quickly to avoid the full effect of the recovery will only
inventories piling up at great cost be clear in the latter half of 2021 as
or, in the perishable goods market, the impact of some of the bad news
going bad. is still to be felt. 600 000 people In Scenario 3 new lockdown
have lost their jobs, new investments life increases the demand
“Property stock, on the other hand, (gross fixed capital formation) for residential housing,
doesn’t play by the same rules,” have reduced significantly, and particularly luxury housing
advises de Kock. These assets government debt is expected to grow and house price inflation
transact much slower and are largely to 81% at the end of the fiscal year, could rise to 5.2%.
financed by personal debt. During which would require major reform
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