Page 32 - Fourways Gardens April 2021

Property

house PRice scenARios

defY covid-19 AdveRsitY

Lightstone, a leading provider of comprehensive data, analytics and In addition to debt relief, de Kock says that
systems in the property industry, suggests scenarios that could see the cuts in interest rates made a significant
house prices rise by between 2.1% and 5.2% in 2021. difference to homeowners and potential
home buyers. “It was serendipitous that
interest rates were already relatively low
esidential property prices defied with even the most optimistic scenarios before the pandemic, so when the Reserve
COVID-19 conventional wisdom forecasting negative house price growth. Bank dropped interest rates by 300 basis
in 2020, and house price inflation points, it effectively decreased the debt
Rended close to 3% at the end of Predicting house prices during normal times service costs as a percentage of household
the year, some 2.7% above Lightstone’s can be tricky, but predictions amid a once in income by 15%.”
forecast made at the beginning of 2020 a lifetime catastrophic event became near
and 6% above the highest post COVID-19 impossible. During the last couple of years, A third and possibly the most unexpected
prediction. Lightstone anticipates the economic environment in South Africa part of the safety net that emerged during the
residential sales will continue to hold their did not change that much from one year to lockdown was the new consumer routines.
own, and house price inflation is anticipated the next, and typically house prices followed One of Lightstone’s assumptions when
to be anything between 2.1% and 4%, with that same trend. A ‘Black Swan event’, forecasting is relatively consistent consumer
a potential upside in the luxury sector. which lead to the largest annual decline in behaviour and, of course, this pandemic
economic growth since the Reserve Bank and the ensuing lockdowns fundamentally
Before COVID-19 struck, Lightstone started recording statistics, makes looking changed the way many people think about
forecasted that annual house growth was ahead even more difficult. home ownership and mobility.
going to drop from 1.4% at the end of 2019
to about 0.3% at the end of 2020. “We took De Kock says, “To try and make sense of the For example, much of the downward pressure
this view because of low economic growth impact of the economic lockdown, we looked experienced in house price inflation across
forecasts of about 1% for 2020 and the at the financial crisis of 2008 where we also the luxury house segment might have been
generally weak housing market conditions experienced a sudden drop in GDP growth. buoyantly affected by the lockdown as many
that were expected to continue from At the lowest point of the 2008 recession, of the homeowners and potential buyers in
2019 into 2020,” says Paul-Roux de Kock, the South African economy shrunk by -1.5% this property bracket had the ability to work
Analytics Director for Lightstone. while house prices shrunk by -5.4%. Using a from home, placing a premium on luxury
simple rule of thumb, it seems safe to predict properties with features which support a
As news of the economic impact of the that if the economy was to decline by 10% in work-from-home environment.
coronavirus outbreak filtered through 2020, house prices would drop by the same
international media towards the end of percentage or more.” WHAT KIND OF A BOUNCE BACK WILL
2019, its true impact was only really felt in WE SEE?
Europe in the first quarter of 2020, and in 2020’S SAFETY NET Following an out of the ordinary year, it would
South Africa in the second quarter. Personal asset markets tend to respond be wise to view any economic forecast with
differently from other basic commodity some caution. The turnaround in luxury
Apprehension turned to panic in many markets through a short-term economic house price inflation - which usually leads
quarters as COVID-19 worked its way into crisis. In most commodity markets an the housing market through upturns, from
South Africa and the impact of the economic oversupply would, for example, quickly lead -0.5% per annum to 2.5%, could potentially
lockdown was assessed. Economic forecasts to a decrease in the price of the commodity be temporary as the market catches up on
were hurriedly adjusted downwards and like we have seen with the oil price during the pent-up demand following the lockdown.
even the most optimistic economists were pandemic. This is because oversupplied stock Initial results indicate that the number of
predicting an economic decline of around needs to move quickly to avoid inventories transactions are on their way to returning to
10%. “As it happened, this was not far from piling up at great cost or, in the perishable pre COVID-19 levels, but the full effect of the
the -7.3% expected for 2020, however house goods market, going bad. recovery will only be clear in the latter half
prices did not follow economic growth as of 2021 as the impact of some of the bad
expected,” says de Kock. “Property stock, on the other hand, doesn’t news is still to be felt. 600 000 people have
play by the same rules,” advises de Kock. lost their jobs, new investments (gross fixed
SO WHY DID HOUSE PRICES TAKE A These assets transact much slower and are capital formation) have reduced significantly,
DIFFERENT PATH? largely financed by personal debt. During a and government debt is expected to grow
Lightstone, along with other economic pandemic or similar crisis, debt providers can to 81% at the end of the fiscal year, which
commentators, did not anticipate the – and did – plan with homeowners, providing would require major reform and more taxes
resilience of the house price market, a short-term shield to the market. as suggested in the 2021 budget speech.

Fourways Gardens • 30 • April 2021