Page 16 - The Villager April 2021

Property

house priCe sCenarios

defy CoVid-19 adVersity

Lightstone, a leading provider of comprehensive 2020’S SAFETY NET
Personal asset markets tend to
data, analytics and systems in the property respond differently from other basic
industry, suggests scenarios that could see house commodity markets through a
prices rise by between 2.1% and 5.2% in 2021. short-term economic crisis. In most

commodity markets an oversupply
would, for example, quickly lead to a
esidential property prices “as it happened, this was not far from decrease in the price of the commodity
defied CovID-19 conventional the -7.3% expected for 2020, however like we have seen with the oil price
Rwisdom in 2020, and house house prices did not follow economic during the pandemic. this is because
price inflation ended close to 3% at growth as expected,” says de Kock. oversupplied stock needs to move
the end of the year, some 2.7% above quickly to avoid inventories piling
lightstone’s forecast made at the SO WHY DID HOUSE PRICES TAKE up at great cost or, in the perishable
beginning of 2020 and 6% above the A DIFFERENT PATH? goods market, going bad.
highest post CovID-19 prediction. lightstone, along with other “Property stock, on the other hand,
lightstone anticipates residential economic commentators, did not doesn’t play by the same rules,”
sales will continue to hold their own, anticipate the resilience of the house advises de Kock. these assets transact
and house price inflation is anticipated price market, with even the most much slower and are largely financed
to be anything between 2.1% and 4%, optimistic scenarios forecasting by personal debt. During a pandemic
with a potential upside in the luxury negative house price growth. or similar crisis, debt providers can
sector. Predicting house prices during – and did – plan with homeowners,
before CovID-19 struck, lightstone normal times can be tricky, but providing a short-term shield to the
forecasted that annual house growth predictions amid a once in a lifetime market.
was going to drop from 1.4% at the catastrophic event became near In addition to debt relief, de Kock
end of 2019 to about 0.3% at the end impossible. During the last couple of says that the cuts in interest rates
of 2020. “we took this view because years, the economic environment in made a significant difference to
of low economic growth forecasts of South africa did not change that much homeowners and potential home
about 1% for 2020 and the generally from one year to the next, and typically buyers. “It was serendipitous that
weak housing market conditions that house prices followed that same trend. interest rates were already relatively
were expected to continue from 2019 a ‘black Swan event’, which lead to the low before the pandemic, so when
into 2020,” says Paul-roux de Kock, largest annual decline in economic the reserve bank dropped interest
analytics Director for lightstone. growth since the reserve bank started rates by 300 basis points, it effectively
as news of the economic impact recording statistics, makes looking decreased the debt service costs as a
of the coronavirus outbreak filtered ahead even more difficult. percentage of household income by
through international media towards De Kock says, “to try and make 15%.”
the end of 2019, its true impact was sense of the impact of the economic a third and possibly the most
only really felt in europe in the first lockdown, we looked at the financial unexpected part of the safety net
quarter of 2020, and in South africa in crisis of 2008 where we also that emerged during the lockdown
the second quarter. experienced a sudden drop in gDP was the new consumer routines. one
apprehension turned to panic in growth. at the lowest point of the of lightstone’s assumptions when
many quarters as CovID-19 worked its 2008 recession, the South african forecasting is relatively consistent
way into South africa and the impact of economy shrunk by -1.5% while house consumer behaviour and, of course,
the economic lockdown was assessed. prices shrunk by -5.4%. Using a simple this pandemic and the ensuing
economic forecasts were hurriedly rule of thumb, it seems safe to predict lockdowns fundamentally changed
adjusted downwards and even the most that if the economy was to decline by the way many people think about
optimistic economists were predicting 10% in 2020, house prices would drop home ownership and mobility.
an economic decline of around 10%. by the same percentage or more.” For example, much of the downward

14 • Issue 4 2021 • The Villager