Page 36 - Silver Lakes May 2021

PROPERTY The Lightstone forecast for 2021, in the graphic below, is based on 3 scenarios:

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
largely financed by personal debt. During a
pandemic or similar crisis, debt providers can House price inflation could High price inflation moves In Scenario 3 new lockdown
– and did – plan with homeowners, providing drop to 2.1% from its current in sympathy with inflation life increases the demand
a short-term shield to the market. 3%. This scenario anticipates under this scenario, where for residential housing,
the number of transactions the economy recovers to particularly luxury housing
In addition to debt relief, de Kock says that decreasing as the pent-up pre COVID-19 levels over the and house price inflation
the cuts in interest rates made a significant demand works its way out of next couple of years with could rise to 5.2%.
difference to homeowners and potential the market. Furthermore, the little economic growth over
home buyers. “It was serendipitous that negative economic growth the long term.
interest rates were already relatively low has not yet filtered through
before the pandemic, so when the Reserve to house prices.
Bank dropped interest rates by 300 basis
points, it effectively decreased the debt
service costs as a percentage of household In the graphic below, sectional title properties perform the least well in terms of Scenarios 2 and
income by 15%.” 3 (between 3.1% and 3.5% respectively), while the mid segment – which is more dependent on
GDP growth and so more susceptible to growth or crashes – performs worst in Scenario 1 at just
A third and possibly the most unexpected around 0.5%.
part of the safety net that emerged during the
lockdown was the new consumer routines. In Scenario 1, it’s forecast that high value properties peak at 2% and luxury properties at nearer 1%
One of Lightstone’s assumptions when - but in Scenarios 2 and 3, it’s anticipated that both perform strongly, with luxury at 6% in Scenario
forecasting is relatively consistent consumer 3, and high value at 4.5%.
behaviour and, of course, this pandemic
and the ensuing lockdowns fundamentally The freehold forecasts tend to track inflation, while sectional title properties are influenced by
changed the way many people think about other factors.
home ownership and mobility.
National house price forecast 2021
For example, much of the downward pressure Scenario 1 - Scenario 2 - Scenario 3
experienced in house price inflation across 6%
the luxury house segment might have been
buoyantly affected by the lockdown as many 5% 5.2%
of the homeowners and potential buyers in
this property bracket had the ability to work 4%
from home, placing a premium on luxury 3.5%
properties with features which support a
work-from-home environment. 3% -------

WHAT KIND OF A BOUNCE BACK WILL WE 2% 2.1%
SEE?
Following an out of the ordinary year, it would 1%
be wise to view any economic forecast with
some caution. The turnaround in luxury 0% 2 3 4 2 3 4
house price inflation - which usually leads 2020 2021
the housing market through upturns, from
-0.5% per annum to 2.5%, could potentially
be temporary as the market catches up on National house price forecast by value band 2021
pent-up demand following the lockdown. Scenario 1 - Scenario 2 - Scenario 3
Initial results indicate that the number of 8%
transactions are on their way to returning
to pre COVID-19 levels, but the full effect of 7%
the recovery will only be clear in the latter 6%
half of 2021 as the impact of some of the bad
news is still to be felt. 600 000 people have 5%
lost their jobs, new investments (gross fixed
capital formation) have reduced significantly, 4%
and government debt is expected to grow 3%
to 81% at the end of the fiscal year, which
would require major reform and more taxes 2%
as suggested in the 2021 budget speech. ~
1%
0%
Freehold Sectional Title National Mid High Luxury

34 INTRA MUROS MAY 2021