Forecasts of negative house price inflation and distressed sales have not materialised, as payment holidays and super-low interest rates provided an unprecedented safety net for South African consumers during the Black Swan of Covid-19 pandemic. As 2020 has shown, anything can happen. Industry experts attempt to make sense of the trends, as demand continues to outstrip supply for now and the full impact of the pandemic on South Africa's struggling economy has yet to be determined fully.
Industry analysis shows that overall, property prices have been unusually slow to adjust to the evidently weak consumer fundamentals. In part, this is due to the nature of the crisis, which incentivised property ownership, as well as a concerted response from lenders that smoothed the impact on housing markets. This is according to the latest analysis shared in the FNB Property Barometer.
FNB Economists Siphamandla Mkhwanazi says, "Much of the reflation in 2H20 was driven by middle segments, buoyed by low interest rates as well as demand for bigger spaces to facilitate remote work. Part of this was also driven by tenants switching from renting to owning. It is unlikely that there is much of this demand left in the tank – Stats SA data shows that 66 000 professionals lost jobs in 4Q20, which does not augur well for mortgage demand. Furthermore, as pressure in the rental market intensifies, we expect more stock to be released into the market for sale. A combination of these factors is expected have a dampening effect on activity and, eventually, price growth in the coming months."
Residential property prices defied Covid-19 conventional wisdom in 2020, with Lightstone's house price inflation ending close to 3% at the end of the year, some 2.7% above their initial forecast made at the beginning of 2020 and 6% above the highest post Covid-19 prediction.
'Stock shortages to keep property values afloat'
Available data shows that lower-end prices remain relatively strong but are decelerating, in line with the initial impact on labour markets. The impact of job losses and unemployment will take some time to recover. Inherent stock shortages are expected to keep property values afloat, with estate agents operating in affordable segments still see demand outstripping supply.
"Prices in the upper end have, over a prolonged period, adjusted lower, due to receding demand and rising incidents of selling due to emigration. Available data shows properties in the top 1% price distribution declined by an average -5.5% in 2020. For 2021 we expect less negative price growth, as owners delay their selling decisions due to unfavourable selling conditions and emigration trends lower (estate agents data shows these sales to have peaked in 2019)," says
Lightstone also expects residential sales to continue to hold their own, "with house price inflation at anything between 2.1% and 4%, and a potential upside in the luxury sector".
Investing in property sentiment grows
Despite the contraction of the economy during the lockdown year of 2020, South Africans remain optimistic about the ability of property not only to maintain its value but also to create wealth over time. This is according to the latest results from the Absa Homeowner Sentiment Index, which shows that for three consecutive quarters, respondents have been inclined to want to invest in property, as the low interest rate cycle continues to play an important role in driving this sentiment.
Absa analysis of their HSI survey "there has been an immense growth in the perception of respondents that given the current economic climate, there could be bargains as sellers are desperate for cash. COVID-19 specific mentions have once again increased, after they reduced in Q3, where respondents showed concern about the economy in general".
"While we saw a shift in the reasons for positive sentiment towards investing in property in Q3, we have seen a shift back to property’s ability to accumulate in value. The respondent group (by age category) with the highest sentiment towards investing in property was the 18-24 group (87%), compared to the 84% for the 25-34 group and 83% for the 35-44 group. The remaining respondent groups all averaged below 78%.
So where is the market headed for the rest of 2021?
Following an out of the ordinary year, it would be wise to view any economic forecast with some caution, says Lightstone.
"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 full impact of some of the bad news is still to be fully 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.
Lightstone data shows three possible scenarios:
"House price inflation could drop to 2.1% from its current 3%. This scenario anticipates the number of transactions decreasing as the pent-up demand works its way out of the market. Furthermore, the negative economic growth has not yet filtered through to house prices."
"High price inflation moves in sympathy with inflation under this scenario, where the economy recovers to pre Covid-19 levels over the next couple of years with little economic growth over the long term."
"Lockdown life increases the demand for residential housing, particularly luxury housing and house price inflation could rise to 5.2%."
*Article sourced from Property 24*