Post-Lockdown property outlook and price scenarios

There is little doubt that the Covid-19 Pandemic and Lockdown pressure on the economy will have a notable bearing on the property market, especially the upper price bands, says Samuel Seeff, chairman of the Seeff Property Group.

Overall, the market will remain a bellwether for the challenges in the country and a reflection of the broader macro-economic trends.

That said, interest is picking up from buyers who are keen to take advantage of the 2.75% interest rate cut since the start of the year which has brought the mortgage rate down to the lowest level in over five decades.

Those who want to buy, will find plenty of reasons to do so. Seeff anticipates the bulk of activity to focus on the low and mid-price ranges to R1.5 million (R3 million in some areas) and expects a level of pent-up demand as we emerge from the Lockdown.

Stock levels are higher than what they have been for some time. After an exhaustive wait, sellers are beginning to negotiate and consider lower offers. Although we do not know what the lending climate will look like post-Lockdown, lending conditions remain favourable for the time being.

While volumes are not expected to spike drastically, there should be a good deal of activity as the pending deals done during the Lockdown can move forward and buyers who have been waiting for the opportunity to view, can move quickly on this.

FNB expects a decline in sales volumes and a slow-down in price growth, especially at the upper end of the market. Seeff agrees and says that upper end buyers are waiting for a return of business confidence and a pickup in the GDP before they will commit to any notable degree.

Although the depreciated Rand makes luxury property attractive for foreign buyers, Seeff does not expect a surge in demand, largely as the global economy is in recession and international demand for second/holiday homes has declined over the last three-plus years.

The low interest rate environment does though create an ideal climate for investor buyers to return to the market.

According to Lightstone data, price growth slowed to just 2% for 2019, down from the peak of 6,35% in 2014. It’s outlook in early 2020 was that prices would start deflating for the first time since the 2008 economic recession.

The sudden onset of the Covid-19 Pandemic and enduring Lockdown has put growth under significant downward pressure. Lightstone says we could see three possible scenarios for the year based on various outcomes for the post-Lockdown economy.

In scenario one, house prices will deflate by 3.9% on the back of a GDP decline of 3% and subsequent deflationary effect on the CPI resulting in a further drop in interest rates making credit more affordable.

The second scenario could see prices deflate by as much as 8.8% based on a GDP decline of 6% without a noticeable reduction in CPI inflation, leaving limited moving room for further interest rate relief. This scenario is not too far off the 5.4% deflation following the 2008 property crash, but at that time GDP shrunk by only 1.8%.

The third scenario we could see house prices deflate by a significant 14.5% as a result of a GDP decline of 10%, increased reliance on expensive imports due to the weaker currency, ultimately driving CPI inflation up and forcing the Monetary Policy Committee to reverse the downward interest rate cycle.

While we must wait to see how conditions unfold, the expectation is that GDP growth will decline significantly this year. This, combined with rising financial distress, higher stock levels and lower demand for property will undoubtedly put prices under pressure. Sellers will need to pay attention to economic and market trends and take the advice of agents or they may risk not attracting any offers.