Property Forecast: What You Need To Know

The Lightstone Index has released three adjusted house price inflation forecast models in response to the current Covid-19 pandemic battering the local market. And according to The Agency Property Group, sellers will need to seriously consider their options, using the new indexes to weigh up whether they need to sell quickly or hold out for an upward curve, while there may also be an opportunity for buyers looking to enter the market.

''There are essentially two important take-outs for me based on Lightstone's latest forecast data. Firstly, coupled with the fact that the residential property market was already under pressure before Covid-19 hit, if sellers are serious and need to sell, they have to be looking to price ahead of the market now to avoid losing further down the line. Secondly, with interest rates being at a 50-year low and prices coming down with an over-supply of properties on the market, there will be a great deal of opportunities for buyers to enter the market,'' says Kyle Leigh, Managing Director of The Agency Property Group.

Earlier predictions were that the 2020 national house price inflation would drop below the 0% barrier for the first time since the 2008 economic recession, but in light of the added pressure being piled on by the current Covid-19 pandemic, Lightstone has revised this forecast to include three scenarios with a view on how they could play out in the residential property market.

With the situation very much still in flux, and seemingly changing daily, data scientists have run through forecast models in an attempt to provide some insight into what could happen to the property market in a post-lockdown economy.

With so little certainty, Lightstone's Analytics Director, Paul-Roux de Kock said that the scenarios were based on the GDP dropping between 3-10%.

Scenario 1 - Generic Recession: 

In this scenario, Lightstone's house price inflation is forecasted based on the assumption that the GDP may decline by 3% with a subsequent deflationary effect on consumer price inflation. The reduction in CPI inflation leads to a further drop in interest rates making goods bought on credit more affordable. In this scenario, they expect house price inflation will end the year off at -3.9%

Scenario 2 - Unchartered Territory: 

Lightstone admits that a negative house price growth of 8,8% sounds alarming, however they have used the 2008 property crash, where house price inflation dropped to as low as -5.4% during a time when economic growth only declined by 1.8% as a basis for the forecast. This scenario assumes a drop in GDP of 6% without a noticeable reduction in CPI inflation, leaving limited moving room for further interest rate adjustments.

Scenario 3 - Stretching the Model:

Lightstone's forecast models were not built to perform under such extreme conditions so they admit to stretching the model to its maximum. They assumed a negative GDP growth of 10% with an 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. They predict that house price inflation could end the year off at -14.5% but warned that under such conditions "all bets are off" as the usual predictive interplay between GDP growth, CPI inflation, interest rates and house price inflation will start breaking down.

Unfortunately, a view of the Lightstone value bands indicate that the luxury market segment will continue to suffer even more than it did in previous years under all the scenarios tested.

"As we can see, the luxury market segment will continue to struggle further than in previous years. It was already under pressure, but given the pandemic, and according to Lightstone it is expected to be hit harder than the mid-to-high value property bands. That said, it could be an attractive opportunity for international buyers when you consider the current favourable exchange rates and the value they could get in South Africa,'' explains The Agency's Southern Suburbs specialist Elle Hooper.
 

In light of the data available, The Agency's Simony Santos stresses that sellers have to be serious about pricing ahead of the market and cannot simply wait for an upward curve.

"We simply don't know when that will be," admits Santos. "You need to create some urgency. There are a lot of properties fighting for space on the market at the moment, so if you're serious about selling, now is not the time to attempt to drive a hard bargain. If you need to sell, you want your price to be compelling and you don't want to run the risk of chasing serious buyers away, as they will be spoilt for choice in the current market."

Co-founder, Lynn Pinn, agrees with the sentiment and adds that along with a good pricing strategy, the marketing of your property needs to be on the money as well.  

"Ultimately your marketing strategies need to be in place. They need to be aligned and you need to be absolutely sure that you have the correct strategies in place and that you have the correct people doing the business for you," says Pinn. "It is extremely important, particularly in the current climate, to have a Trusted Property Advisor involved in the process, whether you are a buyer or a seller, to ensure your interests are put first and that you receive the correct advice."

* It is worth noting that these predictions are based on potential outcomes on the compounded effects of an extended lockdown. Lightstone has acknowledged that a more accurate forecast will need to be done later in the year once there is a better understanding of the impact the pandemic has had and how that is reflected in home sales data.