Properties on slow road to rock bottom

SA – The property research group Lightstone predicts that house prices will decline by 8.8% on average in the next few months and a 20% value loss for higher-end properties. This is in line with the Reserve Bank predicting a 7% shrink in the economy. 

Some economists think that a 10% shrink in the economy is more realistic. If that is the case, properties would lose at least 14.5% of their value, taking into account that at some point of time the reserve bank is going to normalise their repo rates.

“This is partly due to pre-existing supply-demand imbalances (excess supply) and depressed sentiment. In contrast, we expect a relative resilience in the affordable market, partly due to a structural supply deficit (i.e., demand is higher than the available stock),” said Lightstone’s analytics director Paul-Roux de Kock.

According to Private Property: “South Africans awaken to a reality that is cause for some anxiety, from a lagging economy, a Rand that tends to weaken more often than it strengthens and annual consumer price inflation dips.”

Other factors might further drive down property prices, including the perception of or real political or economic instability. Economist John Loos of FNB says the recession is here for the long run. He predicts that even after lockdown has passed, the market will remain week. He says the ‘rock bottom’ – which is theoretically the best time to buy a property, is still to come. Property investors are therefore in no rush to buy as this downward value spiral is predicted to carry on for the next few years.