Property data group Lightstone has published its latest projections for the South African property market and where it could go after the 2019 National Election to be held in May.
The group’s analysis is based on three possible scenarios, taking into account the South Africa’s projected growth rate, repo rates and inflation rates.
Broadly speaking, the three scenarios are split between a ‘high road’ state of affairs (GDP growth at 1.5%, CPI at 5.5% and Repo rate down by 50 basis points) and a ‘low road’ path (GDP growth at 0.75%, CPI at 4.0% and Repo rate 1% up) and the ‘middle road’, which is the median path.
In each of these scenarios, Lightstone projects that house price inflation will change, accordingly, with prices going up 4.5% in the high-road scenario, 3.0% in the middle road, and just 2.0% in the low road.
According to Lightstone, while property sales for 2018 are still working its way through the deeds registration process a preliminary review of the Lightstone Property Forecast of 2018 indicates that the market is ending the year closer to the 2.9% low road scenario of that year, as opposed to the forecasted 3.8%.
Paul-Roux de Kock, Analytics Director at Lightstone, said that this outcome was mainly due to a lower performing GDP rate – a trend de Kock anticipates continuing into this year with house price inflation currently at 3%.
“Taking into account current CPI at 4.5%, the mid value segment experienced lacklustre growth, while the luxury market had a disappointing year with negative real price growth.”
De Kock said that realistic local forecasts indicate that the GDP will grow between 0.75% and 1.5%, and CPI will range between 4.0% – 5.5% for 2019.
The Lightstone 2019 Residential Property Forecast is developed according to tested scenarios using the aforementioned parameters and fluctuations in the prime lending rate of between -0.5 to 1.0 basis point.
The Lightstone forecast also depends on the outcome of the elections. Although the group does not speculate on political outcomes, a more positive path for South Africa out of the elections could lead to an even better path than the high-road scenario.
“As can be expected, the first quarter of 2019 will continue on a similar slow downward trend, within the constrained economic environment,” de Kock said, adding that the country will most likely experience a positive economic turnaround post-election, and certainty on economic policy and property ownership are likely to stimulate positive property market activity.
When analysing the three different scenarios, Lightstone said the market is most likely to follow the mid-road scenario, ending the year in a similar position as 2018.
“On the positive side, should the economy fundamentally strengthen and significantly boost buyer confidence in the market, it could not only end in a high road scenario but has the potential to break through this forecasted percentage,” de Kock said.
According to Intellidex analyst Peter Attard Montalto, South Africa could face five scenarios post-election, ranging from extremely good, to extremely bad, depending on what happens during and after to vote.
While the extreme scenarios on both sides are unlikely outcomes, there is a slightly higher probability of a more positive outcomes for the country economically and politically than a more negative scenario.
However, the baseline expectation from Intellidex, like with Lightstone, is that South Africa will come out of the elections on familiar footing (or somewhere in the middle), in what it calls “bumbling along”.
This scenario includes a slow recovery to low long-term potential growth of around 2.0-2.5% (still representing only marginally positive per capita income growth) but little scope for growth beyond that.
It is underpinned by continued policy uncertainty and no reforms – with the year tail-ended by a ratings downgrade.