Similarly , house price inflation has surprised on the upside . In the initial months of lockdown , there were numerous forecasts suggesting that prices would decline by between 5 % and 15 % this year ( 2020 ). And yet house price inflation , as measured by the Pam Golding Properties Residential Property Index , remains positive ( at least in nominal terms ) averaging + 2.7 % in the year to November ( latest available data ).
This unexpected buoyancy in the market is a global trend , and a recent article in The Economist suggested that it was attributable to a combination of factors including :
Interest rates are at historic lows .
Governments and banks are supporting households and businesses to help offset the impact of the loss of income during the lockdown .
Lifestyle changes have been triggered by the pandemic .
Combined , these three factors have created an unexpected ‘ sweet spot ’ for the market . However , unlike global markets , the local market is not experiencing rising house price inflation ( except for the lower price bands ).
By comparison , house price inflation averaged -2.4 % in 2009 during the recession following the global financial crisis ( PGP Index registered a decline of -1.8 % in 2008 ).
One of the initial reasons offered for the unexpected resilience in both price and activity as the lockdown regulations were eased was pent-up demand following the severe lockdown and the closure of the Deeds Office . However , it is apparent that something beyond pent-up demand is contributing to the unexpectedly buoyant conditions in the market .
An additional factor in South Africa is the large pool of potential first-time buyers who have been encouraged by the current low interest rates to forego renting and are opting to purchase a property instead . This is providing a solid underpinning for the local housing market , although perhaps not regarding house prices as the bulk of activity is taking place at the lower to middle end of the market ( mainly up to R2 million ).
With a second wave of infections upon us , the need to work remotely where possible is likely to continue to enable the ability to move away from traditional urban and suburban areas to small towns and villages offering more affordable housing and a more relaxed lifestyle .
SOURCES Pam Golding
SA Real Estate Investor Magazine DECEMBER / JANUARY 2021 19