Lightstone forecasts a buyer's market in 2023
Category Property News
The South African residential property market in 2023 is expected to be a buyer's market, as house price inflation is likely to be below inflation. According to Lightstone, a provider of comprehensive data and analytics on property, automotive and business assets, local and global challenges will shape HPI in the country, but the stagnant economy will have the biggest impact.
Paul-Roux De Kock, the Chief Analytics Officer at Lightstone, stated that the company's three scenarios predict HPI in South Africa to be between 0.9% (low) to 2.3% (mid) or 3.7% (high). This prediction is in line with the South African Reserve Bank's (SARB) recent increase in interest rates by 25 basis points, as well as its revised GDP growth forecast of just 0.3% for 2023.
National house price inflation
Despite the bank's expectation of growth for 2022 to be at 2.5%, there seems to be no end in sight for South Africa's electricity and water outages. The Consumer Price Index (CPI) and core inflation have also significantly diverged over the past 18 months, with CPI ending 2022 at 7.2% and core inflation - which excludes the impact of the volatile fuel price driven by Russia's war with Ukraine - ending at 4.9%. As a result, Lightstone has used the more predictable core inflation rate in its forecasts.
The mid-value market segment is expected to be the most resilient in all scenarios, as it is anticipated to benefit from the more active informal economy and activity from buyers out of the higher value segments looking to downscale. The low HPI scenario could lead to an accelerated decline in HPI, while the high HPI scenario may see HPI bounce back in the second quarter and end 2023 with strong upward momentum going into 2024.
In terms of outstanding mortgages, higher-value segments in the luxury market are expected to be more negatively affected by the upward interest rate cycle, while the mid-value market segment is predicted to weather economic storms best. During the course of 2022, the Freehold and Sectional Scheme HPI have converged around the national average, with Sectional Schemes being slightly more resilient in the low and mid HPI scenarios.
In the mid and low HPI scenarios, Lightstone expects this trend to continue, with the luxury market segment being more negatively affected than the mid-value market segment. However, in the high HPI scenario, Lightstone expects HPI in the luxury market to start recovering sooner than the lower value market segments. Nonetheless, the article states that coming off a low base, there is limited upside potential for the luxury market segment in 2023.
Overall, the mid-value market segment is expected to weather economic storms better than the luxury market segment, as it will gain from the more active informal economy as well as activity from buyers out of the higher value segments wanting to downscale.
Segment forecast - 2023 Q4
All in all, the property market in South Africa is expected to face challenges in 2023, as the country's economy remains stagnant and the challenges with electricity and water continue. This means that house prices are likely to grow less than inflation, making it a buyer's market.
Author: Helen Melon Properties