South Africa’s residential property market has started to recover after an incredibly difficult year.
“In 2024, typical for pre-election uncertainty, people held off large capital acquisitions such as buying a house,” says Renier Kriek, MD of Sentinel Homes.
Potential property buyers and sellers had expected the cutting cycles to begin earlier in the year, and to be much steeper than the 0,25% increments delivered in September 2024, followed by 0,25% in November 2024. Although the South African Reserve Bank cut the repo rate by another 25 basis points (from 7,75% to 7,5%) in January 2025, Kriek says this still isn’t enough.
Ideally, the rate should be a further 100 to 150 basis points lower to reduce borrowing costs and stimulate the whole of the economy and boost job creation, but which would also benefit the real estate market.
Encouragingly, the interest rate cuts combined with the formation of South Africa’s Government of National Unity (GNU) have boosted consumer confidence to a five-year high. A Lightstone survey of estate agents revealed hopes for a much improved 2025, with 86% of respondents expecting to reach their sales targets, compared to only 73% in 2024.
“The residential real estate market is influenced by emotion in addition to economics and therefore has a more intensely cyclical pattern than if it were strictly governed by logic,” says Kriek.
Life changes happen independently from economic downturns: people want smaller or bigger homes as they get married, start a family, or their grown-up children fly the nest. “These life cycles continue unabated, and the only logical conclusion is that there’s pent-up demand building in the system in times of lower volumes,” he says.
The desire for property transactions is always there but during tough economic times, people wait until the market receives positive signals. When that happens – as it has now – all the pent-up demand is released and the residential property cycle swings very suddenly in the opposite direction. As a result, home loan application activity rose by 16,2% year-on-year in December 2024, according to bond originator Ooba.
For the first time, the average house purchase price in South Africa has exceeded R1,6-million, which is a dramatic rise from R150 000 in 1994. “The trend of escalating house prices will continue because it’s currently more expensive to build new stock than to trade in old stock,” says Kriek. “Obviously, the higher the demand for old stock, the steeper the price increases and the less affordable houses will become for most South Africans.”
Over the past 70 years, property prices have been decoupled from salary growth, in South Africa and abroad. The value of property is increasing faster than the rate of wage increases. This explains why the average house price (measured in multiples of salary) used to be so much lower than today.
While this is beneficial for those who own property, it makes it expensive for those wanting to purchase, especially first-time buyers. Meanwhile, home financiers enjoy reduced risk, as houses that are financed today will be worth more on average in the future.
This trend has several anticipated effects. We will likely continue to see reducing property sizes, which means smaller erven and increasing numbers of micro-apartments, says Kriek. Developers will also continually increase the amenities included in new estates and sectional schemes, to differentiate the smaller newly-built apartments and houses and increase their desirability and competitiveness.
Growing geopolitical and local uncertainty makes it nearly impossible to predict whether the current real estate market upswing will carry on or only experience a shallow peak. Risks generally build up in the background and can have a sudden or disproportionate effect on the market, says Kriek.