The property market could be in for a better year in 2025, although there are still abundant risks.
By John Loos, senior economist at FNB Commercial Property Finance
2024 felt like a key “turning point for the better” for the South African economy. This included not only the turn of the short-term cycle as interest rates began to decline again, but possibly also the start of a gradual turn in the bigger long-term economi“super-cycle”.
We said this because of the slowly shifting political and economic policy environment, elections having become far more competitive, and a widespread perception that the composition of the new Government of National Unity (GNU), formed in June, was an investor-friendly development.
Improved longer-term economic growth is crucial for the property market, after the past decade-and-a-half of the broad economic stagnation had brought with it some significant correction in property markets. Low net operating income and capital value growth has not kept pace with general inflation in the economy since around 2015/16.
Using MSCI property data and a GDP inflation rate to adjust it into “real” terms, All Property net operating income in 2023 was down -11,8% on its 16-year high reached in 2016, while average capital value/square metre was -21,7% down.
Certainly, we have not been getting carried away with our expectations for the economic and property improvement. CPI (Consumer Price Index) inflation has slowed all the way from a 7,8% peak in July 2022 to a lowly 2,9% by November 2024.
This is below the 3% to 6% target range of the SARB; the recent low inflation numbers having precipitated the start of interest rate cutting by the Bank in September of last year. The FNB forecast for further interest rate cutting is a moderate one, with three further 25 basis point rate cuts projected in the 1st half of 2025, with the prime rate expected to bottom at 10,5%. This could be expected to provide a mild boost to the highly credit dependent property market, the residential side of the market arguably being more interest rate sensitive than the commercial property side.
The global interest rate cycle also turned downwards in 2024, suggesting some possible strengthening in the world economy. This was expected to positively impact the South African economy via likely improved demand for its exports. Things therefore started to appear noticeably better in South Africa in the 2nd half of 2024.