Is South Africa on the Verge of a Residential Property Boom?

Global property trends hint that South Africa might see a buyer boom, but growth depends on improved economic conditions and debt relief, says Bradd Bendall of Betterbond.

A recent analysis of global property trends suggests that South Africa could be on the brink of a resurgence in buyer activity, but this potential growth hinges on the creation of a more accommodating economic environment thatprovides necessary debt relief for consumers. This is according to Bradd Bendall, National head of Sales for Betterbond, South Africa.

High Debt Levels and Rising Interest Rates: Is a Property Market Rebound Ahead for South Africa?

According to economist Dr. Roelof Botha in BetterBond’s August Property Brief, the Reserve Bank's stringent monetary policy has pushed the debt-to-disposable-income ratio to 9.2%, marking the highest level in 15 years. This situation has placed considerable strain on consumer finances, impacting spending and borrowing.

Despite the pressures of high interest rates, which have suppressed consumer spending, there are indications of an imminent shift in the property market. For instance, property markets in the U.S., Australia, and parts of Europe have demonstrated resilience, managing to shake off the effects of higher interest rates with signs of house price inflation and increased buyer activity.

South Africa appears to be following a similar path. After experiencing a 19% drop in property values since the start of the Reserve Bank’s rate hikes in November 2021, there was a notable 10.3% year-on-year increase in home loan applications as of July. This is indicative of a potential rebound in buyer interest.
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By adopting measures to lower interest rates, expand housing programmes, adjust transfer duty thresholds, and streamline administrative processes, South Africa can pave the way for its next housing boom.” Bradd Bendall

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Revitalizing South Africa's Residential Property Market: Signs of a New Boom

House price inflation in South Africa is also showing signs of modest recovery. Stats SA's Residential Property Price Index (RPPI) reported a 3.5% increase for the 12 months ending in March 2024, up from 3.1% in February. Bendall says, “This follows a period of slower growth, with inflation dipping to 1.6% in May last year. BetterBond’s figures for June reflect similar positive trends, with a 7.5% rise in the average home purchase price, surpassing the current inflation rate.”

Several factors are contributing to this recovery. The phenomenon of 'semigration'—where people relocate to more desirable locations within the country—along with the return of expatriates, is impacting house prices and market dynamics. Cape Town and coastal towns have seen price inflation due to semigration, while Gauteng is becoming increasingly popular among returning expats seeking to capitalize on the favorable exchange rate.

The South African residential property market has demonstrated resilience in the past. During the pandemic, when many anticipated a collapse, the property market held firm. Factors such as historically low interest rates, the shift towards remote working, and a heightened focus on homeownership as a form of financial stability contributed to this robustness.

South Africa’s residential property market is substantial, with an estimated value of nearly R10 trillion and over 700,000 properties added to the deeds registry in the past decade, according to the Centre for Affordable Housing in Africa (CAHF). After three years of high interest rates, there is a pressing need for government intervention to stimulate this crucial sector.

Bendall says, “Affordability remains a key concern for potential homebuyers, especially in the face of elevated interest rates and other expenses. First-time buyers represent a significant portion of the market, accounting for 60% of all bond applications.” Government subsidies and support are crucial for this segment, particularly as many first-time buyers are in lower price bands. The Centre for Affordable Housing in Africa reports that nearly 66% of residential properties were valued at R900,000 or less at the end of 2023.

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Boosting Homeownership: Key Government Actions Needed to Unlock South Africa's Property Market Potential

To further support homeownership, government-backed housing programmes should be expanded, and adjustments to the transfer duty threshold could facilitate greater market participation. Currently, no transfer duty is payable up to R1.1 million, yet the average purchase price for first-time buyers is around R1.2 million. Raising this threshold could make property ownership more accessible.

Additionally, reducing bureaucratic red tape and streamlining processes at the Deeds Office would help expedite property transfers, which currently can take up to six months. While pandemic-related backlogs have been resolved, administrative delays persist.

The South African government needs to play a proactive role in fostering a conducive environment for housing market growth. The Banking Association of South Africa emphasizes the government's responsibility to create conditions that enable business growth and job creation, allowing more South Africans to meet affordability requirements.

The Department of Human Settlements’ initiatives, including the First Home Finance (FHF) program and the Rapid Land Release Programme, are steps in the right direction. However, for South Africa to unlock the full potential of its residential property market, decisive action is needed.

Bendall concludes that, “By adopting measures to lower interest rates, expand housing programmes, adjust transfer duty thresholds, and streamline administrative processes, South Africa can pave the way for its next housing boom. The opportunity is ripe, but it requires bold and timely action.”

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