South Africa’s Residential Property Market Analysis 2024
South Africa's housing market woes persist, amidst rising interest rates, stubbornly high unemployment, and coupled with an ailing economy.
The Repeat Sales House Price Index rose by a meager 0.6% in April 2024 as compared to the same period last year, one of the lowest y-o-y price increases recorded since August 2009, according to figures released by the First National Bank (FNB). In fact, when adjusted for inflation, prices actually declined by 4.28% over the same period. Real prices have been falling since May 2021.
South Africa's house price annual change
Demand continues to fall, with residential market activity weakening in 2023 compared to the prior year. Time-on-market, which refers to the number of days a property has been for sale from the listing date to the date the contract is signed, has been increasing in recent months. Property transfer duties in the country have been falling since last year. Mortgage volume growth has also been noticeably slowing.
South Africa's housing market has been sluggish over the past several years, mainly due to high unemployment, weak household finances, and an underdeveloped mortgage market. From 2007 to 2021, house prices rose by about 69% but when adjusted for inflation, real prices actually fell 19%.
Then in 2022 and 2023, nominal house prices rose by a cumulative 3.7% but declined by 8.3% in real terms. With persistently high inflation, the gap between nominal and real prices has been rapidly widening.
South Africa's housing market is expected to weaken further in the coming months, amidst the continued decline in property demand and declining residential construction activity.
"Market strength indicators, derived from the property values database, suggest both buyer demand and seller supply are shrinking. High borrowing costs and uncertainty are discouraging potential buyers, while unfavorable selling conditions are disincentivizing some homeowners from listing their properties," noted the FNB in its April 2024 Property Barometer report.
"While some of the previously identified risks have materialized, prompting adjustments to our forecast, our core view remains unchanged. We now anticipate a delayed housing market recovery with a slightly lower growth path," added the FNB report.
Overall, the SA economy remains depressed. During 2023, the SA economy registered a real GDP growth of a minuscule 0.6%, following annual growth of 1.9% in 2022 and 4.7% in 2021, according to Stats SA. Then in Q1 2024, the SA economy grew by a meager 0.5% from the same period last year, following a y-o-y expansion of 1.4% in Q4 2023 and a contraction of 0.9% in Q3 2023. Quarter-on-quarter, the country saw an economic decline of 0.1% in Q1 2024, as economic activities experienced declines amidst intensified rolling blackouts.
The South African Reserve Bank (SARB), the country's central bank, forecast the SA economy to likely post a growth of 1.2% this year. However, the International Monetary Fund (IMF) is more pessimistic - downgrading its economic growth forecast for South Africa recently to a meager 0.9%, warning that logistical challenges are constraining activity and acting as a drag on the entire sub-Saharan region.
South Africa is Africa's second-biggest economy. With a population of 61.5 million and a GDP per capita of US$6,138 in 2023, it has formidable manufacturing and financial sectors. It is the world's largest exporter of gold and platinum. Tourism is also a key source of foreign exchange.
Recalling the boom years
During South Africa's housing boom (from 2000 to 2006), house prices rose by an average of 20% annually. These price rises peaked in October 2004 with 35.7% annual growth (32.5% in real terms), according to ABSA.
The boom was driven by 4 main factors:
- The emergence of a financially stable black middle class, which had a tremendous impact on housing demand, encouraged by individual tax reliefs, in the context of a growing economy.
- South Africans who had parked money offshore during the Apartheid era were allowed (and required) to bring it back by September 2004. Much of this money went into property.
- Better stability and security helped. During Apartheid and its sequel, property prices had badly lagged the economy, as the security situation went from bad to worse.
- Lastly, the Financial Sector Charter in 2003 boosted mortgage loan growth. Financial institutions committed to providing ZAR 42 billion (US$2.29 billion) of housing finance to the low-income market. Then in 2006, the CGT exemption on primary residences was raised from ZAR 1 million (US$ 54,500) to ZAR 1.5 million (US$ 81,700). Transfer duties on properties were lowered too. For example, no transfer duty is payable on properties valued at ZAR500,000 (US$ 27,200) or less.
However the boom ground to a halt following the global financial crisis. From 2008 to 2009 house prices fell by 3.2% (-16.5% in real terms). Aside from the global crisis and rising interest rates, the decline in prices was prompted by the implementation of the National Credit Act in mid-2007, which aimed to protect borrowers from over-indebtedness, by limiting the amount of funds that can be borrowed and requiring every lender to assess borrowers' credit-worthiness. It requires lenders to disclose every term in the contract and gives the borrowers the right to request their credit report, and to challenge the report if there are inaccuracies. The act has tended to reduce the supply of mortgage loans.
The housing market rose a little in 2010, encouraged by South Africa hosting the 19th FIFA World Cup, and from 2011 to 2019, house prices rose by almost 51%. But after the ravages of inflation are deducted, that works out at a meager 0.4% growth in real terms.
House prices rose by a total of 8% in 2020 and 2021, amidst the Covid-19 pandemic. Yet when adjusted for inflation, prices actually declined by 1.1% over the same period. During 2022, nominal house prices rose by a modest 2.9% but fell by 4.28% in real terms. Then in 2023, house prices increased by a meager 0.8% and actually declined by another 4.2% when adjusted for inflation, amidst a struggling economy.
| HOUSE PRICES, ANNUAL CHANGE (%) | ||
| Year | Nominal | Inflation-adjusted |
| 2008 | -5.08 | -13.16 |
| 2009 | 2.03 | -3.90 |
| 2010 | 3.10 | -0.23 |
| 2011 | 4.36 | -1.84 |
| 2012 | 5.77 | -0.04 |
| 2013 | 7.72 | 2.35 |
| 2014 | 6.20 | 0.82 |
| 2015 | 6.32 | 1.08 |
| 2016 | 4.75 | -2.16 |
| 2017 | 3.85 | -0.62 |
| 2018 | 4.12 | -0.27 |
| 2019 | 3.10 | -0.90 |
| 2020 | 4.10 | 0.99 |
| 2021 | 3.70 | -2.06 |
| 2022 | 2.90 | -4.28 |
| 2023 | 0.80 | -4.19 |
| Sources: FNB, Global Property Guide | ||
Residential construction activity continues to weaken
Residential construction in South Africa continues to decline. During 2023, the total number of residential building plans approved fell by a huge 25.8% y-o-y to 36,994 dwellings units, worse than the prior year's 4.3% fall and in contrast with annual growth of 35.1% in 2021, according to Statistics South Africa (Stats SA). Likewise, residential dwelling completions declined by 13.7% to 28,734 units last year, following increases of 2.1% in 2022 and 34.8% in 2021.
The weakness of the housing market continued this year, with both residential approvals and dwelling completions falling further in Q1 2024.
For residential building approvals:
- For houses measuring less than 80 sq. m, approvals plunged by 31.6% y-o-y to 1,505 units in Q1 2024.
- For houses measuring 80 sq.m and above, approvals were down by 12.8% y-o-y to 2,570 units in Q1 2024.
- For flats and townhouses, approvals dropped by 10.1% y-o-y to 4,059 units over the same period.
For residential completions:
- For houses measuring less than 80 sq. m, completions fell by 15.5% y-o-y to 1,222 units in Q1 2024.
- For houses measuring 80 sq. m and above, completions plummeted by 20.8% to 1,534 units in Q1 2024 from the same period last year.
- For flats and townhouses, completions surprisingly increased by 38.9% y-o-y to 2,885 units over the same period.
"Our market strength indices show both demand and supply in negative territory. We suspect that the supply index largely reflects the decline in the construction of new housing units in response to lower demand," said FNB.
"It is also possible that the unfavorable selling conditions, characterized by diminished affordability and tighter lending standards, are causing some homeowners to re-evaluate their decisions," added FNB.
Market activity still weak
Demand continues to fall, with residential market activity in South Africa weakening last year as compared to the prior year, amidst high interest rates, coupled with sluggish economic activity.
The time-on-market, which refers to the number of days a property has been for sale from the listing date to the date the contract is signed, increased dramatically to an average of 12 weeks in 2023, up from less than 10 weeks in 2022. Though it is still slightly below the long-term average of around 13 weeks.
"There are signs of widespread downscaling in the market, supporting volumes in lower-priced brackets. At the same time, younger buyers have become more despondent, reflecting the disproportionate impact of subdued economic activity and high interest rates on younger individuals," said the FNB Property Barometer report released in November 2023.
Foreign home buying remains muted
Given South Africa's economic stagnation, aggravated by the Covid-19 pandemic and the global economic and geopolitical uncertainty, it is maybe not surprising that home-buying by foreigners has declined in recent years, even though property in South Africa is now dramatically less expensive for foreign buyers than a decade ago.
Even taking into account the recent appreciation of the rand on the back of higher metals prices, the value of the local currency remained almost 63% lower against the US dollar from May 2011 to May 2024, falling from US$ 1 = ZAR 6.85 to US$ 1 = ZAR 18.42. Yet foreign homebuyers represent only 3.74% of total home buying in South Africa, significantly down from its peak of 6.5% in 2008.
Inbound demand (i.e. from foreigners buying property in South Africa as well as from South African expats buying property locally) has remained comparatively subdued in recent years.
FNB attributed this to:
- Weak investor sentiment towards South Africa, due to the country's multi-year economic stagnation
- Uncertainty about the country's future economic policy
- Negative news, such as credit rating downgrades to "junk status"
Most foreign owners in South Africa are based in Europe, mostly in the United Kingdom, as well as Germany, Italy, Holland, and France. There are also buyers from African countries such as Mozambique, Zimbabwe, Angola, Cameroon, and Nigeria. Some homebuyers from China and Dubai are also eyeing properties in the KwaZulu-Natal and the Durban area, according to Craig Hutchison, chief executive of Engel &Völkers Southern Africa.
Foreigners can own immovable property in South Africa without restriction. However, all foreign funds remitted to the country must be declared and documented. The property must also be endorsed 'non-resident', as a condition for repatriation of funds.
Non-resident investors have to pay Capital Gains Tax when they later sell their properties. The purchaser of the property is required to deduct a prescribed percentage from the proceeds of the sale and remit it directly to the South African Revenue Service before paying the balance to the seller.
High interest rates
In May 2024, the South African Reserve Bank (SARB), the country's central bank, kept its benchmark repo rate at 8.25%. The central bank maintained the key rate at that level for a year now, following ten consecutive rate hikes in less than two years, in an effort to rein in inflationary pressures. The recent decision kept the repo rate to remain at its highest in about 15 years.
"Inflation outcomes were worse than expected early in the year, leading to a repricing of rate expectations. There is still considerable uncertainty about the longer-run inflation outlook, globally. That said, inflation outcomes in the United States have been more benign recently, and markets still see some room for adjustments by the US Federal Reserve this year. We may also see easing by other major central banks," said the central bank.
"Overall, our forecasts show a modest acceleration in growth, over the next few years, alongside a gradual stabilisation of inflation at our target. However, uncertainty is unusually elevated at the moment. Considering this outlook, the MPC decided to keep the repo rate unchanged at 8.25%. The decision was unanimous," noted the central bank.
In line with this, prime and variable mortgage rates remain high. In April 2024, the predominant rate on new mortgage loans stood at 11.75%, unchanged from a year earlier but up from 7.75% two years ago.
Housing loans rising modestly, size of the mortgage market remains steady
Despite increasing interest rates, housing loans continue to rise modestly, amid an increased willingness of banks to provide loans to prospective borrowers. In April 2024, total mortgage advances rose by 3% to about ZAR 1.84 trillion (US$100.1 billion), according to figures from SARB.
"Loan-to-price ratios, a proxy for loan-to-value, have continued to rise, suggesting willingness by lenders to finance a bigger proportion of the purchase price," said the FNB. "....the surge in LTPs predates the pandemic - it began in 2017 - and is largely attributed to intense competition among lenders in a thin volume market."
This is supported by other local market experts. "Property ownership is now more accessible...Potentially renters may be able to buy a home at a lower monthly cost than their current rental payment," said Rhys Dyer, chief executive of home loan comparison service firm, Ooba.
However, the housing loan growth is notably slower as compared to the annual average growth of 4.6% in 2009-23, and far lower than the average growth of 21% in 2002-08.
Overall, the size of the mortgage market relative to GDP remains more or less steady. As a percentage of GDP, the mortgage market stood at more than 26% in 2023, almost unchanged in the past seven years but still down from an average of 34% of GDP in 2009-2011.
"Over the last ten years, the mortgage market has not made notable expansions, but instead has remained fairly steady, at an average of 122,000 bonds issued a year," said the Centre for Affordable Housing Finance in Africa (CAHF).
Household finances are troublingly weak, aggravated by high unemployment
Many households in South Africa are under financial strain, because of slow economic growth and low employment levels. The net household savings rate stood at -1.1% of disposable income in Q4 2023, worse than 0% in 2022 and 0.7% in 2021.
The ratio of household debt to disposable income was 62.3% in Q4 2023, slightly down from 62.4% in the previous quarter, according to SARB's March 2024 Quarterly Bulletin. It hovered at that level in the past two years. Yet it remains lower than the 77% recorded four years ago.
"Household debt as a percentage of nominal disposable income decreased slightly to 62.3% in the fourth quarter of 2023 from a revised 62.4% in the third quarter as the increase in nominal disposable income narrowly exceeded that in household debt," said the central bank.
Households' debt-service cost to disposable income remained unchanged at 9% in Q4 2023.
"Annual growth in household debt accelerated slightly in 2023, with the ratio of household debt to nominal disposable income increasing to 62.4% from 62.0% in 2022. Households' cost of servicing debt relative to nominal disposable income increased to 8.8% in 2023 from 7.3% in 2022, reflecting the cumulative 125 basis point increase in the prime lending rate in 2023 as well as the higher outstanding stock of debt," added the central bank.
Total outstanding household debt in the country grew by an annual average rate of 5.2% from 2015 to 2022 and reached ZAR 2.78 trillion (US$151.5 billion) in 2023. Of which, credit extended by banks accounted for 75%, while non-bank institutions accounted for the remaining 25%. Mortgage advances, the largest credit category, represented about 45.7% of the total household debt in 2023.
The very high unemployment rate has been exacerbated by the health crisis in the previous years. In Q1 2024, the official unemployment rate was 32.9%, slightly up from 32.1% in the previous quarter and far higher than the 29.1% before the pandemic, according to Stats SA. When the expanded definition is used, which includes those discouraged from seeking work, the jobless rate actually stood at 41.9% during the latest quarter.
Youth unemployment, measuring job-seekers between 15 and 24 years old, was up to 59.7% in Q1 2024, from 59.4% in the previous quarter.
The total number of unemployed people in South Africa totaled 8.2 million in Q1 2024, the highest level since comparable records began in 2008.
Rental yields are very good
Despite all these, from one perspective property owners should be happy. The gross rental yields for apartments in South Africa, i.e., the gross rental return on a property if fully rented out, are spectacularly high, at an average of 10.15% in Q1 2024, according to research conducted by the Global Property Guide in March 2024.
In Johannesburg, apartments offer rental returns ranging from 7.3% to as high as 17.01% in Q1 2024, with a city average of 11.67%. The most desirable neighborhoods in Johannesburg are in the north of the city, including suburbs like Dunkeld, Hyde Park, Houghton, Illovo, Inanda, Melrose, Parkhurst, Parktown, Parkview, Sandhurst, Saxonwold, and Westcliff. Nelson Mandela has a house in Houghton.
In Cape Town, gross rental yields on apartments are lower, currently ranging from 6.12% to 9.99%, with a city average of 7.9%.
Cape Town is the most popular tourist destination in Africa. Its amazing beaches and weather are ideal for retirees and foreign property buyers. Atlantic Seaboard properties are among the most sought-after because of the beaches and cliffs - upscale neighborhoods like Bakoven, Bantry Bay, Camps, Clifton, Fresnaye, Green Point, and Mouille Point. Some houses nestled on cliffs have sweeping views of the Atlantic Ocean. City Bowl, which includes the central business district of Cape Town, is another upscale residential suburb. It is one of the most stable residential markets in Cape Town, because of its prime central location and vibrant cosmopolitan lifestyle.
In other locations, during Q1 2024:
- In Durban, gross rental yields for apartments range from 6.89% to 13.22%, with a city average of 10.3%.
- In Centurion, gross rental yields range from 10.85% to 12.74%, with a city average of 11.7%.
- In KZN South Coast, apartment rental yields range from 10.24% to 11.69%, with a city average of 10.98%.
- In Dolphin Coast, apartment rental yields range from 6.67% to 9.81%, with an average of 8.36%.
Economic slowdown, easing inflation
South Africa is Africa's second-biggest economy. With a population of 61.5 million and a GDP per capita of US$6,138 in 2023, it has formidable manufacturing and financial sectors. It is the world's largest exporter of gold and platinum. Tourism is also a key source of foreign exchange.
After registering a post-pandemic growth of 4.7% in 2021, South Africa's economic growth slowed to 1.9% in 2022, amidst the fallout of the war in Ukraine coupled with several domestic setbacks, such as floods and energy crisis. During 2023, the SA economy remained muted, registering a real GDP growth of a minuscule 0.6%, according to Stats SA.
Then in Q1 2024, the SA economy grew by 0.5% from the same period last year, following a y-o-y expansion of 1.4% in Q4 2023 and a contraction of 0.9% in Q3 2023. Quarter-on-quarter, the country saw an economic decline of 0.1% in Q1 2024, as economic activities experienced declines amidst intensified rolling blackouts. Manufacturing (1.4%), mining (-2.3%), and construction (-3.1%) had the biggest contribution to the country's poor economic performance.
Despite this, the South African Reserve Bank (SARB), the country's central bank, forecast the SA economy to likely post a growth of 1.2% this year.
"Turning to the growth outlook, economic activity indicators for the first quarter have been coming in worse than expected, despite reduced electricity load-shedding. However, these higher-frequency data can be volatile. We expect slightly weaker first-quarter growth, but this will be offset by better second-quarter growth. We still forecast GDP growth of 1.2% this year. The growth numbers for the outer years also remain unchanged," said SARB.
The International Monetary Fund (IMF) is more pessimistic, with it recently downgrading its economic growth forecast for South Africa to a meager 0.9%, warning that logistical challenges are constraining activity and acting as a drag on the entire sub-Saharan region.