/ 16 January 2025

‘Slight uptick’ in property market expected in 2025

Propertysale

South Africa’s property market is expected to experience a mild recovery in 2025 but the shortage of affordable homes close to places of work will remain a crisis that must be tackled.

Economists and estate agents are “cautiously optimistic” regarding the outlook for the property sector, which started showing signs of improvement in late 2024 as interest rates bottomed out and the South African Reserve Bank dropped the repo rate by a cumulative 50 basis points to 7.75%.

However, they have cautioned that the rising cost of living, including soaring energy and transport costs, coupled with crumbling infrastructure and poor municipal service delivery in some regions, could hamper buyers’ appetites and ability to invest.

Property economist and associate professor at the University of Cape Town Francois Viruly, said the country’s residential property market is “very sensitive to interest rates, economic growth and the state of our municipalities”.

“The  downward trend in interest rates and improved economic growth prospects bode well for the sector, while the state of municipalities remains a significant risk for property owners.

“At present, the Western Cape is largely driving the rise in residential values. In 2025, this performance could broaden to Gauteng and KwaZulu-Natal, which have experienced little to any capital growth in 2024,” said Viruly. 

He said declines in inflation and interest rates have underpinned demand in the post-Covid-19 era. 

“Added to this there has been an oversupply of new houses in the middle segments of the market that buyers have benefitted from. To a large degree, the impact of the Covid years is now out of the system and the market now relies on investor confidence, the strength of household balance sheets and the macro-economic environment,” Viruly said.

“The next 12 months will see the continuation of the upward phase of the property cycle that was initiated in late 2023. The performance will, however, remain patchy, varying between market segments and locality. 

“In 2025, the Western Cape will continue to outperform the market with price increases above the inflation rate.”

Properties in the middle segment of the market, priced between R1 million and 1.2 million, should show strong performance as market fundamentals strengthen. 

“The performance of the property sector is highly reliant on the ability of municipalities to provide the required level of infrastructure. Failure in this respect affects the delivery of housing, affordability and the value of properties,” Viruly said. 

“It also needs to be underlined that some 75% of properties on the deeds registry are valued below R1.2 million, serving most South African households, while much of the analysis of the sector is focused on the top 30% of the market and therefore may not necessarily be representative of the market,” he said.

“Affordability in these lower segments of the sector of the market is declining, affecting the ability of households to enter the first rungs of the property ladder.”

Factors affecting affordability include pressure to cover day-to-day necessities, rising transport costs, increasing building costs and a shortage of reasonably located homes.

Viruly said 2025 would see much attention on the government’s recently published white paper for human settlements and the ability of policy interventions to address the “deepening affordable housing crisis”.

“Solutions must be found in making the lower end of the property market function more efficiently, increasing supply through small-scale developers and ensuring that housing is delivered closer to places of work,” Viruly said.

FNB property economist John Loos said 2025 would see recovery in the property sector, however, he also raised the challenge of insufficient stock of affordable housing in economic hubs close to places of work.

“It will be a very mild recovery based on a few improvements, a slight uptick in the economic growth cycle. We are forecasting 1.9% growth for the year after possibly 1% last year. So we don’t expect growth acceleration to shoot the lights out. Such an economic growth rate just doesn’t fuel demand strongly,” Loos said.

“Our expectation for interest rates too is a very mild decline of three more 25 basis point cuts in the first half of this year, and then prime stops declining,” he said.

Loos said rising property prices in cities such as Cape Town, and even towns like Stellenbosch, had made the market inaccessible to workers such as teachers, policemen and university lecturers who are forced to commute from outlying areas.

“High values and rents can start to hamper services in an area. London’s had these problems for decades where they couldn’t get enough teachers, firemen and nurses to work in certain parts because property values are too expensive and the commute is quite far and expensive,” he said.

He said the solution would be to create more attractive areas outside cities like Cape Town, such as revamping the Bellville CBD.

Positive prospects

Pam Golding chief executive Andrew Golding said that with inflation below the lower end of the Reserve Bank’s 3% to 6% target range at 2.9% in November, and the electricity supply apparently under control, the economic outlook for 2025 appears “increasingly positive” with a further 25 bps repo rate cut likely for January.

“Although the Reserve Bank remains cautious in the light of upside risks to the inflation outlook, the MPC is expected to reduce interest rates by a further 75 basis points in total this year, retaining its cautious stance, with the timing of the cuts likely to be influenced by developments internationally by factors such as the oil price, rand and US trade tariffs, among others,” Golding said.

“Sentiment in general has improved which, together with the two recent repo rate cuts of a cumulative 50 basis points in 2024 already creating a ripple effect across the residential property market, increasing uptake particularly in the lower to middle sectors of the market, while also boosting confidence and activity in the luxury market,” he said.

Golding said November was a busy month, with group sales 19% ahead of transactions successfully concluded in November 2023.

“Banks continue to support the market with competitively priced loans, lower deposits and elevated approval rates,” he said.

According to the Pam Golding Residential Property Index, house price inflation in October 2024 was 5%, compared to consumer price inflation of 2.8%, translating into real growth of 2.2%.

“This augurs well for continued demand for residential property among investment buyers, primarily driven by the Western Cape, but also with a meaningful increase in investment demand in the Eastern Cape since mid-2023 and, more recently, in Tshwane,” he said.

Golding said key trends that would continue in 2025 include “semigration” to other provinces and locations, including coastal towns, a rising number of female buyers and increasing demand for sectional title accommodation. 

Wakefields Estate Agents CEO Myles Wakefield said the 2025 outlook for the property market was “cautiously optimistic”.

“We anticipate that the market has the potential to swing from a buyers’ market to more of a sellers’ market, driven by increasing transaction volumes. In the second half of 2024, we observed a notable uptick in activity, which, if sustained, could lead to price inflation in the property sector.”

Wakefield said interest rate cuts would provide relief to homeowners and encourage buyer activity.

“We hope that these gains will not be tempered by increases in the cost of living, including municipal service rates, Eskom tariff hikes and other expenses. 

“Economic growth and job creation — which is expected to be much approved this year — will play a pivotal role in determining market dynamics, as they influence both affordability and demand.” 

He said several factors would influence buyers’ preferences and lead to semigration.

“Buyers will continue to prioritise areas with strong infrastructure and reliable municipal service delivery. Suburbs with clear, well-maintained verges, dependable water supply and sanitation will remain highly sought after,” he said.     

However, he said buyers would remain “highly cost-conscious” about property prices and the overall living expenses tied to an area.       

“The lower end of the market will remain sensitive to interest rate fluctuations, while the top end will be more influenced by general market sentiment,” Wakefield said.  

 He said the market’s performance would largely hinge on macro and microeconomic factors.

“Economic growth will have a ripple effect, creating jobs and increasing disposable income, which will enable more people to participate in the property market. 

“We also hope to see government initiatives, particularly those tied to the government of national unity, deliver on promises of improved service delivery. If these promises are met, they could significantly boost market confidence and attract more buyers.”