SA Residential Property Market Brief - Betterbond

For millions of indebted South African households, especially homeowners with bonds, September 2024 was a turning point in their financial outlook. The monetary authorities finally began to ease the pressure on debt costs by lowering the official repo by 25 basis points (or 0.25%). This rate is set 350 basis points below the prime overdraft rate.

A further reduction of 25 basis points followed in November, resulting in a new prime rate of 11.25%. While there was significant potential for a larger decrease in the repo rate, the outlook for additional interest rate cuts in 2025 remains positive.

The latest Betterbond Property Brief (December 2024), highlights the following:

 1. An increase of 22,6% YOY in home loan applications

The declining trend in home loan activity appears to have reversed, with the average number of home loan applications increasing by 11.5% quarter-over-quarter (QOQ) and by an impressive 22.6% year-over-year (YOY) during October and November (figure 1). It is particularly encouraging that the BetterBond home loan index was 5% higher during the first two months of Q4 2024 than Q4 2019, just before the sharp contraction induced by the Covid lockdowns.

Following a sound recovery of home loan applications immediately after the lockdowns were lifted, the residential property market started feeling the pinch of a monetary policy approach solely focussed on lowering inflation, despite the absence of any excess demand in the economy.

The downturn in the BetterBond index of home loan applications lasted nine quarters, stabilised during the first half of 2024 and then began to rebound in anticipation of an imminent easing of monetary policy. The prospects for a further recovery have been strengthened by two consecutive repo rate cuts of 25 basis points each.

2.Average home purchase price R1,57 million & R1,28 million for first-time buyers

The 25-basis-point drop in the prime lending rate in November was insufficient to generate significant upward momentum in house prices. However, a degree of stability has been evident during October and November.

The average house price for all buyers amounted to R1.57 million, virtually unchanged from the average price in Q3 2024 (Figure 2). A similar trend was observed for first-time buyers (FTBs), with a marginal 0.5% increase in the average house price to R1.28 million.

Year-over-year increases of 2% in house prices for all buyers remained below the latest inflation rate. While house prices are still lower in real terms than before the restrictive monetary policy took effect, it is encouraging that the average purchase price has risen by 8.15% since Q4 2019 (pre-COVID).

Further interest rate cuts are expected in 2025, which should provide some impetus to house price increases.

3.Average deposit for home purchase drops to below R300 000 - still 90% higher for FTB & 54% higher for all buyers than in 2021

The welcome decrease in required deposits for home loans, which occurred in Q3 2024, gained traction during October and November. The average deposit required for all buyers dropped below R300,000 for the first time since Q3 2023, with a quarter-over-quarter (QOQ) decline of 3.8% for all buyers and 3.5% for first-time buyers (FTBs) (Figure 3). Year-over-year (YOY) declines in deposits were even more significant, reaching 7.8% for all buyers and 10% for FTBs.

Unfortunately, prospective homebuyers continue to face the negative impact of high interest rates over the past three years. For FTBs, the average deposit remains 90% higher than three years ago, and for all buyers, it is still 54% higher.

Any further interest rate reductions will likely narrow the ratio between deposits and home purchase prices, a prospect that is anticipated to materialize in 2025.

 4. Regional composition of average bond value – all buyers and FTBs (12 months to Nov 2024)

For all buyers, a 54% spread exists between the ratio of average bond values to the national average across different regions. The Western Cape boasts the highest average bond value at R1.6 million, while North-West, the Eastern Cape, Free State, and the Northern Cape have yet to surpass the R1 million mark (Figure 4).

The Eastern Cape exhibits the largest differential between first-time buyers (FTBs) and repeat buyers, followed by Johannesburg's Northwestern suburbs and KwaZulu-Natal. Five regions have managed to increase the value of average home loans granted over the past two years, with two recording double-digit growth: Johannesburg North-West and Mpumalanga

5.Value of residential buildings completed by province – Jan to Sep 2024

Gauteng and the Western Cape continue to dominate South Africa's residential property development market, accounting for the lion's share of houses and flats constructed during the first three quarters of the year. Gauteng leads with a 43% share, followed by the Western Cape at 32% and KwaZulu-Natal at 11% (Figure 5).

The presence of large manufacturing industries with diversified value chains is a major factor driving high levels of property market activity in these provinces. They also house the country's largest metropolitan areas and offer a wide range of educational opportunities at primary, secondary, and tertiary levels. However, with the increasing number of highly skilled individuals now capable of remote work, other provinces may also experience a higher future demand for housing from people seeking less congested urban environments.