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South Africa’s Property Market is Improving

South Africa’s property market is improving – just not in the way you may have expected

The South African Reserve Bank’s (SARB) Monetary Policy Committee hiked the repo rate by 75 basis points – making financing a home more costly with the prime lending rate to 9%.

Property experts are quick to point out that interest rates remain below pre-Covid levels.

“It is important to bear in mind that although interest rates may be rising as the bank normalizes monetary policy after the remaining restrictive regulations associated with the pandemic were removed, they still remain below pre-Covid levels (of 10%) and as a consequence are still attractive for homebuyers,” Dr Andrew Golding, chief executive of the Pam Golding Property Group.

“More considerably, banks retain their appetite for lengthening loans to homebuyers, which is providing a solid underpinning for the local housing market, even as we move into an era of gradually rising interest rates and increasing pressure on household finances,” he said post the rates announcement towards the end of last month.

The banks’ appetite to extend loans is revealed in the most recent Ooba data, which showed that loans as a percentage of the purchase price have risen to a level of 93% in recent months, which is the highest level in well over a decade.

As a result of this, activity in the SA housing market remains afloat – with properties sold during the first half of 2022 almost matching the number of transactions that were recorded during the first half of 2020 and remaining comfortably higher than during the first half of 2019 prior to the pandemic.

“What we are seeing is that residential property is increasingly being seen by South Africans across all walks of life and in particular, the younger generation, as a sound investment class. Encouragingly, the demand for investment properties continues to rise,” said Golding.

Golding said that while there may be headwinds facing the housing market – such as rising inflation, increasing interest rates and a slow-moving local and global economy – an ongoing positive underpinning for the market is the appetite of financial institutions to extend credit.

“Not only are they pricing home mortgages competitively, they are also asking lower deposits as a percentage of selling prices than we have seen in over 10 years. And as always there are always high-demand areas in various regions, plus the emigration trend continues to coastal and more countrified areas for a variety of reasons, as well as sought after metros and commercial hubs.”

The emigration trend is evidenced by the continued acceleration in coastal house prices, with the price premium compared with non-coastal property widening to +3.1% which is the highest since mid-2005.