Looking Ahead At The Property Market In 2025

Lower interest rates should encourage more first-time buyers, while renewed confidence in the economy will see greater investment at the upper end.

11/11/2024

 

 

“If one could explain 2024 in a word it would probably be ‘uncertainty’”, says Bradd Bendall, BetterBond’s National Head of Sales. “With a majority of overseas countries having their election processes this year, a large proporption of the world’s population have undergone the upheaval of political change. Include the fact that war and instability in regions such as the Middle East, Asia and Africa and you can see how these conflicts had a knock-on economic effect around the globe, leading to soaring energy and food prices. There can be no doubt that the result of the recent US elections will also have an ongoing effect on our economy and will have an effect on the property environment.”

Closer to home, the provincial and national elections in May also resulted in considerable uncertainty which was felt across sectors, including the residential property market, says Bendall. “Home loan activity was sluggish, with a year-on-year decline of 8% in the BetterBond index of home loan applications during the first quarter of the year.” However, the formation of a government of national unity post-elections boosted investor confidence in the country, while the consequent strengthening of the rand and faster-than-expected drop in inflation ushered in a renewed sense of optimism.

The Monetary Policy Committee’s decision in September to drop the prime lending rate – the first cut since 2020 – further bolstered confidence in the housing market. “As reported in the August edition of the BetterBond Property Brief, there was a 10.3% year-on-year increase in home loan applications in July, following the elections,” says Bendall. “With all indications pointing to further rate cuts in November, and early next year, 2025 is likely to get off to a good start with conditions conducive to a residential property market boom,” says Bendall.

 

Top 10 forecasts for South Africa’s property market in 2025:

 

Record-level house price growth

After a sluggish start to the year because of the restrictive monetary policy, house prices dipped in the middle of the year. However, the year-on-year movement remained positive with a 6.4% inflation for all buyers. If you compare this to the third quarter of 2019, before the Covid-pandemic, average home prices for all buyers increased by 38%, says Bendall. “We expect house prices to lift to new record levels now that the prime lending rate has started to drop again after months of holding steady at a 14-year high. House inflation will be particularly pronounced in the metropolitan areas.”

 

More foreign buyers

Semigration is an ongoing trend, with buyers moving between provinces in search of better lifestyle options or employment opportunities, says Bendall. “But, we are noticing an increased interest in property from expatriates wanting to return home. This could be because of the favourable exchange rate which gives returning buyers more bang for their buck than overseas. Or, it could be the perception that there is less volatility in South Africa than in Europe.” According to the Fragile States Index which uses a conflict assessment framework to assess the likelihood of a country to collapse, South Africa is ranked a satisfactory 80th with a score of 69.6.

 

Continued demand for sustainable properties

With the clock ticking on meeting the 17 Sustainable Development Goals as set out in the United Nations’ 2030 Agenda for Sustainable Development, green homes remain a top trend, says Bendall. “Also, given the increased impact of climate change on weather patterns globally, we are seeing renewed interest in homes that can go almost off-grid and that use eco-friendly materials to minimise their environmental impact. This includes using green materials such as bamboo, solar panels and home automation to improve energy efficiency and natural lighting.”

 

Live-work-play residential offerings

The demand for mixed-use developments has intensified as people seek convenience, comfort and community engagement on their doorstep, says Bendall. “These developments typically combine residential, commercial and recreational facilities within a secure environment. A good example of this is Steyn City in Johannesburg, one of the country’s most expansive mixed-use developments. It offers a range of property types that appeals to young professionals, families and investment buyers.”

 

Ongoing semigration

Last year, First National Bank’s estate agent survey revealed that semigration was the reason for selling a home in more than 10% of sales. This is reflected in Lightstone’s data which shows that 27% of people who sell and buy a new home do so in a new province. This is a significant increase from the 16% it was in 2019. With disparities between the provinces in terms of governance, municipal service delivery and infrastructure, this movement between provinces is likely to persist and possibly intensify in 2025, says Bendall.

The Western Cape is likely to retain its number one spot as the top semigration destination. As Lightstone reports, 14 of the 15 towns experiencing an influx of new owners from other areas are in this province. Gauteng is also a popular destination for buyers moving for employment opportunities, accounting for 23% of all transactions by buyers selling to move to a new province.

 

New ways to access funds

The new two-pot retirement fund system will not only make it possible for South Africans to access retirement savings if needed, but it may also tempt buyers – particularly first-time buyers – to use some of their retirement savings to buy a new home. “The combination of drawdowns under the two-pot system as well what appears to be the start of a lower interest rate cycle may ease lending institutions’ caution to lend money. It could also mean that smaller deposits will be needed for home loans,” explains Bendall.

Under the two-pot system, a third of monthly contributions go into a savings pot that can be accessed anytime. The remaining two-thirds of the contributions will go into a retirement pot which can’t be accessed until retirement. Research by Investec found that in Australia, which has a similar two-pot system, most households used part of their pension fund withdrawals to repay loans.

The banking and wealth management group posits that South Africa will mirror these trends, with consumers using the capital from the two-pot system to eliminate debt and fund living expenses. Investec also estimates that the two-pot system could have positive economic implications, with the resultant spending and savings from consumers accessing R100 billion or more in early pension withdrawals boosting real GDP by more than 0.5% next year - adding R20 billion in extra revenue. While this may be good for the economy, only around 6% of South Africans will retire with enough money to live comfortably. As a result, the early access of retirement savings to contribute towards buying a home should be discouraged.

 

Shift to solo buying

Lightstone’s residential property data suggests that fewer people are buying homes together now than they did 10 years ago. While the percentage of single owner buyers increased from 51% in 2013 to 55% at the end of 2023, joint ownerships dropped from 36% to 30%. However, as two or more owners can spend more on a home, two-owner property transactions are higher than one-owner deals. “Hopefully, a continued drop in the prime lending rate next year will encourage more single-owner buying in the mid to upper end of the property market as well,” says Bendall.

Increased demand for homes in the mid to upper segment of the market
Sustained high interest rates have meant that home loan activity at the start of 2024 was particularly prevalent for homes valued at below R1 million, as reported in BetterBond’s September Property Brief. But since then, there was a 15% year-on-year increase in home loans valued at more than R3 million. Lower interest rates and positive signs of economic growth should encourage home loan activity for homes of more than R1 million in 2025.

 

Transformative AI

JLL Africa says that artificial intelligence (AI)-powered underwriting and processes will enhance the understanding of properties and markets, which in turn will drive investment. Technology is already being widely used in almost every aspect of property functions, allowing for seamless AI integration. “BetterBond offers homebuyers easy online access to a range of solutions 24/7. AI will enhance this offering and the homebuyer’s experience,” says Bendall. “AI will also improve the way people search for homes as they can access real-time information to make informed decisions.”

More opportunities for the affordable segment of the market
Although the prime lending rate has started to drop, affordability remains a consideration for many buyers, especially at the lower end of the market. Higher living costs and the increased demand for urban accommodation because of semigration means that there is an ongoing need for affordable housing, explains Bendall. The Centre for Affordable Housing Finance in Africa’s Housing Market Report for 2024 shows that in 2023, 59% of first-time buyer transactions were for homes of up to R900 000. Of these just over half were financed with a bond.

“It is hoped that the catchphrase for the housing market in 2025 will be ‘opportunity’, and not uncertainty,” says Bendall. “Indications are that we can expect to see renewed activity on both ends of the market. Lower interest rates should encourage more first-time buyers, while renewed confidence in the economy will see greater investment at the upper end. All of this bodes well for a buoyant property market.”

 

 

 

 

 

 

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