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.”