South Africa’s property market is fighting to go from zero to hero

After several difficult years of offering modest returns and lagging behind global real estate, South Africa’s property market is finally showing signs of recovery.

This dynamic, paired with ongoing regional disparities and structural challenges, means prospective buyers have really had to question whether South African property remains a good investment.

FutureForex CEO Harry Scherzer explained that for most South Africans, property represents more than just an investment. The tangible asset represents security and is often the cornerstone of family wealth.

“This deep attachment to property ownership has shaped how South Africans build their portfolios for generations,” Scherzer said.

However, the past five years have challenged many of the assumptions held about property as a reliable wealth creator.

“Interest rates soared, the rand weakened, and entire neighbourhoods saw their character transformed by people moving between provinces,” Scherzer explained.

For those who own property or are considering buying, he said the question isn’t simply whether property is good or bad.

“It’s whether property still makes sense for your specific situation, especially when compared to what’s happening in global real estate markets,” he said.

The numbers from 2020 to 2025 paint an interesting picture. South African residential property prices rose about 38% in nominal terms over these five years.

“That sounds impressive until you account for inflation, which ate away at much of that gain. In real terms, house prices increased just 1% in 2023 and 1.2% in 2024 after adjusting for inflation,” he said.

“The recovery came in 2025, with house prices growing 5.2% year-on-year as of March, according to Statistics South Africa.”

This improvement followed the Reserve Bank’s interest rate cuts and reduced political uncertainty after the formation of the Government of National Unity.

“For homeowners who weathered the tough years, 2025 brought some relief. But when you compare South African property to what’s happening globally, the picture becomes more complex,” he said.

The FTSE EPRA Nareit Global Real Estate Index shows that global real estate returned 11.04% in 2025. South African property simply hasn’t kept pace with these global benchmarks.

This is particularly true when factoring in currency movements and the reality that South Africa does not have the same depth of liquid, tradeable property investments that international markets offer.

Residential versus commercial property

“The gap between how residential and commercial property have performed over the past five years is worth understanding if you’re thinking about where to put your money,” Scherzer explained.

“Residential property has grown, but not evenly.” The national average house price crossed R1.6 million for the first time in mid-2025, but that headline figure masks significant regional differences.

Stats SA’s Residential Property Price Index shows that the Western Cape recorded particularly strong growth.

Western Cape house price inflation of 9.5% contributed 3.7 percentage points to the national 5.2% growth rate. In contrast, Gauteng contributed just 0.6 percentage points.

“This disparity reflects more than just lifestyle choices,” Scherzer said. “Remote work has allowed people to prioritise where they want to live rather than where they have to live.”

He explained that South Africa’s commercial property industry has faced its own set of challenges and opportunities.

“Industrial property has been the standout performer, benefiting from the boom in online shopping and the need for efficient logistics, while office property tells a more complicated story,” he said.

“The oversupply that hit after everyone started working from home between 2020 and 2022 has started to correct, especially in prime locations. Cape Town’s CBD recorded historically low vacancy levels in 2025.”

Scherzer noted that the offices that have performed well are smaller, flexible, high-quality spaces in mixed-use developments. The old model of large corporate office towers has struggled more than ever.

Similarly, retail has stabilised in neighbourhood shopping centres, but larger regional malls continue to face pressure.

Structural realities shaping returns

According to Scherzer, South African property faces a set of structural constraints that materially affect returns, risk and flexibility.

“Compared to global real estate exposure through listed funds or REITs, local property remains highly illiquid. Most investment is still direct ownership, meaning capital is slow and costly to unlock,” he said.

“Even in improving market conditions, selling a property can take months, with transfer duties, legal fees and agent commissions eroding returns.”

Even though time on market shortened in 2025, South Africa remains structurally slower than mature markets where desirable assets trade quickly.

Scherzer warned that this creates real opportunity costs for investors who need to rebalance or redeploy capital.

“Currency volatility compounds this challenge. For investors with offshore exposure or those measuring wealth in dollars or euros, rand movements can materially distort returns,” he said.

“Periods of rand weakness may flatter foreign-currency performance, but they often coincide with broader economic fragility that weighs on property fundamentals.”

When the rand strengthens, Scherzer explained, foreign returns compress even as local prices increase.

“For domestic households, currency weakness erodes purchasing power and indirectly constrains affordability, limiting how much buyers and tenants can spend on housing,” he said.

“At the same time, domestic fundamentals have become increasingly uneven. Municipal governance and infrastructure quality are driving value divergence.”

He noted that areas with reliable electricity, water and services are outperforming, while deteriorating infrastructure depresses demand elsewhere.

“Reduced load-shedding and rising solar adoption have helped, but energy security remains a structural consideration,” he said.

Interest rates remain the primary demand lever. After peaking in 2024, rate cuts through 2025 restored affordability and activity, lifting home loan applications and buyer confidence.

“However, long-term demand remains mixed – a large housing undersupply supports prices in theory, but high unemployment and affordability constraints cap owner-occupier demand, reinforcing strong rental yields,” Scherzer said.

As semigration dynamics evolve and price gaps narrow across provinces, Scherzer said diversified regional exposure increasingly offers better risk-adjusted returns than concentrating in a single market.

To buy or not to buy

Scherzer said that the question of whether South African property is still a good investment depends entirely on what the buyer is trying to achieve, how long they can hold, and where it fits in their broader financial picture.

Those expecting double-digit annual returns comparable to equity markets or high-growth international property will likely be disappointed.

“Real returns after inflation have been modest over the past five years, and whilst nominal growth has picked up in 2025, it’s still well below historical averages and global benchmarks,” he said.

“But if you have realistic expectations, a long-term view, and the willingness to actively manage property, there are opportunities in South African real estate.”

Scherzer noted that rental yields are compelling by international standards, particularly in markets with tight supply. Affordable housing has shown resilient demand and stronger price growth than luxury segments.

Industrial and logistics properties have also benefited from lasting changes in how people shop and how businesses manage supply chains.

Scherzer said those who are willing to do their homework on regional differences, make selective investments in high-growth areas, or improve markets can deliver solid risk-adjusted returns.

“South African property remains a viable part of a well-structured portfolio, as long as you approach it with realistic expectations, do thorough research, and position it strategically,” he said.

“It’s not the guaranteed wealth builder that tradition might suggest, nor is it the disaster that pessimists sometimes claim.”

“It’s a complex asset class that rewards informed, patient, and diversified approaches whilst penalising those who invest based on emotion or outdated assumptions without paying attention to changing fundamentals.”