South Africa sitting on a R2 trillion goldmine

South Africa’s affordable housing “gap market” could be worth trillions of rands, but bureaucratic delays, weak debt enforcement mechanisms, and policy shortcomings are driving private investment away.

This is according to Sentinel Homes Managing Director Renier Kriek, who explained that South Africa’s potential as a lucrative property market is being undermined.

“Unless the government changes its policies and practices, investors and consumers will remain locked out of South Africa’s gap market,” he said.

If such changes do not happen, market players could lose out on trillions of rands in investment returns.

South Africa continues to face a severe housing shortage. Speaking at the Innovative Building Technologies Summit on 3 February, President Ramaphosa declared a backlog of between 2.5 million and 3 million homes.

The South African housing market is divided into three main segments. The RDP/low-income segment comprises households earning R3,500 or less per month and makes up about 40% of the market.

The gap market consists of households earning R3,501 to R25,000 per month and house prices ranging from R351,000 to R700,000. This is roughly 30% of the market.

Finally, the affluent segment consists of households with incomes over R25,000 per month and homes valued above R700,000, and accounts for the remaining 30% of the market.

New research from the Centre for Affordable Housing Finance (CAHF) indicates that the gap market is now the hardest hit by the crisis. The shortage is prevalent in both the owned property and rental accommodation segments.

The exact value of the gap market is unknown. However, 3 million homes priced between R351,000 and R700,000 suggest a market value of R1 trillion to R2 trillion, based solely on units sold.

These optimistic estimates do not account for subsequent rental income or secondary income, such as mortgage interest, or the dividend or trading value of property stocks.

However, despite significant demand and earning potential, the flow of private capital into this segment remains muted.

To put this in perspective, the South African home loans book comprises about 1.6 million accounts, while census data indicates about 18 million households in South Africa.

There is no chance of addressing this severe housing finance shortage unless it becomes a key policy concern for the government and private market actors, Kriek explained.

South Africa is driving away investors

According to the National Credit Regulator’s Consumer Credit Market Report for the second quarter, published in June 2025, 70.2% of mortgages granted over that period went to R700,000-plus properties.

In contrast, gap market mortgage grants were just under 20%.In addition, Kriek said new developments that could bring much-needed stock into the gap market are severely lacking.

Lastly, the introduction of Basel IV into the banking system threatens to increase the cost of home loans, he added.

Therefore, an arbitrage opportunity exists for non-banking institutions, which are not subject to these requirements, to leverage new regulatory inefficiencies to turn a profit.

“The gap market should be no less profitable than any other, so the lack of capital allocation tells us there is some impediment holding investment back,” Kriek said.

Kriek attributes the problem to market design flaws – including bureaucratic inefficiencies, enforcement restrictions, and misdirected blame – that create enough risk to dissuade investors from committing capital.

Red tape and corruption increase the time and cost of releasing land, approving housing schemes, and addressing other concerns, forcing developers to favour projects in the more affluent market.

The inability to swiftly foreclose on bondholders or evict tenants in arrears has also made lenders and landlords hesitant to service the gap market, where delinquency is statistically higher than in the upper market.

Court backlogs and extended processes, such as debt reviews, only serve to compound the problem, Kriek said.

Fortunately, the proposed amendments to the PIE Act, which govern evictions, were published for comment by the minister in April 2026 and provide welcome relief for this problem.

These will exclude delinquent tenants from PIE’s operation and revert their handling to the position before 2003, if it survives into the final version of the Bill.

The final issue dissuading private investment into South Africa’s gap market, according to Kriek, is misdirected blame.

The government refuses to recognise weaknesses in its own systems and instead consistently blames others for the lack of investment in affordable housing.

In particular, it has directed blame at commercial entities, such as banks – making claims of institutional racism and other aspersions – and short-term rental platforms like Airbnb and traditional BnB providers.

Overall, the government’s ideological approach to what is perceived as fairness and equality in housing enforcement has the unintended consequence of chasing investors away, Kriek said.

The easier it is to recover deployed capital from delinquent tenants or borrowers, the more capital will be deployed.

While it may seem callous to evict tenants or foreclose on financially distressed bondholders, current laws and practices cause capital holders to avoid the risks inherent in them, leaving the gap market underserved.

“By protecting a relatively small minority of delinquents, the government is denying the majority their constitutional right to access to adequate housing,” Kriek said.

What needs to happen

According to Kriek, the role of the South African government is to create a market that encourages capital allocation.

It is clear from the lack of investment in gap-market housing development that the existing approach has failed not just consumers but also investors.

“It is high time that investors publicly recognise what a huge opportunity cost this is for them – they are losing unrealised returns every day because the market is broken.”

To address the opportunity costs of the poorly designed market, holders of capital must pressure the government to make positive changes, using every opportunity and instrument available to them.

Fast housing stock delivery and rapid debt enforcement will release capital deployment, leading to a thriving market and ample housing. It’s that simple, Kriek noted.

“It means the government will have to make unpopular choices, but make those choices they must – or the crisis will only get worse.”

“We can plainly see that no progress is being made from housing supply expansion data, which shows that South Africa produces only about 300,000 housing units every decade at the current pace.”

However, Kriek stressed that this pales in comparison to the size of the unhoused population or the housing market as a whole.

“Australia, on the other hand, has less than half our population, but produces 200,000 housing units each year. And they still have a housing affordability problem.”