Bad news for South African homeowners

Home prices in South Africa have shown marginal growth in the past three years and, in real terms, the price of property has sharply declined. 

This was revealed in FNB’s latest Property Barometer and House Price Index (HPI), which showed that prices have remained flat in 2024. 

FNB’s HPI averaged growth of 0.8% in the first quarter of 2024, unchanged from the end of 2023. This is emblematic of South Africa’s weak economy, which is translating into slowing demand for property. 

The bank said elevated borrowing costs due to high interest rates and heightened political uncertainty are short-term factors weighing on property demand. 

Longer-term factors resulting in declining demand for property include South Africa’s weak economy and the rising cost of having a house, with electricity prices and rates and taxes rising sharply in the past decade. 

With interest rates set to remain high for a long time, the bank does not expect an uptick in property demand soon. 

The South African Reserve Bank has signalled a potential shift towards a stricter inflation target of 3%, compared to the current 4.5% target. However, the exact timing of this change remains unclear.

This potentially means keeping interest rates higher for a longer period to achieve this new target and control inflation. 

As a result, the bank adjusted its forecast for the repo rate, predicting a slower and delayed decrease with some potential downside risk in the medium to long term.

These adjustments led FNB to expect a delayed recovery in the housing market, with a slightly lower overall growth trajectory compared to our previous forecast.

This was shown in FNB’s HPI for April, which showed a meager growth of 0.6%—lower than the figure seen in March. 

“Market strength indicators, derived from the property values database, suggest both buyer demand and seller supply are shrinking,” FNB said. 

However, house price growth diverges significantly across South Africa’s major metros and other areas of the country. 

Wide disparities are evident across regions, with larger non-metro regions seeing stronger house price growth relative to traditional metropolitan areas. 

The bank said the rise in semigration has driven this growth, with many South Africans moving from the central, northern urban areas to coastal towns. 

The West Coast has grown stronger over the past year, followed by Capricorn and the Garden Route. 

Growth in house prices in these areas significantly outpaces larger metros, which have seen largely flat house price increases. 

Durban’s prices have significantly decreased over the past year, with Johannesburg not faring much better and Pretoria’s prices remaining flat. 

The differences in house price growth across South Africa’s metros and non-metro regions can be seen in the graph below. 

This represents a double blow for homeowners in South Africa, with the expenses related to selling a house growing significantly in recent years while prices have declined. 

According to Elad Smadja, the head of property bridging finance at Taurus Capital, these costs now average around R150,000. 

“It takes months to process sales and transfer ownership at the Deeds Office, during which sellers do not have access to money from the sale,” he said. 

“Consequently, instead of easing their financial burdens, the high costs may become overwhelming and add additional stress to property sales.”

Smadja listed several costs to consider when selling your home – 

• Bond cancellation: Bond cancellation costs are managed by a bank’s appointed attorney and include bond cancellation fees and pro-rata interest.
• Rates, taxes, and levies: Sellers are responsible for paying rates, taxes, and levies up until the property’s registration date.
• Compliance certificates: Sellers will need to obtain certificates for electrical, plumbing, and beetle inspections. These certificates typically range from R500 to R1,000 each, and potentially more if issues are uncovered during inspections as they will need to be fixed.
• Repairs and maintenance: Preparing a property for sale may require investment in repairs and maintenance to make it more appealing to potential buyers.
• Moving costs: Moving costs include expenses related to packing, hiring a moving company, storage, transportation, and potentially temporary accommodation if your new property is not immediately available.
• Personal debt: For example, school fees or credit card payments.

“Typically, it takes around three months for a property sale to be completed, adding more stress to an emotionally and financially taxing situation,” he said. 

“Having your money tied up in a property that you can’t access is cold comfort while you wait.”