Bad news for South African homeowners
Despite showing signs of recovery following the Covid-19 pandemic, house prices in South Africa are still growing at less than inflation amid a weak economy and elevated interest rates.
This is according to Rode’s Report on the South African Property Market for the second quarter of this year.
The report found that nominal house prices grew by 0.4% in the second quarter of 2024 compared to the second quarter of 2023.
“This implies that prices in real terms have continued to fall significantly after deducting inflation,” the report explained.
Regionally, houses sold the quickest in the Western Cape in the second quarter of 2024, with Gauteng at the opposite end of the spectrum.
“Looking ahead, we expect house price growth to remain under pressure over the next few months,” it said.
“However, we have turned cautiously optimistic about prospects for 2025 as local interest rates are expected to start declining before the end of this year and move even lower in 2025.”
At its latest Monetary Policy Committee (MPC) meeting, the committee voted to keep interest rates unchanged.
However, the vote was split, with four members remaining unchanged and two preferring a 25-basis-point reduction.
This spelt good news for a potential cut at the upcoming September meeting, with many expecting two cuts for South Africa this year.
Stanlib chief economist Kevin Lings said the Reserve Bank has been very conservative in tackling inflation, largely due to uncertainty surrounding South Africa’s election at the end of May.
The Reserve Bank has been hesitant to cut rates during this period of elevated uncertainty, fearing that doing so would add further volatility to financial markets.
Furthermore, the bank has been clear about its desire to return inflation to the 4.5% midpoint of its 3% to 6% inflation target range.
This has led to interest rates being kept higher for longer, with the repo rate having stayed at a 15-year high since May 2023.
However, Standard Bank chief economist Goolam Ballim said this is set to change soon. Over 30 countries, particularly South Africa’s emerging market peers, have begun cutting their rates.
When coupled with declining inflation in the US and an increased likelihood that the Federal Reserve will begin cutting its rates soon, the Reserve Bank has more room to cut rates at its next meeting in September.
Thus, Ballim expects the Reserve Bank to cut interest rates by 25 basis points in September, followed by three more 25 basis point cuts in the next 12 months.
The Rode’s report said economic growth is also seen to be somewhat better than before.
“However, do not expect a mini-boom like during the pandemic as the prime rate is not expected to fall as low, while many of South Africa’s problems will take a long time to fix,” it warned.
In terms of flats, vacancy rates on a national level averaged 6.7% in the second quarter of 2024, down from 7.9% in the first quarter of 2024, according to Rode’s residential survey data.
Vacancy rates are now below the average 2023 level of 7.2%.
Regionally, the Western Cape continues to stand out with its low flat vacancy rate of 2.7% in the second quarter of 2024, well below the national average.
Surprisingly, Gauteng’s flat vacancy rate declined significantly to 6.5% from 9.3% in the first quarter of 2024. This was due to lower vacancies in Johannesburg and Pretoria.
Gauteng’s flat rentals grew by 2% year on year in the first quarter, based on Stats SA data.
“As rental increases are not lifting the roof, the data suggests that property owners or their managers have generally kept rental levels in control to keep properties tenanted,” the report said.
Official data from Stats SA shows that in the first quarter of 2024, nominal flat rentals in South Africa increased by 3.6% compared to a year earlier.
“This implies that house prices and rentals are still declining in real terms,” the Rode’s report explained.
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