Tide is turning for South Africa’s property market

South Africa’s residential property market has faced significant headwinds from elevated interest rates and reduced lending appetite from banks. 

However, this is all set to change soon, with demand for residential property picking up and banks looking to increase lending in this space in anticipation of interest rate cuts. 

This is feedback from Toni Anderson, head of Standard Bank Home Services, who outlined reasons why the bank expects a more robust recovery in South Africa’s property market. 

As interest rates climbed to cool off inflation, the home loans sector experienced a sharp decline, echoing buyers’ cautious sentiment and creating muted growth across the real estate landscape. 

However, amidst this challenging climate, our Standard Bank anticipates that projected interest rate cuts will lead to a more robust recovery.

The bank’s data reveals a stark contrast between the home loan market of 2020-2021 and the present. 

In 2019, the market was registering on average of R14 billion in home loans a month, Anderson said.  

This number surged to around R20 billion per month in 2021 and 2022, driven by eager first-time buyers wanting to capitalise on relatively stable housing prices and low-interest rates. 

Our home loan registrations significantly exceeded the pre-pandemic level since the second half of 2020.

The period was marked by affordable buying opportunities, particularly in areas like Johannesburg and Pretoria, where property price growth was restrained, registering just a 3.6% increase in Gauteng. 

The situation has changed significantly as the Reserve Bank’s interest rate hikes, intended to combat inflation, began to impact demand. 

This shift resulted in a significant drop in home loan applications since last year, with the market registering an average of R14 billion in home loans a month in 2023 from R20 billion a year earlier. 

This trend has continued into 2024 with further muted levels. This can be attributed to fewer application volumes as a result of affordability constraints and low consumer confidence levels, Anderson explained.  

The reduced pool of buyers has consequently led to heightened competition among industry players. 

The tide is turning 

Despite this downturn, Standard Bank maintains a cautiously optimistic economic outlook, Anderson said.  

The modest 1% growth in the bank’s lending book for the first half of 2024 was in no way indicative of a shift in our risk appetite. 

On the contrary, it maintained a steady risk appetite to ensure ongoing support for aspirant homeowners, reflective of our stance during previous crises, such as the global financial crisis and the Covid-19 pandemic.

Looking ahead, Anderson highlighted several factors that could catalyse a revival in home loan demand –

Standard Bank forecasts the Reserve Bank will begin cutting interest rates this year, with the first cut of 25 basis points expected in September and another in November. 

The bank’s economists expect two more cuts in the first half of 2025.  It’s not just Standard Bank forecasting interest rate cuts, with market expectations increasingly anticipating an interest rate cut next month. 

The cooling off in July 2024 inflation from 5.1% in June to 4.6% has further accelerated the argument for an immediate rate cut and this is just above the midpoint of the Reserve Bank’s target range. 

This imminent cut should rejuvenate buyer confidence and stimulate a rebound in loan applications.

Another reason to be optimistic is to look at the long-term trends. Historically, the residential property market has always shown resilience and recovery after significant downturns. 

Anderson said South Africa’s political landscape stabilised quicker than many expected post-elections with the Government of National Unity. 

Coupled with our currency’s performance of late, there is potential for renewed economic stability, which may boost consumer confidence. 

Given the fundamentals, one can reasonably expect a rebound in our residential property market in the medium to long term.