Bad news for South Africans who own a house

The real prices of houses in South Africa have been steadily declining over the past three years. While demand for residential property has picked up, it is still substantially below pre-pandemic levels. 

This was revealed in the Reserve Bank’s latest Financial Stability Review, which outlined the severe pressure South African households are under. 

Data from the Reserve Bank showed that just over 36% of all credit-active consumers have impaired credit records and have failed to make multiple monthly repayments. 

Furthermore, debt-servicing costs are eating up around 9% of total household income as high interest rates continue to make debt expensive. 

The Reserve Bank has raised interest rates by a cumulative 475 basis points since November 2021, bringing them to 15-year highs. 

In September 2024, it entered its cutting cycle with a cautious 25 basis point cut. This was followed by another 25 basis point cut in November. 

However, the impact of nearly two full years of interest rates at 15-year highs is still working its way through the economy. 

One area where this is most obvious is in residential real estate, where demand has picked up in the past two years but is still well below pre-pandemic levels. 

While demand for residential property has picked up, prices remain under immense pressure. Reserve Bank data indicates that prices have been declining year-on-year since 2022. 

Currently, prices have declined more than 4% in 2024 compared to 2023, and the data shows little signs of recovery.

The decline in house prices has been coupled with an increase in the number of South African homeowners unable to make loan repayments for the past 90 days. 

According to that definition, over 6% of all residential mortgages are in default, nearly double the historical average of 3%. 

The decline in house prices and a moderate uptick in demand can be seen in the graph below. 

There are some indications that the tide is beginning to turn, with banks looking to increase their lending in the residential space. 

This is feedback from Toni Anderson, head of Standard Bank Home Services, who highlighted the factors contributing to the bank’s expectation of a stronger recovery in South Africa’s property market.

Despite the downturn in the residential property market, there are several tailwinds that are set to boost property demand and prices.

The modest 1% growth in the bank’s lending book for the first half of 2024 does not signal a shift in its risk appetite, Anderson said. 

Instead, the bank has maintained a consistent risk appetite to continue supporting aspiring homeowners, mirroring its approach during past crises, such as the global financial crisis and the Covid-19 pandemic.

Looking ahead, Anderson outlined several factors that could drive a resurgence in home loan demand. 

Standard Bank predicts that the Reserve Bank will continue to cut interest rates in the first half of 2025, with a cumulative 50 basis points of cuts expected by mid-year. 

Additionally, the bank’s economists forecast two further cuts in the first half of 2025. Market expectations also increasingly point to an interest rate cut next month.

The continued easing of inflation, which cooled to below 3% in October 2024 – well below the midpoint of the Reserve Bank’s target range – has strengthened the case for further rate cuts. 

Such a move could reinvigorate buyer confidence and lead to a rebound in loan applications.

Another reason for optimism lies in long-term trends. Historically, the residential property market has demonstrated resilience and recovery following significant downturns.

Anderson noted that South Africa’s political landscape has stabilised faster than expected after the elections, with the formation of a Government of National Unity.

Combined with the recent strengthening of the currency, there is potential for renewed economic stability, which could bolster consumer confidence.

Given these fundamentals, a recovery in the residential property market can reasonably be expected over the medium to long term.