Good news for South African homeowners

South African house prices are increasing as demand rises due to a few SA Reserve Bank interest rate cuts since September 2024. 

This is feedback from Nedbank chief economist Nicky Weimar, who outlined some of the major forces impacting the local property market in a presentation with SA REIT. 

Overall, the local property sector is expected to recover strongly throughout 2025 as improved confidence in the South African economy and cuts to interest rates boost demand. 

Homeowners have been under immense pressure in the past few years, with debt-servicing costs rising and house prices stagnating. 

This was largely due to the Reserve Bank hiking interest rates by a cumulative 475 basis points from the end of 2021. 

As a result, the average repayments on a home loan skyrocketed, making houses less affordable and drying up demand. 

For example, the monthly repayments on a R1.5 million home loan have risen by R4,600 in two years.

This was compounded by a flood of supply coming into the market as opportunistic homebuyers took on loans when interest rates were cut during the pandemic to boost the economy. 

As interest rates rose, these homeowners could no longer afford the repayments on their mortgages and were forced to sell. 

During the COVID-19 pandemic, South Africans experienced some of the lowest recorded rates in the country’s history, but interest rates are now at 15-year highs.

With significantly higher cost of living, high inflation and slow economic growth, South Africans have been under significant pressure.

Weimar said the tides have largely turned as the Reserve Bank has cut rates by a cumulative 75 basis points since September 2024. 

This typically results in higher demand for housing as individuals take on debt to buy property, boosting prices. 

However, this time, there has not been much of an uptick in buying and selling activity as South Africans are adopting a more cautious approach to taking on debt, Weimar said. 

Despite this, house prices have begun to tick upward, indicating that valuations are still rising. This can be seen in the graph below courtesy of Weimar and Nedbank. 

Lower interest rates are also expected to help homeowners reduce debt-servicing costs, freeing up significant disposable income. 

South African household debt as a share of disposable income continues to rise, as a rising cost of living and high interest rates push many to take on debt to maintain their lifestyles or purchase necessities. 

This debt burden comes with increased debt-servicing costs, which now account for just less than 10% of household disposable income.

In its latest Quarterly Bulletin, the Reserve Bank revealed that nearly all credit categories extended to households increased in the third quarter of 2024. 

This took household debt as a share of disposable income to 62.2%, up marginally from 62.1% in the previous quarter. 

Households’ cost of servicing debt relative to disposable income remained broadly unchanged at 9.1% in the third quarter of 2024.

Apart from the rise in the debt burden of households, debt-servicing costs have also risen as a result of higher interest rates. 

The Reserve Bank has hiked rates by 475 basis points since November 2021 in response to rising inflation in South Africa. 

This took interest rates to a 15-year high, where the bank kept them for over a year until the first 25 basis point cut in September 2024. 

There is a significant delay between raising interest rates and the impact felt by households, with the lag period typically around six months.

The same lag applies when interest rates are cut – the relief is not immediate. 

Weimar expects the cutting cycle to continue, and as the effects of interest rate cuts filter through the economy, demand for residential property will rise. 

However, some have warned that interest rates will not return to their pre-pandemic levels, clouding the outlook for interest rates in 2025.