SA’s Housing Market Outpaces Inflation for the First Time Post-Pandemic

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JEREMY MAGGS: Great news for the housing market in South Africa! The latest FNB Residential Property Barometer indicates that house prices are rising faster than inflation for the first time since the pandemic.

This positive trend is majorly led by sectional title properties, which are now preferred over freestanding homes as buyers navigate lifestyle and affordability challenges. Let’s investigate the underlying factors driving this trend and its sustainability.

Welcome, Siphamandla Mkhwanazi, senior economist at FNB. It’s a pleasure to have you. How significant is the fact that house prices are exceeding inflation? Are we looking at a long-term shift or merely a temporary situation?

SIPHAMANDLA MKHWANAZI: Thank you, Jeremy. It’s widely acknowledged that for homeowners, their properties represent their largest investment, a sentiment shared by many South Africans.

The escalation of property values above inflation means homeowners are experiencing a growth in their wealth as property prices rise.

You bring up a crucial question regarding whether this trend is transient or signifies a substantial change. To analyze the trends effectively, we must consider the supply side. The construction of new homes is currently slow, thus the limited availability of new properties is contributing to price increases.

On the demand side, recent reductions in interest rates—along with expectations of further cuts—will bolster demand. Both supply and demand are coming together to support this positive price trajectory.

JEREMY MAGGS: You mentioned interest rates, which have certainly benefited buyers. However, the pressing question is: will buyers see substantial relief before 2027? That remains uncertain, right?

SIPHAMANDLA MKHWANAZI: Certainly. The South African Reserve Bank aims to reach a lower inflation threshold, which may result in prolonged restrictive interest rates intended to guide inflation down to 3%. We think it might be 2027 before we observe any lower rates.

From a demand perspective, we expect rising wages will become a key factor in property purchases. Since 2021, workers have not experienced real wage growth above inflation, but we are starting to see wage increases, which could support property demand more than additional interest rate cuts in the medium term.

JEREMY MAGGS: How are first-time buyers impacting this price growth compared to investors?

SIPHAMANDLA MKHWANAZI: First-time buyers have been somewhat cautious in the current market but are gradually re-entering due to recent interest rate cuts. This hesitancy is expected given cost-of-living concerns and previous high-interest environments that made mortgages challenging for them.

Initially, the price increase was primarily driven by seasoned investors.

However, we’re beginning to see first-time buyers slowly make their way back into the market.

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JEREMY MAGGS: Regarding sectional titles, which are now outpacing freestanding homes for the first time in years, what accounts for this shift?

SIPHAMANDLA MKHWANAZI: During the pandemic, buyers sought larger homes for remote work and family needs, benefiting freestanding homes. However, as we transition back to office work, the need for larger properties is decreasing, which partially explains the current trend.

Additionally, financial pressures have led buyers to look for more affordable options like sectional titles. Given their average price point and reduced need for space due to fewer work-from-home requirements, sectional titles are thriving.

JEREMY MAGGS: Are you indicating that the pandemic-driven preference for larger homes is waning?

SIPHAMANDLA MKHWANAZI: Yes, that preference is certainly diminishing. Regionally, we’re also noticing a shift towards inland areas. While the Western Cape continues to excel, there is a resurgence in Gauteng, hinting at a return to pre-pandemic norms.

JEREMY MAGGS: And prices in the Western Cape will undoubtedly continue to rise, likely extending beyond Cape Town.

SIPHAMANDLA MKHWANAZI: Absolutely, it’s not just confined to Cape Town; it’s a broader trend throughout the Western Cape, with a focus on coastal properties.

JEREMY MAGGS: Thank you for sharing your insights. Siphamandla Mkhwanazi, senior economist at FNB, I truly appreciate your time.

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