BRADD BENDALL: Property market’s year of cautious optimism

The past year has been marked by cautious optimism, with significant events such as the provincial and national elections, ongoing geopolitical tension and, most recently, the US election, affecting investor confidence and market sentiment.

Despite the interest rate being at its highest level in 15 years, 2024 started on a hopeful note with signs of inflation creeping closer to the midpoint of the target range in SA, raising homeowners’ hopes that an interest rate cut would be on the cards. This set the tone for much of the year, with homeowners holding out for interest rate relief.

Though that relief only came in September when the SA Reserve Bank’s monetary policy committee dropped the prime lending rate by 25 basis points to 11.5%, the property market has shown remarkable resilience over the past 12 months. In early January there were already encouraging signs that home loan activity would remain positive. Usually a slow month after the holiday period, BetterBond bond applications at the start of the year were almost on par with the monthly average seen in the last quarter of 2023.

Activity did slow in the build-up to the May elections. However, the positive election outcome and resultant formation of a government of national unity helped to restore investor confidence, leading to an uptick in bond activity.

By September BetterBond reported a 6.5% quarter-on-quarter increase in home loan activity, thanks to the marginal economic growth experienced after the elections. This, coupled with the first interest rate cut since November 2021, resulted in home loan applications jumping 30% compared with the same quarter last year. The 18% quarter-on-quarter increase in BetterBond applications has also been encouraging.

These trends continue to stimulate buyer activity in various provinces, particularly the Western Cape and Gauteng. At an average value of just more than R1.5m, home loan values in the Western Cape in January were 24% higher than the national average. By August this province accounted for 20% of the market for new home loans, followed by KwaZulu-Natal with 11%. With many buyers flocking to metropolitan areas for economic and employment opportunities, these areas saw considerable growth in the past year.

BetterBond’s year-on-year figures for July showed that Gauteng was the most active residential property market, with Greater Pretoria and Johannesburg accounting for 52% of home loans granted during that period. Given the perennial demand for the efficient service delivery and quality of life available in the Western Cape, this province has retained the top slot for the highest home loan value throughout the year.

However, one of the negative knock-on effects of sustained high interest rates has been the rise in the average deposit first-time buyers had to pay in 2024. This led to an inevitable decline in the average bond value, and in the first part of the year this drop was particularly prevalent in the Eastern Cape, Free State and Northern Cape, and Greater Pretoria, with year-on-year declines of 9%-11%. As a result, the average deposit for all buyers represented 21% of the average home purchase price.

By May the average deposit for first-time buyers recorded by BetterBond was R253,000 — 44% higher than in 2023. Three months later, the average deposit required for all buyers hit a record high of R325,000. Since the rate hike cycle started three years ago, the average deposit for first time buyers has almost doubled and increased by 60% for all buyers. However, since the introduction in September of the new two-pot retirement fund system it is hoped that financial institutions will be less nervous about lending to prospective buyers. This, combined with lower interest rates, should reverse the upward trend in deposits buyers have to pay.

House prices recovered during the first few months of the year, notwithstanding the record-level interest rate. In fact, with a growth of 7.2%, the average home price for all buyers was higher than inflation during the first quarter of the year. With the September rate cut — the first since November 2021 — house price inflation improved, with a year-on-year increase of 6% for all buyers and 7% for first-time buyers. Towards the end of the year house prices are now 39% more expensive than they were in the third quarter of 2019, before the pandemic.

High interest rates hit first-time buyers particularly hard, with the share of BetterBond’s home loans of below R1m dropping by 12.1% over two years. Affordability is always a concern for buyers, especially those entering the property market for the first time. This is evident from Property Brief’s data for May, which showed that the number of BetterBond bonds for homes of below R500,000 only increased by 3.1% — a negative rate when adjusted for inflation.

With affordability top of mind, according to BetterBond data by midyear Johannesburg’s south-eastern suburbs were the most popular region for first-time homebuyers, with Johannesburg’s north-western suburbs joint second with the Western Cape. In November BetterBond’s data reveals that the North West, Free State and Northern Cape have the highest share of home loans granted to first-time buyers. This is because these regions, without large metros or commercial sectors where demand for property is high, offer comparative value for money.

Another effect of high interest rates was fewer loan applications from younger buyers. Bond applications for buyers aged 21-30 dropped 19.3%, while applications from the next age cohort of 31-40 dropped 18.4%. However, towards the second half of the year, as average income increased across all age groups homes became cheaper relative to homebuyers’ income. This, coupled with lower interest rates, will continue to have a positive effect on the residential property market.

A worrying trend over the past year has been the steady decline in the value of building plans passed and buildings completed. In the first half of 2024 the value of residential building plans passed nationally was 14% lower than for the same period last year. Only North West and KwaZulu-Natal reported expanded building activity, with new developments for flats and town houses accounting for the increased approval of plans. We expect to see a shift in this trend now that interest rates have started to come down again.

While the lower end of the market struggled with higher interest rates and rising household costs, other segments continued to fare well. By May the volume of bonds for homes in the R1.5m-R2m segment had increased significantly. Also, the number of loans granted across all price bands was 20% higher in April than a year ago.

It remains to be seen what long-term effect the election of Donald Trump as US president will have on SA’s property market. We do know the Republican Party is known for being market friendly and Trump has displayed a commitment to maintaining lower tax rates. So this victory could mean an accommodative environment for further interest rate cuts in the US, setting the tone for similar trajectories in other global markets, including SA.

The US Federal Reserve dropped the prime lending rate by 25 basis points recently, and locally the monetary policy committee is expected to do the same when it concludes its meetings for the year. Another rate cut will be a strong signal that we have entered a downward cycle and this may well be the jump-start the residential property market needs for us to enjoy a bumper 2025.

• Bendall is national head of sales at BetterBond.