Following a period of subdued activity, especially for the value of new home loans granted, South Africa’s property market may be on the verge of a new sustained growth phase.

The first stage in any recovery of a particular economic sector is an initial upward movement from a trough, which usually (and hopefully) eventually leads to a new peak. In the case of the residential property market, data emanating from the BetterBond Property Brief and the Altron-Fintech Household Resilience Index suggests that such a bottoming out is happening.

The first quarter of 2024 was characterised by a further consolidation of home loan activity, following a consistent decline that kicked in when the Monetary Policy Committee (MPC) of the Reserve Bank decided to start raising interest rates at the end of 2021. At 11,75%, the prime overdraft rate remains at its highest level in 14 years, despite the absence of demand inflation. This overly restrictive monetary policy stance has hampered the residential property market for more than two years.

Despite a year-on-year decline of 8% in the BetterBond Index of home loan applications during the first quarter of the year, the quarter-on-quarter reading saw a welcome increase of 7,8% – a sign that the market may be on the verge of a comeback, in anticipation of lower interest rates.

SA Property Recovery

Home prices for loans administered by BetterBond also continued to recover during the first quarter of 2024, with the year-on-year growth rates for both first-time buyers and repeat buyers reaching their highest levels since the fourth quarter of 2021.

At growth of 7,2%, the average home price for all buyers was significantly higher than inflation during the first quarter of 2024. It was also the second successive quarter that average home prices have increased in real terms – suggesting that a more robust growth phase is around the corner.

A meaningful recovery of the residential property market will not be possible unless the economy experiences a combination of employment growth and higher real remuneration levels. Fortunately, these prerequisites have been forthcoming, with inflation-adjusted salaries and wages slowly but surely starting to recover from the debilitating effects of the Reserve Bank’s restrictive monetary policy.

Total labour remunueration at constant 2023 prices

The data in the graph represents one of the key indicators contained in the latest Altron-Fintech Household Resilience Index, clearly illustrating the pressure that was placed on the financial disposition of households as a result of record high interest rates, with the prime rate remaining at 175 basis points above the rate that existed before the Covid pandemic.

All that seems to be required for a resurgence of property market activity is a relaxation of monetary policy, which may occur in May – with a bit of luck!