For the first time, the average house purchase price in South Africa has surpassed R1.6 million, according to alternative home financier Sentinel Homes.
This marks an almost 1000% increase from 1994, some thirty odd years ago, when homes averaged just R150,000.
The trend of rising house prices is expected to persist, with current conditions making it more expensive to build new properties than to trade in existing ones, said Renier Kriek, managing director of the company.
“In 2024, typical for pre-election uncertainty, people held off large capital acquisitions such as buying a house,” he said.
Prospective property buyers and sellers had hoped for steeper interest rate cuts earlier in the year. However, the South African Reserve Bank only made incremental reductions of 0.25% in September and November 2024. Despite a further cut of 25 basis points in January 2025, from 7.75% to 7.5%, Kriek argued that this is still not enough.
“Ideally, the rate should be a further 100 to 150 basis points lower to reduce borrowing costs, stimulate the economy, and boost job creation. This would also benefit the real estate market.”
However, recent interest rate cuts, coupled with the formation of South Africa’s Government of National Unity (GNU), have created a five-year high in consumer confidence.
A survey conducted by Lightstone among estate agents indicated an optimistic outlook for 2025, with 86% of respondents expecting to meet their sales targets, a significant increase from 73% in 2024.
“The residential real estate market is influenced by emotion in addition to economics and therefore has a more intensely cyclical pattern than if it were strictly governed by logic,” Kriek said.
Life changes such as marriage, starting a family, or children leaving home occur regardless of economic downturns. “These life cycles continue unabated, and the only logical conclusion is that there’s pent-up demand building in the system during times of lower volumes,” he added.
While the desire for property transactions remains constant, people tend to wait for positive signals before acting in tough economic times. Now that these signals have emerged, all the pent-up demand has been unleashed, resulting in a sharp shift in the residential property cycle.
This is reflected in a 16.2% year-on-year increase in home loan applications in December 2024, according to bond originator Ooba.
“The trend of escalating house prices will continue because it’s currently more expensive to build new stock than to trade in old stock,” said Kriek. “Obviously, the higher the demand for old stock, the steeper the price increases and the less affordable houses will become for most South Africans.”
Over the past 70 years, property prices have become increasingly detached from salary growth, both in South Africa and abroad. The value of property is rising faster than wages, which explains why the average house price (in multiples of salary) is much higher today than in the past.
Kriek predicts a continued reduction in property sizes, including smaller erven and a rise in micro-apartments.
“We will likely continue to see reducing property sizes, which means smaller even and increasing numbers of micro-apartments. Developers will also continually increase the amenities included in new estates and sectional schemes, to differentiate the smaller newly built apartments and houses and increase their desirability and competitiveness. Think padel courts, coffee shops, childcare centres, and restaurants.”
