South Africa’s residential property market gained slight momentum in May, with house price growth continuing its upward trend, according to the latest FNB Property Barometer.

The FNB House Price Index (HPI) recorded year-on-year growth of 2.6%, up from a revised 2.4% in April, marking a steady improvement in market conditions.

The movement in price growth was largely driven by the middle- to upper-priced segments, while lower-priced housing remained relatively stable. This indicates a growing appetite for mid-market and premium homes, even as economic uncertainty continues to cast a shadow over consumer confidence.

FNB’s proprietary market strength indices suggest the housing market is showing signs of resilience – but with an important caveat: the recent improvement is driven more by a decline in supply than a surge in demand.

The contraction in supply is primarily due to a sustained decline in new housing stock, which reflects cautious sentiment among developers and ongoing economic pressure, said Siphamandla Mkhwanazi, FNB senior economist.

Data shows that the number of newly completed homes is down 14% year-to-date, following annual declines of 7.4% in 2024 and 25.9% in 2023, signalling a tightening pipeline of new builds across the country.

In contrast, the rental market remains under pressure. According to Stats SA, rental inflation averaged just 2.9% in Q1 2025, unchanged from the previous quarter, reflecting subdued demand in a weak labour market.

Vacancy rates for flats and apartments inched up to 6.7% in the first quarter, from 6.0% previously, though still below the 7.9% seen in Q1 2024.

Some private sector indicators paint a more optimistic picture. Data from PayProp suggests a stronger rental market, likely driven by higher-end properties and more active urban centres.

The discrepancy may be attributed to the difference in sample coverage, with Stats SA capturing a broader, more representative range of rental markets, including lower-value properties.

Despite muted demand growth, lower borrowing costs and post-pandemic lifestyle changes may be encouraging a shift from renting to homeownership, especially in segments where affordability is improving. At the same time, the tepid recovery in labour conditions continues to weigh on rental escalations and overall household spending power.

South Africa’s near-term growth outlook remains weak, with GDP expected to grow by just 1.1% in 2025, down from a previous estimate of 1.3% and 1.9% earlier in the year – due to persistent policy and logistical challenges,” said Mkhwanazi.

“While household consumption is holding up, investment remains constrained by uncertainty, and structural reforms are progressing slower than hoped. Nonetheless, we expect growth to gradually pick up to around 2.0% by 2027, supported by easing inflation and anticipated interest rate cuts, which should boost consumer spending.”

FNB expects a further 25bps repo rate cut by September, bringing the rate to a cyclical trough of 7.0%.

“This should support affordability and improve property market sentiment. However, the SARB’s plan to lower its inflation target to 3.0%, which we originally expected to happen in 2026, may be implemented sooner, based on signals from the most recent Monetary Policy Committee (MPC) statement,” said Mkhwanazi.

Depending on the inflation trend going into 2026 and the response of inflation expectations, the economist said that this could keep the MPC highly conservative despite weak economic conditions. While this could affect near-term housing affordability, a lower inflation anchor should enhance long-term macroeconomic stability and sentiment.

“Overall, continued rate relief is expected to support buying activity, particularly in the low- to mid-market segments, while accelerated economic reforms will be essential to improving sentiment and activity in the higher-priced segments.

Year-to-date, the HPI has averaged 2.0%, slightly ahead of our initial expectations. “This suggests a still subdued, yet stronger-than-anticipated market. At this pace, risks to the price growth outlook are skewed to the upside, although global uncertainty continues to cloud the broader outlook,” said Mkhwanazi.