South Africa’s property market is showing signs of cooling but remains one of the hottest sectors in town, according to data published on Wednesday in the latest FNB Property Barometer, which showed house prices rose 3.4% in the year to December. House price growth averaged 4.2% in 2021 compared with 2.5% in 2020.  

But a more insightful comparison is with 2019, the last full year of the pre-pandemic era in South Africa. 

“Market strength indicators show that growth in demand has moderated, but market volumes are still running above pre-pandemic levels. Deeds data, supported by internal applications volumes, shows that mortgage approvals in the first nine months of 2021 were approximately 34% higher compared with the same period in 2019,” FNB said.  

“The resurgence in market volumes was more pronounced in the affordable segments (up to R750,000) following a more severe decline in 2020 due to the harsher impact of the pandemic on lower-income households.”  

(Source: FNB Economics)

The lower end of the market was experiencing faster growth compared with other price segments before the pandemic, so the trend has resumed, helped along by low interest rates after the SA Reserve Bank slashed them by 300 basis points in 2020.  

But that party has come to an end after the central bank’s Monetary Policy Committee raised rates by 25 basis points at its last meeting in 2021 and it is expected to keep tightening in 2022 to contain inflation, which was running at 5.9% in December, almost the top of its target range.  

“Interest rates are set to increase by at least 75 basis points this year, on the back of rising inflationary pressures and the less accommodative global monetary policy conditions,” FNB said. 

That could cool things at the lower end of the market, but FNB said there is now a shift in volumes up the price ladder, which will be less sensitive to rising interest rates.   

“Despite slowing volume growth, the value of mortgage extension continues to trend higher. This reflects a shift towards higher price brackets (or bigger properties). By November 2021, the value of outstanding mortgage advances was 7.3% higher compared with the same period in 2020, and 11% compared with 2019,” FNB said.  

A number of factors have fuelled the housing market: low interest rates, the rise of working from home trends, and the appeal of more space in the event of further lockdowns are among them.  

“The slow recovery in the labour market, combined with rising interest rates suggests a less supportive medium-term environment for home-buying activity. However, if sustained, the ongoing shifts in housing needs, which have lent support to homeownership, could mitigate the impact,” FNB noted. DM/BM