2024 – the year of cautious optimism

Published November 2024

The past year has been marked by cautious optimism, with significant events such as the provincial and national elections, ongoing geopolitical tensions and, most recently, the US elections having an impact on investor confidence and market sentiment, says Bradd Bendall, BetterBond’s National Head of Sales.

“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 target, homeowners’ were hopeful that an interest rate cut would be on the cards. This set the tone for much of the year, with homeowners holding out for a much-needed rate cut.”

Although relief only came in September and November when the Monetary Policy Committee dropped the prime lending rate by 25 basis points respectively, 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,” says Bendall. Usually a slow month following the holiday period, BetterBond’s bond applications at the start of the year were almost on par with the monthly average seen in the last quarter of 2023.

Bond activity

Activity was slow in the build-up to May, notes Bendall. 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, saw home loan applications jump by 30% compared with the same quarter last year. The 18% quarter-on-quarter increase in BetterBond’s applications has also been encouraging, adds Bendall.

Semigration and urbanisation

These trends continue to stimulate buyer activity in various provinces, particularly the Western Cape and Gauteng. At an average value of just over R1.5 million, 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,” says Bendall. 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.

Rise in deposits

However, one of the negative knock-on impacts of ongoing high interest rates has been the rise in the average deposit first-time buyers had to pay in 2024, says Bendall. “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, the Free State and Northern Cape, and Greater Pretoria, with year-on-year declines of between 9% and 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, the hope is that financial institutions will be less nervous about lending to prospective buyers, says Bendall. “This, combined with lower interest rates, should reverse the upward trend in deposits buyers have to pay.”

House price inflation

House prices recovered during the first few months of the year, notwithstanding the record-level interest rate, says Bendall. “In fact, with a growth of 7.2%, the average home price for all buyers was significantly 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.

Impact on first-time buyers

High interest rates hit first-time buyers particularly hard, with the share of BetterBond’s home loans of below R1 million 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’s bonds for homes of below R500,000 only increased by 3.1% – a negative rate when adjusted for inflation.

With affordability top of mind, by midyear, according to BetterBond’s data, 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. Now, in November, BetterBond’s data reveals that the North West, and 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,” says Bendall.

Fewer younger buyers

Another effect of high interest rates was fewer loan applications from younger buyers. Bond applications for buyers aged 21 to 30 dropped by 19.3%, while applications from the next age cohort of 31 to 40 dropped by 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 impact on the residential property market,” says Bendall.

Decline in building plans

A worrying trend over the past year has been the steady decline in the value of building plans passed and buildings completed, notes Bendall. “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 townhouses 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.”

Positive signs

While the lower end of the market struggled with higher interest rates and rising household costs, other segments continued to fare relatively well, notes Bendall. By May, the volume of bonds for homes in the R1.5 million to R2 million segment had increased significantly. Also, the number of loans granted across all price bands was 20% higher in April than a year ago.

Conclusion

It remains to be seen what long-term impact the election of Donald Trump as US President will have on South Africa’s property market, says Bendall. “We do know that 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 South Africa.”

The US Federal Reserve dropped the prime lending rate by 25 basis points this month. Locally, the Monetary Policy Committee did the same at the last meeting of the year. “A second consecutive rate cut is a strong signal that we have entered a downward cycle, and this may well be the jumpstart the residential property market needs for us to enjoy a bumper 2025.”