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The factors that influence property prices in South Africa

An FNB report on the SA property market shows a significant decline in house prices. What is causing this, and what does it mean for homebuyers?

Property prices

There are few better indicators of the health of a nation’s economy than the property market. After all, it was the deflation of the US housing bubble that caused the global financial crisis of 2008-9.

So what does the state of South Africa’s property market tell us? Well, according to an FNB report, house prices in South Africa have been hit by significant deflation in recent times.

But an article by Reg Rumney – the former director of the SA Reserve Bank Centre for Economics – suggests that this may actually be a blessing in disguise, preventing a housing bubble and potentially saving us “all the heartache at least some of the developed world faces as their residential markets come under pressure.”

House prices in South Africa: What’s happening, and why?

An FNB report shows that residential property prices in South Africa have dropped for the second year running. Business Insider reported that, as of June 2019, house prices had increased by only 3.3% year-on-year in May, which trails the latest consumer price index (CPI) inflation of 4.5%.

In real terms, this amounts to a 1.2% decline in property prices. This has been attributed to a number of factors:


Basically, when house prices get too high, demand decreases, as people are being priced out of the market. The fact that upmarket areas are hardest hit by the deflation bears this out.

The South African reported that the likes of Sea Point and Camps Bay, which are among Cape Town’s most expensive areas, were experiencing “one of the more dramatic slumps of the lot”, with a +5% decrease over the last year.

Political uncertainty

While the previous election result was market-friendly, it will still take some time for the housing market to recover from the usual uncertainty that accompanies an election, especially one in which issues such as land reform were pushed to the forefront.

Economic recession

Although this also ties into the affordability issue, the fact is that the nation is still recovering from a recession, which naturally slows down movement in the market.

It’s a buyer’s market

While sellers may not be too enthusiastic about the latest developments, it’s promising news for homebuyers, who should look to benefit from deflating house prices.

Sectional title properties are expected to be in higher demand, as they are popular with students, as well as first-time homebuyers, who view them as an affordable first step onto the property ladder. Properties in gated communities are also expected to perform well, due to security concerns.

Homebuyers will benefit from a larger appetite for lending among the nation’s big banks, as they seek to offer financing at more attractive terms in order to boost demand in the property market.

Many banks are looking to improve their lending criteria, with statistics from ooba home loans, South Africa’s largest home loan comparison service, showing a 5.0% reduction in the average deposit required by homebuyers, and 25.2% reduction in the average deposit for first-time homebuyers.

Homebuyers stand a better chance of receiving favourable interest rates in the current climate, while 100 percent home loans (that is, home loans that don’t require a deposit) become a realistic option.

All in all, a good situation for homebuyers, who should look to take advantage of the competitiveness among banks. A home loan comparison service, such as ooba home loans, can apply to multiple banks on your behalf, helping you secure the best home loan deal in the process. They also make the home buying process easier by offering a range of tools.

Start with their home loan calculators, then use the ooba Bond Indicator, a free, online prequalification tool, to determine what you can afford. Finally, when you’re ready, you can apply for a home loan.

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