Property market picking up but requires another interest rate cut this month, say experts

The first two months of 2025 saw a meaningful improvement in homebuying activity, with the BetterBond home loan index increasing by 6.7% quarter-on-quarter and by 8.3% year-on-year, says Bradd Bendall, international head of sales at BetterBond in this month's Property Brief.

He said this uptick follows a sideways pattern that lasted for the seven prior quarters.

“No doubt the latest 25 basis points drop in the repo rate has played its part in a mild stimulation of residential property market activity.

"The prime lending rate now stands at 11%, which is still a full percentage point higher than just before the Covid pandemic, suggesting that considerable leeway exists for further rate cuts in 2025.

"The number of home loan applications during January and February was virtually on par with Q4 2020 (pre-Covid), but still 23.6% lower than three years ago, just before the relentless rise in interest rates started to bite,” Bendall said.

According to the mortgage broker, since September 2024, the prime lending rate has declined by 25 basis points three times, but the marginally lower cost of servicing home loan debt has yet to filter through to a more egalitarian supply and demand environment.

It said that this is confirmed by the year-on-year decline of 0.5% and quarter-on-quarter decline of 1.8% in average house prices during the first quarter of this year.

For first-time buyers, the situation is said to be different, with a y-o-y increase of 2.5% in average house prices as well as a marginal q-o-q increase.

“Despite the relatively subdued level of activity induced by record high interest rates, investing in residential property remains attractive, with house prices having increased at an average annual rate of 5.5% for all buyers and 6% for first-time buyers over the past five years-considerably higher than the current inflation rate of 3.2% and also higher than the dividend yield of 2.4% on Satrix (a proxy for listed companies on the JSE).”

Meanwhile, Samuel Seeff, chairman of the Seeff Property Group, said interest rates have had a tremendous impact on the property market, and on house prices.

He said interest rates also impact the ability of people to afford their own homes, and are an important measure of the health of the housing market, and the economy.

“If the interest rate is high and incomes are not growing, it becomes more difficult to afford property, and demand lowers. There is then reduced competition for properties on the market which keeps prices lower,” Seeff said. 

Conversely, the property group said if the interest rate comes down and incomes grow, then property becomes more affordable, it becomes easier to obtain home loans, and more people can buy property. Competition for properties on the market increases, and buyers are then inclined to offer higher prices, resulting in higher price growth, it said. 

Seeff says there is ample reason for the Reserve Bank to provide further interest rate relief to consumers, the economy and property market next week.

He said the interest rate is still well above what it was in early 2020, that is, before Covid, yet inflation is at around 3.2%, near the bottom of the Reserve Bank’s target range of 3%-6%.

“A lower interest rate will provide a vital boost to the economy and housing affordability, drive higher demand, and consequently boost house price growth. Strong house price growth is vital to encourage further investment, and development growth.

A healthy housing market with strong growth delivers a multiple of economic benefits, including boosting economic and jobs growth as well as government revenue in the form of taxes,” Seeff concluded. 

The BetterBond Property Brief showed that the value of residential building plans passed last year saw the Western Cape moving into the number one position for the value of residential building plans passed in 2024, swapping places with Gauteng, which recorded the largest y-o-y drop of all the provinces, namely a decline of 21.7%.

KwaZulu-Natal consolidated its position as the third most popular province for residential building activity, with an impressive y-o-y increase in the value of building plans passed of 31.5%. Mpumalanga was the only other province to record growth for this key indicator of housing stock supply. The absence of real growth in the value of building plans passed in South Africa over the past two years remains a point of concern, as any significant future increase in the demand for houses is bound to lead to an escalation of prices.

During the 12 months to the end of February 2025, Johannesburg’s South-Eastern suburbs have witnessed a substantial increase in homebuying activity, consolidating the position as the top region for the number of home loans granted.

Six of the nine regions analysed by BetterBond recorded increases in the number of home loans granted, with the Free State and Northern Cape (combined) recording the highest y-o-y gain, namely 29%. In the process, this region has moved up one notch in the rankings, at the expense of the North West. KwaZulu-Natal and the Western Cape recorded the second and third largest y-o-y increases in home loans granted, at 16.5% and 16.2%, respectively. In total, 8.2% more home loans were granted during the 12 months to February 2025 than in the previous 12-month period. 

Dr Roelof Botha, an economist and advisor to the Optimum Investment Group and Currencies Direct said ever since the relentless rise in interest rates, the cost of building a house has started to exceed the rate of increase in average house prices, with both these indicators of residential property values taking a negative turn in mid-2024.

He said it seems clear that the rate-cutting cycle has not yet progressed to the point of a significant new growth phase in homebuying activity. “Although retail trade sales recovered well during the second half of last year, the real value of new car sales is also on a downward trajectory, as pointed out by the latest Drive.co.za Motor Index. Hopefully, the monetary policy authorities will appreciate the dire need for incentivising demand in the economy and continue to cut rates,” Botha said. 

Meanwhile, house price growth, especially outside of the Western Cape, has largely been dismal over the last two years. After growing at rates of between 5% and 9% in the 2020-2022 period, it declined to as low as 0.5% by mid-2024.

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