Recovery and growth will shape South Africa’s property market in 2025
There is a growing sense of optimism in the residential property market, says Paul Stevens, CEO of Just Property. This is supported by economic reforms, political stability and shifting trends in buyer and tenant behaviour. Stevens’s insights into the opportunities and challenges that lie ahead paint a picture of a market poised for growth.
Economic and political context
South Africa’s economy is beginning to show signs of recovery, with inflation declining from 5.3% at the start of 2024 to 3.8% by October. This decline sits comfortably between the target range of 3 - 6% and has allowed the South African Reserve Bank (SARB) to lower interest rates twice in recent months. “While these cuts were smaller than anticipated, they signal a trend that should bring relief to consumers,” Stevens explains. If inflation numbers remain at this level, he anticipates at least a 1% reduction in interest rates over the course of 2025, which would ease financial pressures on households and boost market activity.
The May 2024 elections and the formation of a Government of National Unity (GNU) have fostered optimism, strengthening South Africa’s currency and public sentiment. “The GNU has given people and investors hope for the future,” Stevens notes. However, he acknowledges challenges, such as reducing the number of state employees in a country grappling with high unemployment. The government’s performance in tackling these issues will be critical in maintaining momentum, he says.
Trends
Semigration continues to shape the market with coastal cities and towns, like Langebaan, Hermanus, Plettenberg Bay and St. Francis Bay, drawing buyers. Stevens says that while the Western Cape has been a consistent magnet (with property prices increasing by 39% between 2019 and 2023, according to Lightstone), Eastern Cape towns, including Gqeberha (Formally Port Elizabeth), are emerging as hotspots, bolstered by significant investments in infrastructure. He adds that property prices in KwaZulu-Natal rose by 19% in the same period, and most of this was seen on the north coast in Umhlanga, Ballito, Salt Rock and Umdloti.
Security estates and sectional title properties are increasing in popularity due to safety concerns and affordability. “Developers are focusing heavily on gated communities, which appeal to a wide demographic,” says Stevens. He predicts this trend will continue to grow, reshaping the landscape of urban living. “Freehold properties still make up a large portion of the properties in South Africa, but the trend is fast moving towards sectional title and estates.”
The high-end/luxury market remains robust, particularly in the Western Cape, Gauteng, KwaZulu-Natal and the Northern Cape. Stevens attributes this to cash buyers who are less sensitive to interest rate fluctuations. “This segment is resilient and continues to perform well, driven by both local and international demand,” he explains.
Rental dynamics
The rental market is experiencing its strongest growth in years, with national rental inflation at 4.8% in Q3 2024 (PayProp). Stevens notes that, on average, tenants now spend less than 30% of their income on rent, a critical benchmark for affordability. This improvement is driven by wage growth and declining debt burdens.
Vacancy rates remain low, creating an ideal environment for landlords. However, Stevens cautions against overpricing. “Landlords should focus on retaining good tenants at fair, market-related rentals,” he advises.
Regionally, the Western Cape leads with rental growth of 9.3%, followed by Limpopo at 8.4%. Gauteng and Mpumalanga, however, lag behind, with growth rates of 3% and 0.7%, respectively (PayProp). Stevens attributes these disparities to factors like demand for lifestyle properties and varying levels of economic activity.
Investment opportunities
The buy-to-let market remains active, buoyed by decreasing interest rates and low vacancy levels. Stevens notes that savvy investors are finding value in well-located properties. “It’s a good time to expand portfolios, but due diligence is essential,” he emphasises.
South Africa’s coastal cities, particularly Cape Town, continue to attract international buyers. Smaller towns in the Western Cape, like Hermanus, Knysna, and Plettenberg Bay, are also becoming popular for their relaxed lifestyles. “Foreign buyers are drawn to the combination of natural beauty, infrastructure, and affordability,” he observes.
Challenges and risks
Despite the positive outlook, challenges remain. Affordability is a persistent issue for first-time buyers. “My best advice is to ensure you save towards a 10% deposit, and get prequalified by a mortgage consultant before you start looking. This means you’ll know what you can afford to purchase, taking into consideration what the current interest rate is, and not what it could be if they continue to decline,” says Stevens. “Not planning for worst-case scenarios caused problems for many first-time buyers, who enjoyed 2020/21 interest rates as low as 7%. When they rose, it put many homeowners into financial difficulty. Once you have been prequalified, seek the advice of a property professional to guide you in finding the right property in the right location at the right price.”
Another challenge (or risk for investors) is the poor municipal service delivery in certain areas, as poorly maintained services can impact property values and long-term investment potential. “This is a key criterion to be assessed before investing in a property,” he warns. “If the bulk infrastructure in an area is busy collapsing, unfortunately property values will, in all likelihood, not increase and could very well decrease. Investors should carefully assess areas for infrastructure reliability,” Stevens warns.
Future outlook
“We are moving into an ideal property investment cycle. With optimism and strategic planning, there’s much to look forward to in the year ahead. I feel very confident that our property market is entering a good upward cycle,” says Stevens. “This will be spurred on, in part, by decreasing interest rates along with improvement in the economy. The consumer has been under pressure for the past few years but will slowly start to see some relief.”