Property: Is a storm gathering?

Last month’s interest rate hike couldn’t have come at a worse time for the residential property market. The hard‑won housing recovery, barely out of the starting blocks as last year’s rate cuts began putting money back into consumers’ pockets, is now looking decidedly fragile.

The turning point, of course, was the US-Israeli attack on Iran at the end of February.

Earlier this year, industry players were still confident that the housing market had entered 2026 poised for a sustainable rebound in activity. That was after rates were lowered by a cumulative 150 basis points (bp) between September 2024 and November last year.

Joburg property owners, in particular, were looking forward to finally making some real money on their bricks‑and‑mortar investments as the market started showing signs of life for the first time in a decade.

Recent transaction data from property analytics firm Lightstone confirms that sales volumes across the country picked up notably last year, from just over 57,000 in the first quarter to about 76,000 in the fourth quarter. Housing activity held up well into 2026, despite an expected rate cut not materialising in January, with sales touching 66,000, up 15% year on year.

House price data show an equally encouraging trend in the first quarter, with the housing indices of most banks and mortgage originators reaching five‑year-high growth rates of between 5% and 8%. More importantly, house price growth had finally returned to inflation‑beating territory, the first time since 2021 that there were real gains on residential property investments again.

However, last month’s 25bp increase to a prime rate of 10.5% — the first hike in three years — has thrown an unwelcome spanner in the works.

The rapid reversal from cuts to hikes is a bitter pill for cash-strapped homeowners given that just four months ago, most economists still expected two 25bp cuts this year. That would have been a much-needed underpin at a critical early stage of the housing recovery.

Higher rates will squeeze already strained household budgets and force many to think twice before taking on debt‑funded purchases, especially big‑ticket items such as property. It’s also likely to prompt mortgage lenders to tighten the taps. In fact, in April banks aggressively hiked their deposit requirements on home loans, especially for first‑time buyers.

Mortgage originator BetterBond reports that the average deposit required for those entering the market for the first time surged from a two‑year low of R143,000 in the first quarter to R198,000 in April (based on a R1.4m average house price). That’s a jump of nearly 40%, underscoring the extent to which banks are adjusting their risk appetite (see graph).

Softer house price growth

Meanwhile, it seems prices have already softened, with most industry players reporting a dip in growth in recent weeks. In April, FNB’s house price index recorded zero monthly growth and slowed to 5.4% year on year, down from a four‑year peak of 5.8% in February. While that’s still well above the sub‑1% levels in much of 2023 and 2024, house price growth is likely to deflate further over the next few months, especially if rates are hiked again at the Reserve Bank’s next monetary policy meeting.

Independent economist John Loos expects another 25bp rate hike in July as higher energy costs filter through to inflation. He believes this will lead to a notable slump in housing sales in the coming months. Credit‑dependent first‑time buyers, especially, are likely to beat a hasty retreat to the sidelines, says Loos. Existing homeowners may also delay upgrading or relocating. “Housing activity is highly sensitive to interest rates, and the market typically responds swiftly when rates move up or down.”

Loos adds that weaker demand will inevitably put pressure on prices. Pointing to Stats SA’s residential property price index, which reached a five‑year high of 7.8% in January, he says: “I think we are looking at growth of between 3% and 3.5% by the end of 2026.”

Given that inflation has already clocked 4% in April, up from 3.1% in March, house prices are unlikely to achieve real growth this year.

We’ve seen a huge resurgence in demand for luxury homes in Gauteng in recent months

—  Rory O'Hagan

Still, FNB senior economist Koketso Mano believes it’s unlikely that the housing market will fall off a cliff.

Mano tells the FM that FNB has in fact revised its house price growth outlook for 2026 upwards: from 4% to 4.5%. The bank’s estimate for 2027 has been raised from about 2% to 3%.

Why the optimism? Mano points out that various tailwinds have supported prices in recent months, so the housing market enters the rate-tightening cycle on the front foot. She says property values have increased at a faster pace than expected by FNB in the past six to eight months, so potential price weakness will come off a higher starting point.

International buyers and high-income local buyers, often those who pay cash and are not affected by rate movements, will also help prop up sales and prices, she says. In addition, housing supply constraints and limited building activity should provide an effective “floor” for the market. Mano says FNB data suggests sellers are already starting to withhold or withdraw stock from the market, probably because they don’t want to sell into a potentially weaker market — a trend that should help to keep demand and supply levels in check.

Despite the likelihood of another 25bp rate hike in July, Mano argues that a more favourable rate environment in 2027 — FNB expects cuts amounting to 100bp next year as inflation moderates — will provide an additional tailwind to the property market and support “relatively resilient house price growth over the medium term”.

Bradd Bendall, head of sales for BetterBond, is equally upbeat. He concedes that the direction of the market hinges on how the Middle East conflict evolves and where oil prices, inflation and rates will go in the next few months, but adds that recent mortgage application volumes suggest that housing demand remains steady. The group had a 6% increase in application numbers in May (year on year).

While demand may well slow in the next few weeks, Bendall says a notable drop-off is unlikely given that the new prime rate of 10.5% is still significantly below 2024’s peak of 11.75%. He believes many households will be able to absorb the increase in debt repayments. “For example, on a R2m bond, monthly repayments will still be roughly R1,700 cheaper than they were two years ago,” he says.

Estate agents have a similar view. Andrew Golding, CEO of Pam Golding Properties, says sales have remained surprisingly resilient in recent weeks. “While higher borrowing costs will add to already strained household budgets, the hike is modest and unlikely to derail market activity.”

Golding predicts that would-be buyers won’t abandon their purchase plans but will instead gravitate towards smaller, more affordable properties closer to workplaces, schools, retail amenities and public transport. “The trend is already evident in higher-density nodes such as Claremont in Cape Town, the Cape Town CBD and Rosebank in Joburg, where apartment developments offering walkability and easier commuting will continue to attract buyers.”

Luxury sales prop up the market

There’s also unlikely to be a dip in sales of trophy homes in the R10m‑plus bracket, which have reached record levels in recent months. Industry players say sentiment among well-heeled buyers will likely remain intact, given that the rate increase was necessitated by external factors.

On Cape Town’s posh Atlantic seaboard, 49 sales with price tags of more than R20m were concluded in the first quarter, figures from PropStats show. That’s nearly half of the 116 R20m-plus sales achieved in the area in the whole of 2025, which was already at a record high.

Rory O’Hagan, who heads Chas Everitt International’s luxury living division, says the upper end of the market has been underpinned by an influx of offshore investors who continue to migrate to South Africa’s sunny (and war‑free) shores. He says the country’s luxury housing market — most notably in the Western Cape — is cashing in on the situation in the Middle East, as high net worth investors diversify their real estate exposure.

“Buyers who were looking to invest in Dubai are now coming to the Western Cape instead,” he says. This, O’Hagan believes, will continue to exert upward pressure on house prices in the region.

He says South Africa’s value proposition is a major drawcard, as even the super-wealthy are looking more and more at how much bang they can get for their buck. “Foreign buyers are increasingly realising that for R30m-R40m, you can buy a four-bedroom mansion with ocean views on the Atlantic seaboard, or a sprawling homestead in a world-class golf estate such as Val de Vie in the winelands or in Joburg’s Steyn City, while the same amount will only get you an 80m² flat in London.’’

Housing activity is highly sensitive to interest rates, and the market typically responds swiftly

—  John Loos

So what are investors with euros, pounds and dollars looking for when they buy in South Africa? O’Hagan cites proximity to water, privacy and seclusion, walkability and easy access to lifestyle amenities. Wellness- and amenity-rich estates, with backup power and water supply, high-speed connectivity and sophisticated security systems are in particularly high demand.

O’Hagan says another notable trend at the upper end is a marked shift from Cape Town back to Joburg, as buyers can no longer ignore the price gap between the two metros. Besides, he says, the city remains the country’s economic engine room. The recent severe Cape storms have also boosted the investment case for Joburg (and other parts of Gauteng).

“We’ve seen a huge resurgence in demand for luxury homes in Gauteng in recent months. The province’s relative value opportunity vs the Western Cape is undeniable,” he says. Golf and lifestyle estates have been the major beneficiaries, where residents can better protect themselves against crumbling infrastructure and service delivery failures.

Buyers are no longer averse to spending R50m-plus on properties in top-end estates such as Steyn City on the outskirts of Fourways, or Waterfall Equestrian Estate in Midrand, says O’Hagan. There has also been increased movement in Joburg’s old-money central suburbs, including Hyde Park and Sandhurst.

“In the past two years, there had been no R20m-plus sales in these areas. We’re now starting to see houses in the R10m-R12m range beginning to move again,” he says.

Samuel Seeff, chair of the Seeff Property Group, reports a similar year-to-date increase in upper-end sales in Joburg. In the Sandton area the group has concluded sales of up to R40.25m in Bryanston, R27m in Inanda, R25.5m in Morningside (Clouds End Estate) and R20m in the Michelangelo Towers overlooking Nelson Mandela Square.

Seeff confirms strong interest in high-value lifestyle estates. “Estates offer a secure, well-maintained environment with top amenities, including schools, plus features such as water harvesting and solar power as a hedge against municipal service failures.”

As a result, top-end estates are likely to continue to outperform general suburbs in the capital growth stakes. Seeff data shows that the lifestyle estates that achieved the highest price growth in the past five years in Gauteng include Thornhill Estate in Modderfontein (+24%); Saddlebrook Estate in Midrand (+23%); Leeuwfontein Estates (+24%) and Mooikloof Equestrian Estate (+21%) in Pretoria; Dainfern Golf Estate in Fourways (+19%); Southdowns Estate in Centurion (+17%); and Monaghan Farm Estate near Lanseria (+17%).

There’s also been a notable shift back to a “hybrid” lifestyle among wealthy captains of industry and business owners who are looking to split their time between a primary residence in Joburg, close to the commercial hubs of Sandton, Rosebank and Melrose Arch, and secondary homes in the Western Cape. The move may well be a result of most corporates returning to the office, even if it’s just for three or four days a week.

Apparently, there’s also been an uptick in redevelopment activity in the R30m-plus bracket in many of Joburg’s established wealth hubs, where older properties are being replaced by contemporary designer homes with all the bells and whistles.

Joburg plays catch-up

But it’s not just cash-flush buyers who will continue cashing in on Joburg’s relative value advantage. Industry players agree that there’s been a marked uptick in first-time buyers year to date in the under-R1.5m price bracket.

It’s a trend that Jonathan Kohler, CEO of Landsdowne Properties, expects to accelerate in the coming months. “The Joburg market will be supported by lower- and middle-income buyers to whom affordability and the search for value matter even more in a higher rate environment.”

Kohler says that while service reliability and failing infrastructure tarnish Joburg’s relative desirability, buyers are mitigating these risks by focusing on well-managed estates, secure apartment blocks and suburbs with reliable and easy access to schools, businesses and transport routes. He adds: “Joburg buyers will increasingly favour properties where monthly costs are transparent and where management structures are strong.”

The latest home loan data from mortgage originator ooba show the extent of Joburg’s house price rebound. The group saw a hefty 17.9% year-on-year increase in the average price paid by its Joburg clients in the first quarter, more than double the 8% recorded in the Western Cape and well ahead of the national 4.7% increase.

CEO Rhys Dyer ascribes Joburg’s outperformance to the city coming off an unusually low base in early 2025, which has temporarily bolstered the annual growth rate. Nonetheless, he says the numbers reinforce the city’s role as a key driver of national performance and point to a broader rebound in Gauteng’s property market.

While the province has no doubt started to play catch-up, recent average sales prices achieved by RE/Max underscore just how much cheaper it still is to buy a roof over one’s head in Gauteng compared to the Western Cape. In the latter, the average home will set you back R3.3m, double Gauteng’s R1.56m. Though housing activity in Gauteng — Joburg in particular — has perked up considerably, Western Cape homebuyers will continue to pay a sizeable premium for some time to come.

Loos, among others, believes it’s still going to be very much a tale of two markets, with Cape Town set to continue to outperform other metros. He expects Cape Town’s deteriorating affordability to be a factor for “many years”, with the local economy and property market seemingly having entered something of a “golden era”.

His views are not based so much on semigration, increased tourism and foreign buying, but rather on Cape Town’s economic and employment outperformance. Loos says it is Cape Town’s job creation success that has been the key driver of residential demand and ever-higher house prices.

“The city has lured affluent tourists and migrants with significant spending power, supporting huge money flows into the city’s housing market,” he says. “This should surprise nobody, and indeed investment from domestic and foreign sources alike is what many regions crave.”

Stats SA house price data confirms that in the past decade no other South African city has got close to the level of house price growth seen in Cape Town. The metro’s average house price has more than doubled in the 10 years to end-2025, notching up impressive cumulative growth of 106.3% (see graph). In stark contrast, homeowners in Joburg achieved a paltry 31.7% over the same period.